miércoles, 29 de octubre de 2008

Rescate Comer

Prefijo

EVENTORE

 

Clave Cotización

COMERCI

 

Fecha

29/10/2008

 

Razón Social

CONTROLADORA COMERCIAL MEXICANA, S.A.B.  DE C.V.

 

Lugar

MEXICO DF

 

Asunto

EVENTO RELEVANTE

 

Eventos Relevantes

CONTROLADORA COMERCIAL MEXICANA INFORMA SOBRE FINANCIAMIENTOS                 
                                                                              
MÉXICO D.F. A 29 DE OCTUBRE DE 2008, CONTROLADORA COMERCIAL MEXICANA, S.A.B.  
DE C.V. (BMV: COMERCI) INFORMA QUE SU SUBSIDIARIA, TIENDAS COMERCIAL MEXICANA,
S.A. DE C.V. (TIENDAS), HA OBTENIDO DOS FINANCIAMIENTOS HASTA POR UN MONTO DE 
$3,327 MILLONES, LOS CUALES SUMADOS A SU FLUJO DE EFECTIVO, LE PERMITIRÁN     
SEGUIR CUMPLIENDO SUS COMPROMISOS CON PROVEEDORES.                            
                                                                              
UNO DE LOS CRÉDITOS ES UN PRÉSTAMO DIRECTO POR $327 MILLONES OTORGADO POR UNA 
INSTITUCIÓN DE BANCA MÚLTIPLE Y EL OTRO, UNA LÍNEA DE CRÉDITO DE HASTA $3,000 
MILLONES OTORGADA POR NACIONAL FINANCIERA, S.N.C. (NAFIN) A UN FIDEICOMISO    
PARA EL PAGO A LOS PROVEEDORES DE TIENDAS. AMBOS FINANCIAMIENTOS DEVENGAN     
INTERESES A UNA TASA DE TIIE A 28 DÍAS MÁS 5 PUNTOS PORCENTUALES.             
                                                                              
AL DÍA DE HOY SE HABRÁ DISPUESTO DE LA TOTALIDAD DEL CRÉDITO DIRECTO Y DE     
$1,000 MILLONES DE LA LÍNEA OTORGADA POR NAFIN AL FIDEICOMISO. SE PODRÁN      
EJERCER ADICIONALMENTE A TRAVÉS DEL FIDEICOMISO, HASTA $2,000 MILLONES POR    
PROVEEDORES DE TIENDAS, PARA DESCUENTOS DE FACTURAS A TRAVÉS DEL PROGRAMA DE  
CADENAS PRODUCTIVAS (FACTORAJE).                                              
                                                                              
EL 100% DE LOS RECURSOS OBTENIDOS SERÁ UTILIZADO PARA EL PAGO A PROVEEDORES.  
                                                                              
CONFORME SE HAN DISPUESTO LOS RECURSOS DE ESTOS FINANCIAMIENTOS, SE HAN       
CONSTITUIDO GARANTÍAS SOBRE ACTIVOS DE LAS EMPRESAS INMOBILIARIAS DEL GRUPO A 
FAVOR DE LAS INSTITUCIONES DE CRÉDITO, CON UN AFORO DE 1.5 VECES.             
                                                                              
CABE SEÑALAR QUE ESTOS FINANCIAMIENTOS NO FUERON OTORGADOS A CONTROLADORA     
COMERCIAL MEXICANA, S.A.B. DE C.V. Y QUE LOS BIENES OTORGADOS EN GARANTÍA NO  
SON DE SU PROPIEDAD DIRECTA.                                                  
                                                                              
ESTA ACCIÓN LE PERMITIRÁ A TIENDAS MANTENER SU OPERACIÓN DE FORMA ÓPTIMA,     
PRESERVANDO ASÍ EL VALOR DEL GRUPO, EN BENEFICIO DE TODOS LOS TENEDORES DE    
INTERÉS.                                                                      
                                                                              
COMO YA SE HA INFORMADO, COMERCI SE MANTIENE EN NEGOCIACIÓN PERMANENTE CON SUS
ACREEDORES FINANCIEROS Y ESPERA PODER PRESENTAR UN PLAN DE REESTRUCTURA EN LAS
PRÓXIMAS SEMANAS.                                                             
                                                                              
ASIMISMO, REITERA QUE CONTINUARÁ INFORMANDO OPORTUNAMENTE AL MERCADO SOBRE EL 
DESARROLLO DEL PROCESO DE REESTRUCTURACIÓN FINANCIERA.

 

jueves, 23 de octubre de 2008

Greenspan Testimony on Sources of Financial Crisis

Greenspan Testimony on Sources of Financial Crisis

Posted By topeditor On October 23, 2008 @ 8:27 am In Credit Crisis, Fed | 4 Comments

Former Federal Reserve Chairman Alan Greenspan is set to testify today before the House Committee of Government Oversight and Reform. These are his prepared remarks:

Mr. Chairman, Ranking Member Davis, and Members of the Committee:

Thank you for this opportunity to testify before you this morning.

Greenspan

We are in the midst of a once-in-a century credit tsunami. Central banks and governments are being required to take unprecedented measures. You, importantly, represent those on whose behalf economic policy is made, those who are feeling the brunt of the crisis in their workplaces and homes. I hope to address their concerns today.

This morning, I would like to provide my views on the sources of the crisis, what policies can best address the financial crisis going forward, and how I expect the economy to perform in the near and longer term. I also want discuss how my thinking has evolved and what I have learned in this past year.

In 2005, I raised concerns that the protracted period of underpricing of risk, if history was any guide, would have dire consequences. This crisis, however, has turned out to be much broader than anything I could have imagined. It has morphed from one gripped by liquidity restraints to one in which fears of insolvency are now paramount. Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment. Fearful American households are attempting to adjust, as best they can, to a rapid contraction in credit availability, threats to retirement funds, and increased job insecurity. All of this implies a marked retrenchment of consumer spending as households try to divert an increasing part of their incomes to replenish depleted assets, not only in 401Ks, but in the value of their homes as well. Indeed, a necessary condition for this crisis to end is a stabilization of home prices in the U.S. They will stabilize and clarify the level of equity in U.S. homes, the ultimate collateral support for the value of much of the world’s mortgage-backed securities. At a minimum, stabilization of home prices is still many months in the future. But when it arrives, the market freeze should begin to measurably thaw and frightened investors will take tentative steps towards reengagement with risk. Broken market ties among banks, pension, and hedge funds and all types of nonfinancial businesses will become reestablished and our complex global economy will move forward. Between then and now, however, to avoid severe retrenchment, banks and other financial intermediaries will need the support that only the substitution of sovereign credit for private credit can bestow. The $700 billion Troubled Assets Relief Program is adequate to serve that need. Indeed the impact is already being felt. Yield spreads are narrowing.

