The Leadership Style of Lee Iacocca - Term Paper Example

? Running Head: Lee Iacocca Lee Iacocca of Chrysler This research paper discusses the leadership style of Lee Iacocca, former president of Ford Motor Company and former CEO of Chrysler Corporation. The study explores events in the course of Iacocca’s tenure as executive in two of the most dynamic automotive firms in the U.S., and examines them in the light of the principles learned from Linda Henman’s Landing in the Executive Chair and Harvard Business Review’s 10 Must Reads on Leadership. The purpose is to draw parallels between the tenets described in theoretical discourse, and the facts, events and personal opinions of real-life executives of note, to describe their accomplishments and identify their failings. The study examines the achievements of Lee Iacocca in terms of Henman’s F2 Leadership, Drucker’s principles of taking responsibility for one’s decisions and focusing on opportunities instead of problems, Heifetz and Laurie’s admonition to maintain disciplined attention, and Kotter’s distinction of leadership versus management. Iacocca had adequately displayed through his actions that he is a fair but firm manager; that he assumes full responsibility for his actions; that he is an optimist who seeks opportunities in the face of overwhelming problems; that he goads his managers into maintained discipline by requiring them to face the problem and make tough decisions; and finally that he is a leader as well as a manager. Iacocca admits to some shortcomings, such as giving in to the pressure of union demands in fear of bankruptcy, but there is no perfect executive. For all intents and purposes, Iacocca has demonstrated that he embodies the tenets of Henman, Drucker, Kotter, and Heifetz and Laurie. The theories are therefore validated, in so far as concerns the leadership style of Lee Iacocca. Lee Iacocca of Chrysler Introduction Lee Iacocca, a first generation American and the son of Italian immigrants, began his career as a trainee engineer in Ford Motor Corporation in 1946, although he was steeped more in the marketing aspect, working his way up the corporate ladder in sales. Eventually, however, he found his true calling in product development. His skill and acumen in devising marketing strategies was matched by his sense about what consumers want. Iacocca was known for discontinuing certain models in favor of what turned out to be best sellers, namely the Mustang, the minivan, the Jeep Grand Cherokee, and the convertible Le Baron (Nulty & De Llosa, 1993; Taylor & Schonfeld, 1992). The following discussion explores the leadership style of Lee Iacocca, and how he manifests the leadership principles described by Henman, Drucker, Kotter, Heifetz and Laurie. F2 Leadership (Linda Henman, 2011) F2 is short for ‘firm but fair’ leadership, meaning that the executive treads the middle ground between relationship behavior on the one hand, and task accomplishment on the other (Strategy Driven, 2011). Evidence of Iacocca’s sense of fairness is his pronouncement when he first took over Chrysler that he would accept only $1 as his salary which the company was in distress, until such time as Chrysler would have recovered and been stewarded back to a firmly stable growth path. Iacocca admitted that as chairman, he was persuaded to give in a bit too much to the unions, and it showed weakness on his part. “I was part of that (giveaways to union contracts). You always knuckled under because if you took a 2-week strike in the old days, it could bankrupt you…But they really had you.. You can’t pay a janitor $50 or $60 an hour to sweep the floor. That’s a little wacko’ (Iacocca, quoted by Smith, 2006). However, when tough decisions had to be made, the Chrysler CEO did not balk. In order to save Chrysler from bankruptcy, Iacocca had persuaded the Federal government to extend to it a $1.5 billion loan guarantee in 1980. In 1983, seven years before its deadline, the company had fully paid off all federally backed loans. How Iacocca did this was by making some very difficult decisions. From his assumption of hid office, he closed 20 of the firm’s 60 plants, reduced the workforce to 74,000 from 130,000, and convinced union workers to take significant cuts in pay. It was at this time that Iacocca accepted only $1 in annual salary in a show of solidarity and fairness. He was not entirely bereft of compensation, however, because he was still entitled to stock options worth millions (Nulty & De Llosa, 1993). The willingness to do what has to be done in a voluntary manner is what Chrysler called ‘equality of sacrifice’ which he described as ‘a made-in-the-USA template’ (Lapham, 2008). When Iacocca cut his salary to $1, the other stakeholders followed his example. The United Auto Workers (UAW) union agreed to $462 in concessions, non-union Chrysler employees committed $150 million, and the company’s US lenders offered up $500 million. As a result the company was able to raise the necessary $1.4 billion in order for its loan guarantees to take effect (Lapham, 2008). In short, Iacocca led by example, showing that he does not only preach, but that he abides by what he preaches. This is the ‘fair’ in fair-but-firm. A leader’s credibility increases significantly if he sincerely lives the vision he espouses for his followers. Develop actions plans, take responsibility for decisions (Drucker, 2004) When Iacocca was still in Ford, he decided to abandon the Cardinal, a new model being developed and on account of which the company had already suffered a loss of $35 