G2 On Leadership
Don Draper at the helm
In the hit TV show “Mad Men,” which ended its season last Sunday, Don Draper becomes the de facto leader of the fictional ad agency, despite his cool detachment, brusque manner and brutal honesty. He follows the old adage that it is better to be feared and respected than liked, but he’s also fiercely loyal to people who do good work. Does Don Draper pass the leadership test?
EZ EE
KLMNO Amy L. Fraher is a retired
Navy commander and aviator, director of the International Team Training Center at San Diego Miramar College. Her book “Thinking Through Crises”
comes out in spring 2011.
With America still deeply mired in seemingly irreconcilable war, recession, unemployment, foreclosures and financial debacles, I find it fascinating that we turn to a fictional television show for leadership guidance.Not just any program, but a record-winning show that glorifies a period in time when America was strong, foreigners were the enemy, white people ran most everything, men were the breadwinners and women knewtheir place. Within this framework we encounter the hard-drinking, skirt-chasing Don Draper, a war hero and self-made advertising exec who is often his own worst enemy. . . . Draper is certainly imaginative, creative and confident enough in his ideas to succeed today in industries that were nonexistent in the 1960s. Despite his often brusque mannerisms, he has a charisma that draws people to him and they follow his instructions to the most exacting detail. Strong, charismatic leaders can create a
dangerous ‘dependency dynamic,’ in which their impressive competency crowds out the skills of other employees. In our complex, interrelated world this can have disastrous consequences.We have seen several examples as of late, from law enforcement blunders to the BP oil spill to the financial crisis, in which underlings attempted to raise concerns to higher-ups with little success. Although Draper’s inappropriate behavior would definitely get him fired in today’s organizations, it is his unreflective steamroller approach that would prove lethal to the organization as a whole.
MIKE YARISH/AMC
Don Draper, center, with Pete Campbell, left, and Roger Sterling is the star of“MadMen,” but isn’t necessarily the core leader on the show.
Excerpts from On Leadership, a Web feature exploring vision and motivation by Steven Pearlstein and Raju Narisetti. To see videos and read the entire panel’s comments, go to
www.washingtonpost.com/leadership.
John Baldoni is a leadership consultant, coach and regular contributor to the Harvard Business Review online. His most recent book is “Lead Your Boss: The Subtle Art of
Managing Up.” Don is a flawed character, rich in dramatic power
but ultimately a leader with serious deficiencies. Ask yourself this: Is Don someone you would want to count on in a crisis? A likely answer would be no. His interest in self-preservation would outweigh his commitment to the team. Case in point is his cancellation of the bid for the military contractor because a background check would reveal his true identity. Such a loss of potential business hurt his agency, struggling for billing and relevancy. The character of Don Draper is a rich one and for
those of us who think about leadership he embodies the maxim. In drama, character is action, same for leaders. Don’s leadership is not perfect but he represents aspects of the human condition, notably human frailty in such vivid detail he serves as an example of how and how not to lead. Yet there is hope for Don, as there is for all of us,
that our virtues will outweigh our flaws if we make changes.
Peter Hart is chairman of
Hart Research, a firm that does the public opinion polling for NBC/Wall Street Journal. Don Draper is a mess.His agency is a mess.His personal
life and values are a mess, and his sense of leadership has all the sensitivity and steadiness of an active volcano.His special quality of creativity may be enough to land business and help sell products, but it is hardly the glue that makes this a strongly and well functioning agency. . . . There is leadership to be found on “MadMen”—
it is Joan, who runs the office with basic good values and a lot of moxie, using both terror and tenderness to keep the firm functioning. She is the glue for the show and the firm. On the home front, there is leadership—it is Carla, the housekeeper, who knows, cares and understands the kids and brings a wise perspective to life. It is not Don Draper we should be casting as the
leader, but it is the steady, wise women of the ’60s who provided the basis for the civil rights and women’s movements.
AMC Draper is many things, but is he a leader? Inside job: Study reveals how valuable inside information is
Could you replicate their trades and reap the same rewards?