As I wrote last March: those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief. Such counterparty surveillance is a central pillar of our financial markets’ state of balance. If it fails, as occurred this year, market stability is undermined.

What went wrong with global economic policies that had worked so effectively for nearly four decades? The breakdown has been most apparent in the securitization of home mortgages. The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of crisis) would have been far smaller and defaults accordingly far fewer. But subprime mortgages pooled and sold as securities became subject to explosive demand from investors around the world. These mortgage backed securities being “subprime” were originally offered at what appeared to be exceptionally high risk-adjusted market interest rates. But with U.S. home prices still rising, delinquency and foreclosure rates were deceptively modest. Losses were minimal. To the most sophisticated investors in the world, they were wrongly viewed as a “steal.”

The consequent surge in global demand for U.S. subprime securities by banks, hedge, and pension funds supported by unrealistically positive rating designations by credit agencies was, in my judgment, the core of the problem. Demand became so aggressive that too many securitizers and lenders believed they were able to create and sell mortgage backed securities so quickly that they never put their shareholders’ capital at risk and hence did not have the incentive to evaluate the credit quality of what they were selling. Pressures on lenders to supply more “paper” collapsed subprime underwriting standards from 2005 forward. Uncritical acceptance of credit ratings by purchasers of these toxic assets has led to huge losses.

It was the failure to properly price such risky assets that precipitated the crisis. In recent decades, a vast risk management and pricing system has evolved, combining the best insights of mathematicians and finance experts supported by major advances in computer and communications technology. A Nobel Prize was awarded for the discovery of the pricing model that underpins much of the advance in derivates markets. This modern risk management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year because the data inputted into the risk management models generally covered only the past two decades, a period of euphoria. Had instead the models been fitted more appropriately to historic periods of stress, capital requirements would have been much higher and the financial world would be in far better shape today, in my judgment.

When in August 2007 markets eventually trashed the credit agencies’ rosy ratings, a blanket of uncertainty descended on the investment community. Doubt was indiscriminately cast on the pricing of securities that had any taint of subprime backing. As much as I would prefer it otherwise, in this financial environment I see no choice but to require that all securitizers retain a meaningful part of the securities they issue. This will offset in part market deficiencies stemming from the failures of counterparty surveillance.

There are additional regulatory changes that this breakdown of the central pillar of competitive markets requires in order to return to stability, particularly in the areas of fraud, settlement, and securitization. It is important to remember, however, that whatever regulatory changes are made, they will pale in comparison to the change already evident in today’s markets. Those markets for an indefinite future will be far more restrained than would any currently contemplated new regulatory regime.

The financial landscape that will greet the end of the crisis will be far different from the one that entered it little more than a year ago. Investors, chastened, will be exceptionally cautious. Structured investment vehicles, Alt-A mortgages, and a myriad of other exotic financial instruments are not now, and are unlikely to ever find willing investors. Regrettably, also on that list are subprime mortgages, the market for which has virtually disappeared. Home and small business ownership are vital commitments to a community. We should seek ways to reestablish a more sustainable subprime mortgage market.

This crisis will pass, and America will reemerge with a far sounder financial system.

domingo, 19 de octubre de 2008

Buy American. I Am.

Omaha

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

Letter: Andrew Lahde, Lahde Capital Management

October 17, 2008

Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list of those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they lookforward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life – where I had to compete for spaces in universities and graduate schools, jobs and assets under management – with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.

Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant – marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other addictive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.

With that I say goodbye and good luck.

All the best,

Andrew Lahde

miércoles, 3 de septiembre de 2008

Tuesdays with Rupert


Since buying The Wall Street Journal, Rupert Murdoch has talked freely with the author about his business, his family, and the future. (There was serious gossip, too.) It’s an unparalleled look at the 77-year-old mogul, transformed by his marriage to Wendi Deng, yet utterly, unapologetically himself.

by MICHAEL WOLFFOctober 2008

For nine months, I’ve been interviewing Rupert Murdoch, in an unlikely spirit of openness precipitated by his great satisfaction in having bought The Wall Street Journal, about journalism, his business, politics, his family, and the future for a new biography. I was warned about his charm by many other journalists—warned not to fall victim to it. So the surprise was his lack of it. He’s without introspection and self-analysis and doesn’t like to talk about the past. What’s more, he mumbles terribly (and with a heavy Aussie accent) and seldom finishes a sentence. For the first three months of our interviews, he never addressed a word to or even looked at my research assistant, Leela de Kretser, who was at each of the sessions, and ignored her questions—perhaps because it’s not necessary to acknowledge a girl, or possibly because it was embarrassing for him that she was, at the time, a pregnant girl. (She had the baby. He eventually warmed up.)

But his odd lack of seductiveness or felicitousness—contributing to his aura of villainy—became after a while alluring in itself. There’s no spin, because he really can’t explain himself. Rather, what you see is what you get. He’s transparent. The nature of the beast is entirely evident.

One morning when Leela and I arrived at Murdoch’s office for another interview session, we found the 77-year-old News Corp. chairman and C.E.O. hunched over the phone reporting out a story. He’d been out the night before and gotten a tip. Now he was trying to nail it down. His side of the conversation was straight reporter stuff: Who could he call? How could he get in touch? Will they confirm? Barked, impatient, just the facts. Here was the old man, in white shirt, singlet visible underneath, doing one of the same basic jobs he’d been doing since he was 22, having inherited theAdelaide News in Australia from his father. And he was good at it. He was parsing each answer. Re-asking the question. Clarifying every point. His notepad going. He knew the trade. Of how many media-company C.E.O.’s could that be said? This wasn’t a destroyer of journalism—this was a practitioner.