million. Instead, Iacocca pushed for the Mustang, which was designed from scratch and moderately priced so it is affordable to many. The decision to abandon the Cardinal initially appeared to be a poorly considered decision, because it meant foregoing the recovery of the huge amount already invested in it. However, the decision to cut losses on the Cardinal and proceed with the Mustang proved to be the better alternative after all. The Mustang registered record sales volume of 418,812 units on its maiden year, from which Ford realized a profit of $1.1 billion (Bloomsbury Business Library, 2007). This shows that Iacocca, when convinced of a decision, pursues it and takes responsibility for the outcome. The fact that Chrysler approached bankruptcy twice was not the result of failure of planning, but the result of heightened competitiveness. The manner in which Chrysler approached its production processes showed how the company sought to learn from its competitors. Iacocca formulated an action plan, and established a team of 25 people to specifically study Honda’s production method, particularly how they are a able to develop a car in three years with limited use of resources. The ‘Honda team’ was comprised of young people from different functional units in the company. Within a year the team produced its results, and corresponding changes were adopted in Chrysler, particularly those having to do with lean production, worker empowerment, and the creation of production teams. After a few years, Chrysler became so good at its production that Honda approached the company for consultation (Taylor & Schonfeld, 1992). Focus on opportunities, not problems (Drucker 2004) Iacocca’s was not always a charmed work life. When the elderly and ill Ford developed a paranoia towards the people around him, Iacocca, who was at that time the Ford company president, was not spared. In one of his more bizarre episodes, Ford was convinced that Iacocca was involved in questionable activities, and ordered an internal investigation that is said to cost more than $1,500,000. However, search as they might the investigators could not unearth any misdeed on the part of Iacocca. Then in 1977 Ford called upon McKinsey & Company, management consulting firm, to reorganize Ford Company’s management structure. McKinsey eventually designed a new structure led by a chairman/CEO, a vice chairman, and president, relegating Iacocca, who used to be at the top, to only the third from the top (highest position was reserved for Henry Ford II, the grandson of founder Henry Ford). The older Ford took pleasure in publicly calling attention to Iacocca’s apparent demotion; in 1978, however, he terminated Iacocca, not for reason of performance because Ford had netted a $2 billion for the year (Iacocca, 1984). Ford was reported to have said that “Sometimes you just don’t like somebody” (Bloomsbury Business Library, 2007, p.1). Instead of resting on his laurels and retiring, the 54 year old Iacocca joined Chrysler Motor Corporation and assumed the position of chairman and CEO one year after he was dismissed from Ford. This was not the end of his problems, however, because unknown to the new Chair-CEO, Chrysler was cash strapped and quickly running out of money. Iacocca went immediately into action, removing excess inventory, renegotiating contracts, recruited new talent and making necessary and significant layoffs. He then applied for a $1.2 billion loan guarantee from the government, and had to testify before Congressional hearings to get it. He cut costs at Chrysler, and famously cut his own salary to $1 a year. Gradually, the company picked up, reporting $925 million in profit, and retiring the outstanding balance of its debt to the government. From then Chrysler proceeded to acquire American Motors and incorporated Jeep into the product offerings of Chrysler, fueling the company towards greater financial and operational success (Bloomsbury Business, 2007). Maintain disciplined attention (Heifetz & Laurie, 2001) Maintaining disciplined attention means to inspire managers to confront controversial and divisive issues, instead of putting the blame on others or ignoring the problem and denying its existence. Leaders must open the debate and explore the issues beyond what is superficial to get to the root of the problem. They must sidestep the polarization and instead foster collaboration to address the problem. Iacocca observed that oftentimes, middle managers will balk when faced with the need to change and adapt, preferring to avoid the issues, rushing to restore the equilibrium while avoiding the real work that requires adaptation. Leaders must be able to convince their employees to confront difficult challenges and even painful ‘trade-offs in values, procedures, operating styles, and power’ (Heifetz & laurei, 2001, p. 41). Despite the various conflicting issues, Iacocca knew that the priority in business is to basic principle of selling: that the deal all negotiations should aim for must provide benefits to both company and customer. One without the other is simply not sustainable. This was Iacocca’s driving point when he went to Washington to negotiate for a $1.5 billion loan guarantee. If Chrysler shut down, he reasoned, the taxpayers would have to shoulder $2.7 billion in unemployment compensation and other welfare payments in relation to it. However, a $1.5 billion loan guarantee will not impact in any manner on public funds because he gave his word that Chrysler will become viable again. The Federal government was persuaded, Iacocca got his loan