By IESE Insight
As the euro crisis intensifies, alarming words such as “implosion,” “disintegration” and “dissolution” have come to dominate the headlines.
Yet, with the euro zone’s future hanging in the balance, competing national and E.U. interests continue to obstruct efforts by the region’s leaders to formulate a strategic resolution of the crisis.
The resulting leadership void is arguably the greatest threat to the monetary union’s future. To help shed light on the way forward, IESE professors share lessons from history and management.
Europe’s Leadership Conundrum
During its first few years, the single currency seemed to enjoy robust health, gaining increasing strength against the dollar.
The risks posed by the growing real-estate bubble, a collapse of the banking sector and the gaping holes in the euro zone’s own governance structures were barely, if at all, on the radar of E.U. policy makers.
Once the crisis did break, however, the region’s response was eminently predictable: tensions and divisions arose among Europe’s capitals, awakening dormant nationalist and protectionist sentiments.
Europe’s de facto leader, Angela Merkel, faces an unenviable conundrum: how to stabilize the euro zone, while also placating her own national constituency, which is growing increasingly tired of bailing out countries that have proven incapable of managing their own finances responsibly.
“Merkel is lost in a maze,” says IESE Prof. José Ramón Pin, “caught between the need to move forward with E.U. integration on the one hand, and, on the other, protecting the interests of German citizens, many of whose wallets are beginning to feel the pinch.”
Germany’s reluctance to embrace euro bonds, which would jointly be issued by 17 member countries to pool borrowing risk, has become the main obstacle to leading Europe out of the crisis.
“Leadership implies sacrifice,” continues Pin, “and Germany does not understand its obligations as head of the European Union.”
Merkel may strongly believe that her country’s future lies within the European Union, that saving the euro and the union is worth the sacrifice, but she has been unable to communicate this vision to her national constituency.
Cometh the Hour, Cometh the Man
From history, we know that in any crisis of such magnitude, a vision that does not convince, captivate and align citizen support will fall flat. And leadership without vision is ineffective.
Recently IESE Dean Jordi Canals wrote in the Financial Times about Konrad Adenauer, West Germany’s first chancellor, highlighting his ability to communicate and act on his vision, and the lessons today’s leaders could learn from his example.
Faced with the daunting task of guiding a defeated, divided, and physically and emotionally drained country out of its darkest moment, Adenauer’s ambition was resolute: to restore West Germany’s place on the global stage.
Under his stewardship, the country bounced back surprisingly quickly, matching prewar GDP by 1951 and tripling its income between 1949 and 1963.
Under the shadow of the Soviet Union, Adenauer was committed to a free, prosperous Germany, fully integrated with Western Europe, as opposed to a united but neutral Germany constantly exposed to the Soviet Union’s oversight and meddling.
Adenauer understood that important decisions meant difficult choices. German unification, therefore, would have to wait, while reuniting Europe took precedence.
“He reminds us of the importance of making choices, the courage necessary to do so, and the need to explain the implications of different options,” says Canals.
According to Canals, “In today’s politically divided European Union, it is time to remember that good leadership makes a difference — leadership that uses a long-term perspective to address problems, that lucidly presents options to citizens, that puts national interests on a level with Europe’s, and that has the courage to follow through on decisions.”
Strong Leaders: Born or Made?
Courageous vision, knowing how to make difficult choices and having the ability to persuade are among the qualities that a strong leader must possess.
Whether strong leaders with these qualities are born or made is a topic of ongoing debate. According to IESE research, it is not an either/or dichotomy.
For example, IESE Prof. Santiago Álvarez de Mon contends that strong leaders may be shaped through hardship.
In his book Desde la adversidad. Liderazgo, cuestión de carácter, Álvarez de Mon highlights 21 prominent figures, including Vaclav Havel, Nelson Mandela and Intel’s Andy Grove, who became effective leaders because of the hardships they confronted and overcame.
In addition to character, there are many tools that help forge great leaders. Being aware of what these are, and how to develop and use them, are also key to helping a potential leader blossom.
“Leaders, we are constantly told, need vision. Visions need to inspire, but if they lack the resolve to hold people accountable to a clear set of standards, then the visionary leader is discounted as nothing more than an ineffective idealist,” says IESE’s Brian Leggett.
According to Leggett and IESE colleague Conor Neill, the most vital tools for executive leadership — managerial or political — can be understood as the magnet and hammer.
The magnet encompasses leadership actions that create a pull toward a destination, including vision, storytelling, charismatic speaking and role modeling. These actions create the magnetic effect that helps to draw in support.
But after drawing in support, you need a hammer, or a set of leadership actions to drive change directly.
Such leadership actions include direct orders, control systems, hiring and promotions, job definition and financial incentives.
The balance between both tools is difficult, say Leggett and Neill. “The hammer must give way to the magnet, and vice versa, and all the while, there may be very little evidence that either tool is working. It requires a lot of patience, dedication and care.”
According to Leggett and Neill, four practices can help leaders to implement the magnet and the hammer.
- Developing a personal vision
- Articulating that vision in a way that connects powerfully with your audience
- Following through on your promises
- Making sure everyone else fulfills their part of the bargain
Management Tools for Politicians
There is much that management can learn from politics and vice versa. Former French President Nicolas Sarkozy, for example, adopted a “management by objectives” approach as one of his “hammers.”
“He wanted to show the French that his administration was not going to allow time or money to be wasted,” says Pin.
Taken onto the broader European stage, with the arrival of a new French administration and continued German procrastination on the extent and type of financial assistance needed to resolve the euro zone crisis, Europe’s leaders may do well to develop their leadership toolbox.
If anything, the dogged but ultimately misguided refusal of Spain’s Prime Minister, Mariano Rajoy, to accept outside intervention in his country’s economy, and the signs of growing hostility between the French and German governments, underscore the need for strong, united leadership.
Perhaps the lessons from Adenauer’s post-war predicament may help put the current European crisis into perspective.
While the European Union’s existential and financial crisis may pale in comparison with the challenges facing post-war Germany, its current predicament is nonetheless unprecedented and an exit uncharted.
Whether history will remember this moment as merely the growing pains of an ascendant monetary union, or the beginning of the dissolution of the European Union, will largely depend on whether a strong leader steps forward to take the reins.