On the other hand, he was trying to smear somebody. At the dinner party he’d attended—since his marriage to Wendi Deng, he’s become an unlikely fixture at fashionable tables—he heard that a seniormost Hillary Clinton operative was a partner in an online porn company. He didn’t like the operative, didn’t like—no matter how much he had tried—Hillary Clinton. So it didn’t much matter that the story itself seemed far-fetched and tenth-hand. It was juicy and would slime somebody he thought was … a slime. True, it didn’t pan out—and, to his credit, that was the end of it. Well, sort of. Because he kept recycling it. While it did not end up on the Post’s “Page Six,” it became a staple in Murdoch’s repertoire of whispers and confidences and speculations. Rupert Murdoch doesn’t need to print or broadcast the news to make it … news.

He may be among the biggest gossips in New York. In the months of interviewing him, I found that the most reliable way to hold his interest was to bring him a rich nugget. His entire demeanor would change. He’d instantly light up. He’d go from distracted to absolutely focused. Gossip gives him life (and business opportunities). This, I believe, is how the rumor about Michael Bloomberg’s buying The New York Timesgot legs. I offered it to him as a bit of speculation—conflating two of his favorite subjects, Bloomberg, whom he greatly admires, and the Times, which he does not—that a Bloomberg-Times deal could be possible. He paused, considered, opened his mouth, seemed blissed out for a second, processed this information against his own needs and interests … and then said, “It makes sense. I think I’ll ask him.” And suddenly the rumor was everywhere—he was telling everybody, which made it true. The mayor’s people seemed to like the rumor so much that they began to talk it up themselves. Bloomberg himself seemed to fancy it (offering only a tepid denial) and, Murdoch thinks, could act on it.

He’s a troublemaker—maybe the last troublemaker in the holier-than-thou, ethically straitjacketed news business:

Gary Ginsberg, Murdoch’s chief aide and one of News Corp.’s highest executives—and a former Clinton White House staffer—told his boss that he was planning to go to Paris, in August 2007, for the wedding of his friend Doug Band, Bill Clinton’s chief aide. Band was marrying the handbag designer Lily Raf?i, and the wedding was going to be a party-hearty Clinton affair with supermarket magnate Ron Burkle, real-estate-heir-film-producer Steve Bing, and Bill Clinton himself, Ginsberg reported to Murdoch (Ginsberg too knows that Murdoch likes—needs—gossip). So Murdoch, onto not just a good story but also a way to annoy Ginsberg, secretly called the New York Post editor, Col Allan, and, busting the expense budget, had “Page Six” send a reporter to Paris. Headline (to Ginsberg’s consternation): bill & pals do paris (the city, not the bimbo).

The great fear about Rupert Murdoch, among journalists and proper liberals everywhere, beyond even his tabloidism and his right-wing politics, is that he acknowledges no rules. He does it, without mercy, his way. If you watch him up close, this certainly seems true. He sits in his office and plots and schemes and figures out ways to get (to take) what he wants.

Although he’d agreed with the Bancroft family, Dow Jones’s former owners, to accept a strict structure for protecting The Wall Street Journal’s editorial independence, I watched how blithely he paid no attention to it. It barely figured into his plans or consciousness. Except that he seemed briefly tickled to have figured out that if he merely called his chosen editor, Robert Thomson, the publisher, then he’d have his choice. He was only slightly confounded (and a bit bemused) that it took Journal editor Marcus Brauchli four months to get the message that he was out.

Still, up close, such lack of restraint doesn’t necessarily seem so threatening. It seems, in fact … fun. There’s no artifice. There’s no bureaucracy. There’s no pretense. There’s no corporate this and that—Murdoch’s truly the anti-corporate man. It’s all determination and enthusiasm. It’s all about his passions and the effect he can have. (Of course he was going to replace the Journal’s editor. What was everybody thinking?)

It’s his adventure. Part of the reason so many of the people around him are so loyal—such true believers—is that they’re caught up in it. It’s a grand enterprise.

Though not necessarily such a well-organized or even rational one.

There was the moment, in the car heading out to the airport in the weeks before The Wall Street Journalformally became his, when Merrill Lynch was going into the tank. Its C.E.O., Stan O’Neal, had just been fired. Anticipating events—Merrill’s need for cash, its inevitable sale of assets—Murdoch, for an hour or so, decided he ought to be the presumptive buyer of Merrill’s 20 percent stake in Bloomberg (Murdoch cultivates obsessions, and Bloomberg is one). Soon to have The Wall Street Journal, now soon to have his mitts on Bloomberg, Rupert Murdoch, at least in his own mind, would control worldwide financial information. It’s management by fantasy—even though this one, like so many, was shortly to pass.

Buying The Wall Street Journal was surely an exercise of pure fantasy. To think he could take over a company absolutely controlled by a family that had repeatedly said it would never sell was fantasy. To think it was worth what he was paying for it was fantasy. And yet … now it’s his, and if his shareholders are puzzled and grumpy (News Corp. shares are down by more than 30 percent since he bought Dow Jones), so be it (he’ll ignore them as much as he ignores his other critics). He’s in it for the long haul—even at 77.

He is spending time now in consideration of an even more far-fetched fantasy, The New York Times:he’d really like to own it too. Now, everybody around him continues to tell him that buying theTimes is pretty much impossible. There will be regulatory problems. The Sulzberger family would never … And then there’s the opprobrium of public opinion.

But it’s obviously irresistible to him. I’ve watched him go through the numbers, plot out a merger with the Journal’s backroom operations, and fantasize about the staff’s quitting en masse as soon as he entered the sacred temple. It would be sweet revenge—because the Times for so long has made him the bogeyman and vulgarian. And wonderful to own not just one of America’s most important papers but both (he believes in monopolies). And the realization of his destiny: because the Times represents the ultimate in newspaper proprietorship—when he was 19, he and his father, the most successful newspaper executive in Australia, made a pilgrimage to Hillandale, the Sulzberger family home in Connecticut—and he believes he is the ultimate newspaper proprietor.

And because he loves newspapers—he may be the last person to love newspapers. He thinks the Times,with its soft stories and newsless front page and all its talk of being a news brand instead of a newspaper,has forsaken what a newspaper is.

He’s really not interested in all this talk about newspapers as the basis of new information franchises … blah blah. That’s maybe what they say at News Corp. to gull Wall Street. But Rupert Murdoch wants the physical thing. He pokes the paper, slashes at it—move this, reduce that, enlarge this. It may be the ultimate fantasy, his continuing, contrary belief in newspapers.