guarantee, and within a few years a much revitalized Chrysler had made full payment on the loan (Nulty & De Llosa, 1993). Leading versus managing (Kotter, 2001) A good number of articles emphasize that there is a difference between leading and managing. Management is concerned about coping with complexity, and it primarily responds to the emergence of large corporations in the past century. It takes good management to create order and consistency in the pursuit of quality and profitability. On the other hand, leadership is concerned about coping with change, which is highly relevant in an era of competitiveness and volatility. Significant changes happen constantly, thus leadership is necessary to provide direction and motivate adaptation to respond to change (Kotter, Zaleznik & Farkas, 1998). According to Iacocca, leadership and management complement each other, and both are needed to run organizations today. Iacocca prescribed the nine Cs of leadership: curiosity, creativity, communications, character, courage, conviction, charisma, competence, and common sense. In his book ‘Where Have All the Leaders Gone?’ (2007) he says: Common sense – Iacocca recalls that as a new worker in the car business, his boss, Charlie Beacham, who had a warm Southern drawl, ‘a smile and a core of steel’ told him that the only thing he will have going for him as he progressed through life was his ability to reason and his common sense. ‘If you don’t know a dip of horse manure from a dip of vanilla ice cream, you’ll never make it’ (Iacocca, quoted in Executive Leadership, 2010:2). Curiosity – One must listen to voices outside the circle of those who always agree with you, and always ‘read voraciously, because the world is a big, complicated place’ (Iacocca, quoted in Executive Leadership, 2010:2). Creativity – There will always be a need to adapt to change, whether change comes gradually or quickly, and it will require creativity and thinking outside conventional solutions to address the problems posed by these changes. ‘Leadership is all about managing change…things change and you get creative.’ (Iacocca, quoted in Executive Leadership, 2010:2) Communication – For Iacocca, communication means telling the truth, even when it is painful, because once you put a spin on the truth, people will recognize this as untruth, and they will stop listening (Iacocca, quoted in Executive Leadership, 2010:2). Competence – One should know what he/she is doing, and surround him/herself with people who know what they are doing (Iacocca, quoted in Executive Leadership, 2010:2). Courage – The lesson on courage Iacocca credits with having lived through America’s best and worst times. ‘You don’t get anywhere by standing on the sidelines waiting for somebody else to take action,’ according to him (Iacocca, quoted in Executive Leadership, 2010:2). ‘Courage in the 21st century doesn’t mean posturing and bravado. Courage is commitment to sit down at the negotiating table and talk.’ (Iacocca, quoted in Armbruster, 2007: 4). Iacocca notes that the automotive industry was beset by runaway health care and large pension costs due mainly to skewed union contracts, he tends to be forgiving of these citing pragmatism that in those days, the unions had to be dealt with to stave off crippling strikes. He takes a tough stance, however, when it comes to the issue of executive pay, calling it executive greed; Iacocca expressed dismay that executives “still draw big pay and bonuses while asking the white- and blue-collar workers to take big hits” (Ward’s Autoworld, 2006:30). Conclusion The foregoing analysis shows that Lee Iacocca’s leadership style is consistent with all that the noted authors have written, although there are shortcomings admitted by Iacocca himself. The most vital factors that drove Iacocca’s style are his leadership by example, his resolve in pursuing difficult decisions, his ability to be both leader and manager and being able to distinguish between the two. He understands the importance of emphasizing to his managers that they cannot shirk from facing the controversial issues squarely, and by adopting the difficult but necessary solutions to resolve the problems. Finally, in the worst of situations, Iacocca has the gift of finding the silver lining, those opportunities that surface in the critical events. It was opportune that, although he was unaware of it at the time, he made the transfer to Chrysler when it was floundering. Chrysler needed a leader who had the skill and insight to bring it to solvency, and eventual growth. Iacocca was just such a leader. References Armbruster, B. (2007). Iacocca on leadership. Shipping Digest, 84(4399), 4. Executive Leadership (March 2010) ‘Iacocca on the need for leadership now,’ Executive Leadership. 25 (3): 1-2 Harvard Business Review (2011) HBR’s 10 Must Reads on Leadership. Boston, Massachusetts: Harvard Business School Publishing Corporation. Henman, L (2011) Landing in the Executive Chair: How to Excel in the Hot Seat. Pompton Plains, NJ: The Career Press, Inc. Iacocca on Chrysler's Bankruptcy. (2009). BusinessWeek Online, 14. Iacocca on the need for leadership now. (2010). Executive Leadership, 25(3), 1-2. Iacocca, L. A. (1993). Iacocca on governance. Corporate Board, 14(82), 1. Iacocca, Lido A. (1984), in William Novak, Iacocca: An Autobiography, Bantam Books, ISBN 978-0553051025, LCCN 84045174. Kotter, J.P.; Zaleznik, A.; & Farkas, C.M. (1998) Harvard Business Review on Leadership. Boston, MA: Harvard Business School Publishing Lapham, E. (2008). 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