The Psychology of Leadership Decisions

The Psychology of Leadership Decisions

The University of Connecticut
by Harry Levinson

This article was contributed by The Arthur Andersen Center for Family Business, PhilKupperman, Associate Director.

Analysis of corporate failures usually focuses on finance, management or strategy.Butespecially in family businesses, we are reminded to look deeper–to the psychological roots ofthe decisions that business leaders make.

Harry Levinson, a noted corporate psychologist, recently wrote “Why the Behemoths Fell:Psychological Roots of Corporate Failure” (American Psychologist, May 1994).He explainsthat leader psychology is fundamental to problems that rock even huge companies–like Disney,American Express and IBM.

Levinson focuses on psychological reasons that make change so difficult for once successfulorganizations.

  • Past leadership is often paternalistic.The paternalism fosters loyalty, dependence and uni-dimensional thinking. 
  • Paternalistic heritage also makes affecting change very difficult for successors.Successors feelguilty challenging the decisions of great predecessors. 
  • Success breeds self-satisfaction, even self-aggrandizement.Such narcissism promises denial ofnew realities. 
  • Success fosters organizational confidence in how things have been done and how the businessis organized.The loyalty promoted by paternalism and the confidence in the proven way ofdoing things generates a homogeneous, in-grown management team.

We find these forces are magnified in family businesses.Organizational loyalty and dependenceare augmented by the “family feeling” many family firms promote.This “family feeling” alsomakes changes–like releasing key people–even more difficult.

For family successors to change the business is even more difficult.As we’ve discussed inprevious articles, for a successor to change something puts him or her in conflict or in a stateof guilt as he or she is criticizing a loved one.Levinson put it clearly:”A special problem ofany chief executive is that whenever he or she changes something that his or her predecessorestablished or suggested, the very fact of making such a change becomes the indictment of thepredecessor.”It seems so much tougher for the family heir.

Sometimes all this psychological talk (i.e., narcissism, dependence, guilt, etc.) may seem tooabstract and fuzzy.But we see a lesson in all this.Family business leaders must appreciate thepower of their own psychology in understanding and addressing critical organizational issues.While being conscious of psychological factors and forces often not seen as “business-like,”somehow that perspective has to be a part of company planning, decision making and successor development.

Levinson suggests several ways to sharpen those senses:

  • install an independent, challenging board; 
  • use outsiders in key management roles; 
  • find room for some creative, abrasive people in the organization; 
  • compel managers to study and present outside thinking; 
  • assure that leaders have trusted, outside, professional counsel by those who understand the roleof psychology in organizations and leadership.

These are crucial observations worthy of applying in family firms.