A newspaper makes you into something. When he bought The Sun in London in 1969, it turned him into Britain’s greatest tabloid publisher and threat to ritual and propriety. The Wall Street Journal is going to turn him into something else again.

Here’s the headline: Rupert Murdoch is becoming a liberal—sort of.

Or, anyway, his purchase of The W.S.J., and his covetousness of the Times, is also about wanting to trade the illiberal—the belligerent, the vulgar, the loud, the menacing, the unsubtle—for the better-heeled, the more magnanimous, the further nuanced. He’s looking for better company.

This most unsocialized of men is becoming socialized—sort of.

This is, in part, the Wendi transformation. The woman from Shandong Province, 38 years his junior, whom he married after breaking up his 32-year marriage to his second wife, Anna, has brought him into the liberal world. The angry outsider, the anti-elitist, the foe of airs and pretension (“Ole Grumpy,” as he’s known by various of his employees), has become part of the achieving, glamorous, clever, socially promiscuous set. Davos, Cannes, Sun Valley, Barry Diller’s yacht—this is now Rupert Murdoch’s world.

Or it’s his wife’s world, which he’s been drawn into.

It would be hard not to be. The girl whose American adventure starts in the kitchen of a Chinese restaurant before she can speak English and takes her to the Yale School of Management and then into the arms of Rupert Murdoch is a compelling heroine. Her adventure may be as great as his. He’s captivated by her ambition (their pillow talk, one might suspect, is business). You can see this as comic: no fool like an old fool—the shapeless conservative suits become Prada (although still worn with the singlets), his gray hair flaming orange (or sometimes aubergine). But I think that misses the true nature of the change. Of the plot twist. Rupert Murdoch is, characteristically, seizing an opportunity. The Zeitgeist is changing and he’s after it.

All right, he’s not quite a liberal. He remains a militant free-marketeer and is still pro-war (grudgingly, he’s retreated a bit). And there was the moment, one afternoon, when over a glass of his favorite coconut water (meant to increase electrolytes) he was propounding the genetic theory that the basic problem of the Muslim people was that they married their cousins.

And yet, he’s come to like the liberals more than the conservatives. Bono and Tony Blair and the Google guys and Nicole Kidman and David Geffen are his and Wendi’s circle. Facebook’s Mark Zuckerberg and real-estate scion and New York Observer owner Jared Kushner and Ivanka Trump are regular invites to the Murdochs’ for dinner. Liking Wendi’s friends so much better than his own (actually, he really had never had any friends), he finds himself with an increasingly divided temperament.

It’s life with Wendi versus life with Fox. (And, too, it’s The Wall Street Journal—and maybe The New York Times—versus Fox.)

Fox has been his alter ego. For a long time he was in love with the Fox chief, Roger Ailes, because he was even more Murdoch than Murdoch. And yet now the embarrassment can’t be missed—he mumbles even more than usual when called on to justify it; he barely pretends to hide the way he feels about Bill O’Reilly. And while it is not possible that he would give Fox up—because the money is the money; success trumps all—in the larger sense of who he is, he seems to want to hedge his bets.

Just before the New York Democratic primary, when I found myself undecided between Clinton and Obama, I said to Murdoch (a little flirtation, like a little gossip, softens him), “Rupert, I don’t know who to vote for—so I’m going to give you my vote. You choose.”

He paused, considered, nodded his head slowly: “Obama—he’ll sell more papers.”

Even though his daughter Elisabeth and her husband, high-flying P.R. man Matthew Freud, have been raising money for Obama in Notting Hill, in London, where they live, and his wife has been attending fund-raisers for Obama in Los Angeles with David Geffen, this is a leap for Murdoch. Murdoch has traditionally liked politicians to come to him. His historic shift in the 1990s to Tony Blair came after Blair made a pilgrimage to Australia.

Obama, on the other hand, was snubbing Murdoch. Every time he reached out (Murdoch executives tried to get the Kennedys to help smooth the way to an introduction), nothing. The Fox stain was on Murdoch.

It wasn’t until early in the summer that Obama relented and a secret courtesy meeting was arranged. The meeting began with Murdoch sitting down, knee to knee with Obama, at the Waldorf-Astoria. The younger man was deferential—and interested in his story. Obama pursued: What was Murdoch’s relationship with his father? How had he gotten from Adelaide to the top of the world?

Murdoch, for his part, had a simple thought to share with Obama. He had known possibly as many heads of state as anyone living today—had met every American president from Harry Truman on—and this is what he understood: nobody got much time to make an impression. Leadership was about what you did in the first six months.

Then, after he said his piece, Murdoch switched places and let his special guest, Roger Ailes, sit knee to knee with Obama.

Obama lit into Ailes. He said that he didn’t want to waste his time talking to Ailes if Fox was just going to continue to abuse him and his wife, that Fox had relentlessly portrayed him as suspicious, foreign, fearsome—just short of a terrorist.

Ailes, unruffled, said it might not have been this way if Obama had more willingly come on the air instead of so often giving Fox the back of his hand.

A tentative truce, which may or may not have vast historical significance, was at that moment agreed upon.

Iconfess to getting a little misty when Murdoch talks about his children, which he does frequently and naturally (he’s often on the phone with them—this coldest of men making protestations of love).

True, he is often talking about them in some otherworldly, even fantastic dynastic sense—perhaps no other business empire has such an air of royalty about it as News Corp. And yet, at the same time, he seems like any old conscientious dad and ordinarily burdened family man.

For one thing, there is his mother, at 99 an indomitable matriarch—something like the Queen Mum of Australia—at the family estate (which has neither heat nor, apparently, a vacuum cleaner), outside of Melbourne, with the world-famous garden she’s been tending for 80 years, still stewing about the breakup of his second marriage, to Anna. “I remember saying to Rupert, ‘Rupert, you’re going to be very, very lonely and the first desiring female who comes along will snap you up.’ He said, ‘Don’t be ridiculous, Mum, I’m far too old for that.’ That’s exactly what happened. Never mind.” One would not like to face that. (When I visited her, she sat for a three-hour interview full of witty chat and then took me for a wild ride, double-clutching an old golf cart, through her gardens.)