BY RAY FISMAN Can you trade with the trad-
ers? Do the rich get richer be- cause they’re smart and hard- working? Or because money buys influence, connections and inside information? The Securities and Exchange
Commission does its best to catch those who trade stocks on insider tips ( just ask Martha Stewart), but its investigators can’t hope to make sure every trade by corporate insiders and their friends is kosher. A recent National Bureau of Economic Research studyby Lauren Cohen and Christopher Malloy of the Harvard Business School and Lukasz Pomorski of theUniversi- ty of Toronto proposes a simple way of ferreting out suspicious insider trades. It also finds that mimicking these suspicious trades would allow you to beat the market by about 10 percent per year. This boost to returns may be enough to keep the privileged a little ahead of the rest of us. But the study itself may help erase the benefits of inside information by suggesting some statisticalmethods the SEC
might employ to detect and pun- ish insider trading. Senior executives and other
corporate insiders buy and sell shares in their own companies all the time. It’s all perfectly legal unless the trades exploit privi- leged information available only to a select few — insiders get a sneak preview of quarterly earn- ings and other announcements that have the potential to move markets, giving them a window in which to sell shares in their own companies in advance of a crash or to buy stocks ahead of positive news. Due to concern over the use of privileged infor- mation to profit at the expense of other investors (who naturally sit on the other side of the transac- tion), all insider trades need to be reported to the SEC and are made public. Looking at the profitability of
all insider tradingmight suggest that the SEC is already doing a pretty good job of keeping insid- ers honest: On average, the bets made by those in the know don’t do much better than the market overall. But as the authors of the new study observe, insiders buy and sell shares formany reasons. Some — Bill Gates, for instance — sell shares at consistent inter- vals precisely because they want the SEC to knowthey’re not up to any funny business. Others are similarly consistent—executives
often receive their bonus checks on the same date each year, and since they can often buy shares in their own company at a dis- count, they immediately convert their payouts into company stock. These two examples suggest a
very simple rule for screening out “routine” trades that are unrelated to efforts to beat the market: Just get rid of all insider trades that take place at the same time, year after year. What’s left is the “op- portunis- tic” trades that war- rant a closer look. Of course, many of the trades the authors label as opportunis- tic could be perfectly innocent: The need for cash to cover the down payment on a new house, for example, could trigger a one- time trade that’s unrelated to a company’s future. The authors allow that any extra returns that they find, diluted as they are by such trades, probably underesti- mate the true value of inside information. To assess the returns from
insider trading, the authors col- lect SEC documents listing the trades of all insiders—senior ex-
ecutives, board members, share- holders with greater than 10 percent ownership of the compa- ny—between 1986 and 2007. They classify traders as “routine” if their purchases or sales fall on the same calendar month for at least three consecutive years in the past. They classify traders as “opportunistic” if their trades are not consistent or predictable in this way. (The authors also con- sider the possibility that insiders are sometimes routine and some- times opportu- nistic, but add- ing this addi- tional compli- cation to
their analyses doesn’t change thingsmuch.) The authors then measure the
trading profits of opportunistic and routine traders after control- ling for factors like a stock’s riskiness and general market conditions at the time the trades take place. Routine traders don’t do any better than the average Joe depositing his monthly sav- ings in a Vanguard indexed mu- tual fund. In fact, they do a little bit worse. The opportunistic ones beat Vanguard (i.e., the market average) by about 0.8
percent a month, which adds up to about 10 percent a year. If opportunistic traders are
selling their shares in anticipa- tion of unpleasant surprises to themarket (or buying in advance of positive news), then their inside trades should anticipate media reports thatmention their company. The researchers down- loaded 3 million news wire arti- cles during the 1990s and linked the stories to their trading data- base to assess whether a compa- ny found itself in the headlines following insider sales or pur- chases. This was the case for opportunistic trades but not rou- tine ones. So should you be dialing your
brokerwith instructions tomim- ic the trades of insiders that the study identifies as opportunis- tic? Insiders are required to report trades to the SEC within a couple of days of a transaction, so if you were closely following SEC filings you’d get almost the same boost to your portfolio as insiders. (Even if it takes longer to get the information, you’d still make out well — Cohen and the co-authors find that the superior performance of stocks purchased by insiders continues formonths afterward.) You’d of course also need in-
formation on insiders going back a few years to figure out whether the trades you’re observing are
Bernanke should try sending Congress a stimulating message EZRA KLEIN
klein from G1
corporations have simply been stockpiling their cash, waiting for a recovery that, paradoxically, won’t take hold until they start lending and spending again. “I’mworried,” says Alan Blind-
er, a former vice chairman of the Federal Reserve’s Board of Gov- ernors. “I’mquite convinced that it’ll be a lot less effective than the first time we did this, and that makes me worried that it won’t be very effective.” That’s because the last round of QE worked very differently: The Federal Reserve bought mortgage-backed securi- ties at a time when the market for them was frozen. That creat- ed liquidity where there wasn’t any.Now they’re planning to buy long-term Treasury bonds that are already in high demand. They’re creating liquidity, in oth- er words, where it already exists. But there’s one player who
could move that money into the economy: Congress. Lawmakers have taken themselves out of the game amid concerns that more deficit-financed stimulus will in- crease interest rates. The Federal Reserve’s purchases will ensure that won’t happen. Someone, however, has to convince Con- gress of that, particularly now that the very concept of stimulus has become polarizing. Someone like, say, Ben Bernanke. Bernanke knewthis, or at least
he once did. In 2003, he tried to advise Japan on how to escape its long stagnation. “One direct and practical approach is explicit (though temporary) cooperation between the monetary and the fiscal authorities,” hesaid. “This direction is promising and may succeed where monetary and fis- cal policies applied separately have not.” The problem facing Japan, Bernanke continued, was that low interest rates weren’t per- suading businesses and consum- ers to spend, but the government wasn’t picking up the slack be- cause the public was worried about piling up further debt. “Cooperation between the mone- tary and fiscal authorities in Ja- pan could help solve the prob- lems that each policymaker faces on its own,” he counseled. The Japanese government could stimulate the economy through tax cuts, and the central bank could print the money to pay for it.