Contrary to the expected outcome in dynastic families, the Murdoch kids have turned out well. They’re diligent achievers. Beyond a few tattoos and piercings and a gossip-column affair (Elisabeth left her husband for Freud), they’re not too rebellious either. And they get along—mostly (though his sons, when they were both on the News Corp. board, sometimes bickered endlessly during meetings). And that’s good because his four oldest children will inherit voting control of one of the most influential companies in the world without any mechanism to break a tie.

There’s Prue, the daughter from his first marriage, a 50-year-old Sydney housewife, the mother of his three oldest grandchildren, who has mostly forgiven him for not considering her—because she was a girl—as dynastic material. Prue, whose husband, Alasdair MacLeod, is a ranking player in the Australian operation, is the child who can most take him to task. (“I’ve said to him, ‘Dad, I understand about dyeing the hair and the age thing’—he never wants to die—‘but just go somewhere proper.’ But he insists on doing it over the sink because he doesn’t want anybody to know. Well, hello! Look in the mirror.”) She is, in a sense, more like his wife than his wives. (Actually, he often mistakes her for one of his sisters.)

There’s Elisabeth, 40, his first child with Anna, who, in his gradually transforming view of women (very gradual), was a candidate for running the company until, mad at him for leaving her mother, she upped and quit in 2000, to his great regret. She now lives in London with Freud and her four children and owns one of the largest independent television-production companies in the world (The Office and Ugly Bettyare her company’s shows).

There’s his first son, Lachlan, 38, whom he had pronounced his heir apparent, whom he openly adores—almost pines after—and who left the company after his father failed to stand up for him against other News Corp. executives. Lachlan, although raised as a New Yorker, has reconstituted himself as an Australian. He owns a cricket team in India and, with Jamie Packer, the son of the late Kerry Packer, one of Murdoch’s epochal enemies in the Australian media wars, tried and failed earlier this year to complete a multi-billion-dollar leveraged buyout of an Australian media company. (Murdoch was obviously pained when I returned from seeing Lachlan in Sydney and knew more about his son’s deal than he did. Pained enough for him to try to pretend he knew—that his son hadn’t excluded him.)

There’s James, of whom he is clearly in some awe. James, who is based in London and who runs News Corp.’s business in Europe and Asia, has become exactly the sort of businessman he himself is not, programmatic, marketing-driven—rather, in fact, a highly intelligent automaton—and is now the favorite to become the C.E.O. of News Corp. (answering, however, to his three siblings, or at least to two of them, to get a majority).

And there are Murdoch’s two youngest children: Grace, aged six, and Chloe, aged five, with whom he lives a Manhattan life of nannies, dogs, play dates, and a father picking up after them.

It’s not just the sense of him as an attentive and concerned father that I find makes me misty, but this further sense he implies, even as he dreams of dynastic succession, of his lack of control over the children and their futures.

If he’s proud of his kids’ separate achievements, he’s desperate to have them back in the business and around him. He openly spins scenarios about how they might be tempted back—stuck with the fact that he’s raised them all well enough that they aren’t particularly dependent on him (and, too, they are savvy enough to have figured out the virtue of distance).

In his divorce from Anna he agreed to make inviolable his four older children’s control and interest in the trust. This agreement became hard to reconcile following the birth of his two younger children, and he petitioned his older children to admit their new siblings to the trust. A long negotiation ensued. He agreed to disburse $150 million to each of his children (with all of the family’s wealth in News Corp. stock, the Murdoch kids have long complained to any News Corp. exec who would listen that they never had much real money to call their own), and, in return, his four older children gave up his ex-wife’s so-called watertight agreement and admitted Grace and Chloe to an equal economic interest in the trust—but not a voting interest. (He was too scared or guilty about this decision to tell his wife directly and, instead, let it slip during an interview in 2006 on Charlie Rose—precipitating, when Wendi watched the interview, a marital battle that is still a legend at News Corp.)

His attitude about this is now curious, or alarming, or crafty. Although his older children happily spell out the terms of the trust, as does Murdoch’s longtime lawyer, Arthur Siskind, Murdoch himself baldly denies that what is, is. All his children will participate equally, he says flatly. This is a broken synapse or his way of dealing with his lack of control or it’s what he’s telling his wife or it’s Murdochian principle that everything can be renegotiated.

His takeover of The Wall Street Journal happened because the family that controlled Dow Jones for nearly a hundred years couldn’t control itself. And while Murdoch both took advantage of the Bancroft family’s weakness and was contemptuous of it (and morbidly fascinated by it), the irony hasn’t passed him by that some variation on this fate will be his family’s, too. (When I asked him in our final interview what he can do to prevent what happened to the Bancrofts from happening to his family, he threw his hands up in the air and said, “Oh, simple, I can’t. All I can do is delay it.”)

There is at News Corp. never a discussion of Murdoch’s exit. It is referred to only as “in 30 or 40 years,” when he is gone—which may have started as an amusing locution, but is now a practiced and even official one. His existential predicament is, in other words, his own.

This is an aspect of his special powers. People at News Corp. really do believe he is near immortal—or they are afraid not to believe (because after him the deluge). And he knows that the world (not just his world but the world he has had such an effect on) exists only as long as he does. Indeed, there may not be newspapers unless he owns them. It’s a world that’s on his shoulders.

It continues to all depend on him.

Michael Wolff is a Vanity Fair contributing editor.


jueves, 28 de agosto de 2008

Social Intelligence and the Biology of Leadership

Social Intelligence and the Biology of Leadership
New studies of the brain show that leaders can improve group performance by understanding the biology of empathy.
by Daniel Goleman and Richard Boyatzis
♦ Watch an interview with Daniel Goleman.
In 1998, one of us, Daniel Goleman, published in these pages his first article on emotional intelligence and leadership. The response to “What Makes a Leader?” was enthusiastic. People throughout and beyond the business community started talking about the vital role that empathy and self-knowledge play in effective leadership. The concept of emotional intelligence continues to occupy a prominent space in the leadership literature and in everyday coaching practices. But in the past five years, research in the emerging field of social neuroscience—the study of what happens in the brain while people interact—is beginning to reveal subtle new truths about what makes a good leader.
The salient discovery is that certain things leaders do—specifically, exhibit empathy and become attuned to others’ moods—literally affect both their own brain chemistry and that of their followers. Indeed, researchers have found that the leader-follower dynamic is not a case of two (or more) independent brains reacting consciously or unconsciously to each other. Rather, the individual minds become, in a sense, fused into a single system. We believe that great leaders are those whose behavior powerfully leverages the system of brain interconnectedness. We place them on the opposite end of the neural continuum from people with serious social disorders, such as autism or Asperger’s syndrome, that are characterized by underdevelopment in the areas of the brain associated with social interactions. If we are correct, it follows that a potent way of becoming a better leader is to find authentic contexts in which to learn the kinds of social behavior that reinforce the brain’s social circuitry. Leading effectively is, in other words, less about mastering situations—or even mastering social skill sets—than about developing a genuine interest in and talent for fostering positive feelings in the people whose cooperation and support you need.
The notion that effective leadership is about having powerful social circuits in the brain has prompted us to extend our concept of emotional intelligence, which we had grounded in theories of individual psychology. A more relationship-based construct for assessing leadership is social intelligence, which we define as a set of interpersonal competencies built on specific neural circuits (and related endocrine systems) that inspire others to be effective.
The idea that leaders need social skills is not new, of course. In 1920, Columbia University psychologist Edward Thorndike pointed out that “the best mechanic in a factory may fail as a foreman for lack of social intelligence.” More recently, our colleague Claudio Fernández-Aráoz found in an analysis of new C-level executives that those who had been hired for their self-discipline, drive, and intellect were sometimes later fired for lacking basic social skills. In other words, the people Fernández-Aráoz studied had smarts in spades, but their inability to get along socially on the job was professionally self-defeating.
Do Women Have Stronger Social Circuits? (Located at the end of this article)
What’s new about our definition of social intelligence is its biological underpinning, which we will explore in the following pages. Drawing on the work of neuroscientists, our own research and consulting endeavors, and the findings of researchers affiliated with the Consortium for Research on Emotional Intelligence in Organizations, we will show you how to translate newly acquired knowledge about mirror neurons, spindle cells, and oscillators into practical, socially intelligent behaviors that can reinforce the neural links between you and your followers.
Followers Mirror Their Leaders—Literally
Perhaps the most stunning recent discovery in behavioral neuroscience is the identification of mirror neurons in widely dispersed areas of the brain. Italian neuroscientists found them by accident while monitoring a particular cell in a monkey’s brain that fired only when the monkey raised its arm. One day a lab assistant lifted an ice cream cone to his own mouth and triggered a reaction in the monkey’s cell. It was the first evidence that the brain is peppered with neurons that mimic, or mirror, what another being does. This previously unknown class of brain cells operates as neural Wi-Fi, allowing us to navigate our social world. When we consciously or unconsciously detect someone else’s emotions through their actions, our mirror neurons reproduce those emotions. Collectively, these neurons create an instant sense of shared experience.
Mirror neurons have particular importance in organizations, because leaders’ emotions and actions prompt followers to mirror those feelings and deeds. The effects of activating neural circuitry in followers’ brains can be very powerful. In a recent study, our colleague Marie Dasborough observed two groups: One received negative performance feedback accompanied by positive emotional signals—namely, nods and smiles; the other was given positive feedback that was delivered critically, with frowns and narrowed eyes. In subsequent interviews conducted to compare the emotional states of the two groups, the people who had received positive feedback accompanied by negative emotional signals reported feeling worse about their performance than did the participants who had received good-natured negative feedback. In effect, the delivery was more important than the message itself. And everybody knows that when people feel better, they perform better. So, if leaders hope to get the best out of their people, they should continue to be demanding but in ways that foster a positive mood in their teams. The old carrot-and-stick approach alone doesn’t make neural sense; traditional incentive systems are simply not enough to get the best performance from followers.
Here’s an example of what does work. It turns out that there’s a subset of mirror neurons whose only job is to detect other people’s smiles and laughter, prompting smiles and laughter in return. A boss who is self-controlled and humorless will rarely engage those neurons in his team members, but a boss who laughs and sets an easygoing tone puts those neurons to work, triggering spontaneous laughter and knitting his team together in the process. A bonded group is one that performs well, as our colleague Fabio Sala has shown in his research. He found that top-performing leaders elicited laughter from their subordinates three times as often, on average, as did midperforming leaders. Being in a good mood, other research finds, helps people take in information effectively and respond nimbly and creatively. In other words, laughter is serious business.
It certainly made a difference at one university-based hospital in Boston. Two doctors we’ll call Dr. Burke and Dr. Humboldt were in contention for the post of CEO of the corporation that ran this hospital and others. Both of them headed up departments, were superb physicians, and had published many widely cited research articles in prestigious medical journals. But the two had very different personalities. Burke was intense, task focused, and impersonal. He was a relentless perfectionist with a combative tone that kept his staff continually on edge. Humboldt was no less demanding, but he was very approachable, even playful, in relating to staff, colleagues, and patients. Observers noted that people smiled and teased one another—and even spoke their minds—more in Humboldt’s department than in Burke’s. Prized talent often ended up leaving Burke’s department; in contrast, outstanding folks gravitated to Humboldt’s warmer working climate. Recognizing Humboldt’s socially intelligent leadership style, the hospital corporation’s board picked him as the new CEO.
The “Finely Attuned” Leader
Great executives often talk about leading from the gut. Indeed, having good instincts is widely recognized as an advantage for a leader in any context, whether in reading the mood of one’s organization or in conducting a delicate negotiation with the competition. Leadership scholars characterize this talent as an ability to recognize patterns, usually born of extensive experience. Their advice: Trust your gut, but get lots of input as you make decisions. That’s sound practice, of course, but managers don’t always have the time to consult dozens of people.