Wouldn’t that just add to the
total debt? “To the contrary,” Ber- nanke said, “from a fiscal per- spective, the policy would almost certainly be stabilizing, in the sense of reducing the debt-to- GDP ratio.” In other words, the relevant numerator—the total debt in the hands of the public— would remain unchanged while the denominator—economic output—would be higher.
“Nothing would help reduce Ja- pan’s fiscal woes more,” he con- cluded. Japan didn’t listen, and its subsequent stagnation offers a cautionary tale. Today, of course, Bernanke is chairman of America’s central bank and faces a similar prob- lem. Low interest rates aren’t persuading consumers or com- panies to spend. Large deficits have left the public skeptical of further government action. And slow GDP growth is making the debt picture much worse. The answer is obvious: “explic-
it (though temporary) coopera- tion between the monetary and fiscal authorities.” In practice, that would mean Bernanke gets John Boehner,Nancy Pelosi,Har- ry Reid andMitchMcConnell in a room and says the politics and specifics of this are their job, but the economy needs more fiscal stimulus if it’s going to recover, and the Federal Reserve stands ready to make that not only pos- sible but also virtually costless. Inasmuch as Republicans aren’t big fans of further government spending right now, the best op- tion could be the exact one that Bernanke recommended to Ja- pan: a Fed-financed tax cut. Per- haps a payroll-tax holiday for the next year or two. Pose this possibility to central
bankers, however, and they get queasy. The Federal Reserve and
routine or opportunistic. Proba- bly not an option for the average day trader, but no problem for the Goldman Sachs and Morgan Stanleys of the world. But if enough investors were to act on this study, all the buy orders would quickly drive up prices in response to opportunistic pur- chases, wiping away any benefit of following insider trades in the first place. (On the other hand, if the authors had kept their find- ings to themselves and used their formula to buy and sell stock, they might have profited hand- somely fromit.) The insider himself — the one
who gets to make the very first trade—still walks away with his extra 10 percent. By providing an effective means of screening out irrelevant insider actions, how- ever, this exercise in “forensic economics” can help the SEC and other regulators focus their ef- fortswhere—statistically speak- ing — the likelihood of miscon- duct is greatest.
Ray Fisman is the Lambert Family professor of social enterprise and director of the Social Enterprise Program at the Columbia Business School. He is at work on a book about the economics of office life. He writes for Slate.
SUNDAY, OCTOBER 24, 2010 Doug Guthrie is an expert in
the fields of management, economic reform in China, leadership and corporate governance, and dean of the School of Business at George
Washington University. Don Draper has a fewthings right: It is actually a
huge weakness when leaders focus, either consciously or unconsciously, on being liked. It is impossible to please everyone, and sometimes difficult decisions need to be made that will hurt individuals in service of the greater good and the overall organizational interests. Good leaders must always place the interests of the organization first, and too great a focus on being liked can get in the way of this necessity. And fierce loyalty and brutal honesty: these are good qualities that will help employees and a workplace thrive (the latter, which can be painful at times, is necessary for healthy, transparent feedback). But the old adage that it is better to be feared
and respected than liked is lazy. All of the above can be carried out with compassion, and too often leaders seem to fall into a sadistic pattern of enjoying the power that comes with being feared. . . . Don Draper might be right that it is better to be respected than liked, but for the best leaders, fear has no place in a healthy organization.
EMILE WAMSTEKER/BLOOMBERG
Ben S. Bernanke, Federal Reserve chairman, once urged Japan to try cooperation between monetary and fiscal authorities as a way to rev up the economy.He could make the same case to Congress.
the Congress occupy different worlds, and the way the bank’s independence has been protect- ed has been to sell that separa- tion as sacrosanct. “That’s get- ting close to crossing the line,” Blinder says. Or is it? On Oct. 4, Bernanke
headed to Rhode Island to deliv- er a speechon the danger of our long-term debt. In it, he called for reforms to Social Security, the health-care system and public- employee pensions, and he con- cluded by outlining the merits of “legislative agreements intended
to promote fiscal responsibility by constraining decisions about spending and taxes.” All that is the province of the Congress, not the central bank. And there’s no reason Bernanke should be more comfortable counseling Congress on reducing deficits than stimulating growth —particularly when growth can do so much to reduce deficits. As Alan Greenspan discovered
when he weighed in in favor of tax cuts in 2001, there are poten- tial risks when a Fed chairman insinuates himself and the Fed
into a controversial political and economic debate. But there are risks, as well, in not engaging. If the Federal Reserve unleashes another round of quantitative easing and it fails because there is nobody to spend or invest the money productively, that could damage the bank’s credibility, its effectiveness and, ultimately, its independence. It could also leave the economy trapped in a rut of low growth and high unemploy- ment for a decade or more. That’s not a risk we can take.
kleine@washpost.com
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