Findings in neuroscience suggest that this approach is probably too cautious. Intuition, too, is in the brain, produced in part by a class of neurons called spindle cells because of their shape. They have a body size about four times that of other brain cells, with an extra-long branch to make attaching to other cells easier and transmitting thoughts and feelings to them quicker. This ultrarapid connection of emotions, beliefs, and judgments creates what behavioral scientists call our social guidance system. Spindle cells trigger neural networks that come into play whenever we have to choose the best response among many—even for a task as routine as prioritizing a to-do list. These cells also help us gauge whether someone is trustworthy and right (or wrong) for a job. Within one-twentieth of a second, our spindle cells fire with information about how we feel about that person; such “thin-slice” judgments can be very accurate, as follow-up metrics reveal. Therefore, leaders should not fear to act on those judgments, provided that they are also attuned to others’ moods.
Such attunement is literally physical. Followers of an effective leader experience rapport with her—or what we and our colleague Annie McKee call “resonance.” Much of this feeling arises unconsciously, thanks to mirror neurons and spindle-cell circuitry. But another class of neurons is also involved: Oscillators coordinate people physically by regulating how and when their bodies move together. You can see oscillators in action when you watch people about to kiss; their movements look like a dance, one body responding to the other seamlessly. The same dynamic occurs when two cellists play together. Not only do they hit their notes in unison, but thanks to oscillators, the two musicians’ right brain hemispheres are more closely coordinated than are the left and right sides of their individual brains.
Firing Up Your Social Neurons
The firing of social neurons is evident all around us. We once analyzed a video of Herb Kelleher, a cofounder and former CEO of Southwest Airlines, strolling down the corridors of Love Field in Dallas, the airline’s hub. We could practically see him activate the mirror neurons, oscillators, and other social circuitry in each person he encountered. He offered beaming smiles, shook hands with customers as he told them how much he appreciated their business, hugged employees as he thanked them for their good work. And he got back exactly what he gave. Typical was the flight attendant whose face lit up when she unexpectedly encountered her boss. “Oh, my honey!” she blurted, brimming with warmth, and gave him a big hug. She later explained, “Everyone just feels like family with him.”
Unfortunately, it’s not easy to turn yourself into a Herb Kelleher or a Dr. Humboldt if you’re not one already. We know of no clear-cut methods to strengthen mirror neurons, spindle cells, and oscillators; they activate by the thousands per second during any encounter, and their precise firing patterns remain elusive. What’s more, self-conscious attempts to display social intelligence can often backfire. When you make an intentional effort to coordinate movements with another person, it is not only oscillators that fire. In such situations the brain uses other, less adept circuitry to initiate and guide movements; as a result, the interaction feels forced.
The only way to develop your social circuitry effectively is to undertake the hard work of changing your behavior (see “Primal Leadership: The Hidden Driver of Great Performance,” our December 2001 HBR article with Annie McKee). Companies interested in leadership development need to begin by assessing the willingness of individuals to enter a change program. Eager candidates should first develop a personal vision for change and then undergo a thorough diagnostic assessment, akin to a medical workup, to identify areas of social weakness and strength. Armed with the feedback, the aspiring leader can be trained in specific areas where developing better social skills will have the greatest payoff. The training can range from rehearsing better ways of interacting and trying them out at every opportunity, to being shadowed by a coach and then debriefed about what he observes, to learning directly from a role model. The options are many, but the road to success is always tough.
How to Become Socially Smarter
To see what social intelligence training involves, consider the case of a top executive we’ll call Janice. She had been hired as a marketing manager by a Fortune 500 company because of her business expertise, outstanding track record as a strategic thinker and planner, reputation as a straight talker, and ability to anticipate business issues that were crucial for meeting goals. Within her first six months on the job, however, Janice was floundering; other executives saw her as aggressive and opinionated, lacking in political astuteness, and careless about what she said and to whom, especially higher-ups.
To save this promising leader, Janice’s boss called in Kathleen Cavallo, an organizational psychologist and senior consultant with the Hay Group, who immediately put Janice through a 360-degree evaluation. Her direct reports, peers, and managers gave Janice low ratings on empathy, service orientation, adaptability, and managing conflicts. Cavallo learned more by having confidential conversations with the people who worked most closely with Janice. Their complaints focused on her failure to establish rapport with people or even notice their reactions. The bottom line: Janice was adept neither at reading the social norms of a group nor at recognizing people’s emotional cues when she violated those norms. Even more dangerous, Janice did not realize she was being too blunt in managing upward. When she had a strong difference of opinion with a manager, she did not sense when to back off. Her “let’s get it all on the table and mix it up” approach was threatening her job; top management was getting fed up.
When Cavallo presented this performance feedback as a wake-up call to Janice, she was of course shaken to discover that her job might be in danger. What upset her more, though, was the realization that she was not having her desired impact on other people. Cavallo initiated coaching sessions in which Janice would describe notable successes and failures from her day. The more time Janice spent reviewing these incidents, the better she became at recognizing the difference between expressing an idea with conviction and acting like a pit bull. She began to anticipate how people might react to her in a meeting or during a negative performance review; she rehearsed more-astute ways to present her opinions; and she developed a personal vision for change. Such mental preparation activates the social circuitry of the brain, strengthening the neural connections you need to act effectively; that’s why Olympic athletes put hundreds of hours into mental review of their moves.
At one point, Cavallo asked Janice to name a leader in her organization who had excellent social intelligence skills. Janice identified a veteran senior manager who was masterly both in the art of the critique and at expressing disagreement in meetings without damaging relationships. She asked him to help coach her, and she switched to a job where she could work with him—a post she held for two years. Janice was lucky to find a mentor who believed that part of a leader’s job is to develop human capital. Many bosses would rather manage around a problem employee than help her get better. Janice’s new boss took her on because he recognized her other strengths as invaluable, and his gut told him that Janice could improve with guidance.
Before meetings, Janice’s mentor coached her on how to express her viewpoint about contentious issues and how to talk to higher-ups, and he modeled for her the art of performance feedback. By observing him day in and day out, Janice learned to affirm people even as she challenged their positions or critiqued their performance. Spending time with a living, breathing model of effective behavior provides the perfect stimulation for our mirror neurons, which allow us to directly experience, internalize, and ultimately emulate what we observe.
Janice’s transformation was genuine and comprehensive. In a sense, she went in one person and came out another. If you think about it, that’s an important lesson from neuroscience: Because our behavior creates and develops neural networks, we are not necessarily prisoners of our genes and our early childhood experiences. Leaders can change if, like Janice, they are ready to put in the effort. As she progressed in her training, the social behaviors she was learning became more like second nature to her. In scientific terms, Janice was strengthening her social circuits through practice. And as others responded to her, their brains connected with hers more profoundly and effectively, thereby reinforcing Janice’s circuits in a virtuous circle. The upshot: Janice went from being on the verge of dismissal to getting promoted to a position two levels up.
A few years later, some members of Janice’s staff left the company because they were not happy—so she asked Cavallo to come back. Cavallo discovered that although Janice had mastered the ability to communicate and connect with management and peers, she still sometimes missed cues from her direct reports when they tried to signal their frustration. With more help from Cavallo, Janice was able to turn the situation around by refocusing her attention on her staff’s emotional needs and fine-tuning her communication style. Opinion surveys conducted with Janice’s staff before and after Cavallo’s second round of coaching documented dramatic increases in their emotional commitment and intention to stay in the organization. Janice and the staff also delivered a 6% increase in annual sales, and after another successful year she was made president of a multibillion-dollar unit. Companies can clearly benefit a lot from putting people through the kind of program Janice completed.
Hard Metrics of Social Intelligence
Our research over the past decade has confirmed that there is a large performance gap between socially intelligent and socially unintelligent leaders. At a major national bank, for example, we found that levels of an executive’s social intelligence competencies predicted yearly performance appraisals more powerfully than did the emotional intelligence competencies of self-awareness and self-management. (For a brief explanation of our assessment tool, which focuses on seven dimensions, see the exhibit “Are You a Socially Intelligent Leader?”)
Are You a Socially Intelligent Leader? (Located at the end of this article)
Social intelligence turns out to be especially important in crisis situations. Consider the experience of workers at a large Canadian provincial health care system that had gone through drastic cutbacks and a reorganization. Internal surveys revealed that the frontline workers had become frustrated that they were no longer able to give their patients a high level of care. Notably, workers whose leaders scored low in social intelligence reported unmet patient-care needs at three times the rate—and emotional exhaustion at four times the rate—of their colleagues who had supportive leaders. At the same time, nurses with socially intelligent bosses reported good emotional health and an enhanced ability to care for their patients, even during the stress of layoffs (see the sidebar “The Chemistry of Stress”). These results should be compulsory reading for the boards of companies in crisis. Such boards typically favor expertise over social intelligence when selecting someone to guide the institution through tough times. A crisis manager needs both.
The Chemistry of Stress (Located at the end of this article)
• • •
As we explore the discoveries of neuroscience, we are struck by how closely the best psychological theories of development map to the newly charted hardwiring of the brain. Back in the 1950s, for example, British pediatrician and psychoanalyst D.W. Winnicott was advocating for play as a way to accelerate children’s learning. Similarly, British physician and psychoanalyst John Bowlby emphasized the importance of providing a secure base from which people can strive toward goals, take risks without unwarranted fear, and freely explore new possibilities. Hard-bitten executives may consider it absurdly indulgent and financially untenable to concern themselves with such theories in a world where bottom-line performance is the yardstick of success. But as new ways of scientifically measuring human development start to bear out these theories and link them directly with performance, the so-called soft side of business begins to look not so soft after all.
Do Women Have Stronger Social Circuits?
People often ask whether gender differences factor into the social intelligence skills needed for outstanding leadership. The answer is yes and no. It’s true that women tend, on average, to be better than men at immediately sensing other people’s emotions, whereas men tend to have more social confidence, at least in work settings. However, gender differences in social intelligence that are dramatic in the general population are all but absent among the most successful leaders.
When the University of Toledo’s Margaret Hopkins studied several hundred executives from a major bank, she found gender differences in social intelligence in the overall group but not between the most effective men and the most effective women. Ruth Malloy of the Hay Group uncovered a similar pattern in her study of CEOs of international companies. Gender, clearly, is not neural destiny.
Are You a Socially Intelligent Leader?
To measure an executive’s social intelligence and help him or her develop a plan for improving it, we have a specialist administer our behavioral assessment tool, the Emotional and Social Competency Inventory. It is a 360-degree evaluation instrument by which bosses, peers, direct reports, clients, and sometimes even family members assess a leader according to seven social intelligence qualities.
We came up with these seven by integrating our existing emotional intelligence framework with data assembled by our colleagues at the Hay Group, who used hard metrics to capture the behavior of top-performing leaders at hundreds of corporations over two decades. Listed here are each of the qualities, followed by some of the questions we use to assess them.
Empathy
• Do you understand what motivates other people, even those from different backgrounds?
• Are you sensitive to others’ needs?
Attunement
• Do you listen attentively and think about how others feel?
• Are you attuned to others’ moods?
Organizational Awareness
• Do you appreciate the culture and values of the group or organization?
• Do you understand social networks and know their unspoken norms?
Influence
• Do you persuade others by engaging them in discussion and appealing to their self-interests?
• Do you get support from key people?
Developing Others
• Do you coach and mentor others with compassion and personally invest time and energy in mentoring?
• Do you provide feedback that people find helpful for their professional development?
Inspiration
• Do you articulate a compelling vision, build group pride, and foster a positive emotional tone?
• Do you lead by bringing out the best in people?
Teamwork
• Do you solicit input from everyone on the team?
• Do you support all team members and encourage cooperation?
The Chemistry of Stress
When people are under stress, surges in the stress hormones adrenaline and cortisol strongly affect their reasoning and cognition. At low levels, cortisol facilitates thinking and other mental functions, so well-timed pressure to perform and targeted critiques of subordinates certainly have their place. When a leader’s demands become too great for a subordinate to handle, however, soaring cortisol levels and an added hard kick of adrenaline can paralyze the mind’s critical abilities. Attention fixates on the threat from the boss rather than the work at hand; memory, planning, and creativity go out the window. People fall back on old habits, no matter how unsuitable those are for addressing new challenges.
Poorly delivered criticism and displays of anger by leaders are common triggers of hormonal surges. In fact, when laboratory scientists want to study the highest levels of stress hormones, they simulate a job interview in which an applicant receives intense face-to-face criticism—an analogue of a boss’s tearing apart a subordinate’s performance. Researchers likewise find that when someone who is very important to a person expresses contempt or disgust toward him, his stress circuitry triggers an explosion by stress hormones and a spike in heart rate of 30 to 40 beats per minute. Then, because of the interpersonal dynamic of mirror neurons and oscillators, the tension spreads to other people. Before you know it, the destructive emotions have infected an entire group and inhibited its performance.
Leaders are themselves not immune to the contagion of stress. All the more reason they should take the time to understand the biology of their emotions.
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