Posts Tagged ‘Leadership’

Looking for weak signals

Friday, December 10th, 2010

All successful business leaders pay close attention to strong signals. But truly visionary leaders scan for ‘weak signals’ that can indicate irreparable damage – or unseen opportunity. Anthony Howard explains.

I started my career as a navigator in the merchant navy, and spent many hours at sea gazing at the radar – particularly during storms, in congested waterways, and when close to shore. As well as plotting a course and planning a journey, navigators are trained to find those things that don’t belong, that aren’t on the map, and that are hidden in the clutter.

Strong radar signals reflect from the land and other large vessels, confirming the course one is on and providing clear indication of obstacles to avoid. But the radar also detects ‘weak signals’ that rebound from small boats and hidden dangers. It’s not always easy to distinguish these weak signals from the background noise, and it takes a skilled operator to recognise the small signs that indicate a potential risk.

In business, all successful leaders pay close attention to the strong signals – revenues, profitability, market trends, competitive offerings, and so on. But familiarity with the terrain can breed a false sense of security, as new signals emerge that were not shown on the map, and were not there last time we were in a similar situation.

Truly visionary leaders also constantly scan for ‘weak signals’ that indicate possible hazards ahead. Let’s take the example of the banking industry.

In recent years, a convergence of forces such as shareholder activism, disquiet about executive remuneration, and cost-of-living pressures, has led to widespread consumer dissatisfaction with banks. One group feels they are bearing a cost burden while another is accused of enriching themselves at the former’s expense. None of this comes as a surprise to those who have observed the signals.

Combine this with rising interest rates, increased cost of funding, media outrage and a government that cannot risk losing votes, and the trap is loaded.

In recent months, the government, facing declining GST revenue and spiralling welfare costs, has indicated its willingness to impose a new resource tax on mining – an industry that enjoys considerable public support. Is it too much of a leap to imagine a similar ‘super profits’ tax on banking?

Although the banking industry failed to grasp the earlier weak signals, it would be wise to read the tea leaves and win the hearts of their constituents with a fresh strategy, innovative marketing and deep customer care. Failure to do so risks the industry being rendered uncompetitive by swiftly enacted and poorly thought out regulation that inadvertently favors big banks over small, and limits profit available for dividends, ongoing investment, and lending.

Creating less competition and reducing the amount of money in the system by diverting it to the government would unintentionally hurt the very people who are hurting the most – small and medium-sized businesses that rely on bank funding.  To show surprise at such an outcome would demonstrate short sightedness and failure to read the signs.

A weak signal can be something as small as one person asking a penetrating question. Some years ago I saw a newspaper article about escalating health costs, and a few days later read an opinion piece where the author queried why she, as a taxpayer, should foot the bill for people who had failed to take responsibility for their drinking, smoking, diet and exercise. Will this become a groundswell? Will the provision of taxpayer-funded healthcare be linked to lifestyle choices? What implications would there be?

Observing weak signals can allow a business to take small steps early, rather than evasive action in a crisis, like the captain who makes a minor course alteration early in response to potential danger. There is no news in the journey safely travelled, but rather in the ships sunk and lives ruined. So too do we rarely observe business leaders fine-tuning their strategy in response to weak signals.

But we certainly note those who have failed to see the risks.

Business leaders need to develop the skill of observing weak signals, wherever they may arise. They can be found in conversation, discerned in the words of a newspaper article, observed in foreign cultures, detected in intuition. Get outside your industry, visit different cities and cultures, and read for insight, not for information. Acquire the habit of constantly asking questions like:

  • What would our business be like if this were to happen in our industry?
  • What am I actively choosing to ignore?
  • Who is asking good questions that challenge our assumptions or cause us to reframe our thinking?
  • What do we do that outsiders consider absurd?
  • What do I observe that seems absurd to me?
  • What will change your world?

The practice of watching for weak signals will elevate one’s leadership to an entirely new level of performance. By taking time to look intelligently at the radar and reflect on what you see, you’ll be better able to take charge of the future, gain competitive advantage, and be a source of insight to others.

Is your organisation what it says it is?

Saturday, October 23rd, 2010

Is your organisation what it says it is? How do you know? How do you let your customers know? Darrall Thompson, Senior Lecturer and Director, Teaching and Learning at the UTS School of Design, has explored the question from the educational perspective. Does it have applications for business?

Businesses trade on what they deliver to their customers, and on what they stand for, their values. And focus on values has become more intense. Perhaps it’s fall out from well publicised cases like the James Hardie asbestos scandal, the BP oil spill in the Gulf of Mexico and the levels of fraud and unethical dealings that contributed to the global financial crisis which continue to continue to emerge. Perhaps is it’s the ease with which customers can now communicate dissatisfaction via social media platforms magnifying the impact of small brand hiccup, and globalising and personalising larger scale disasters.

So, how does any organisation turn all the talk about values into something tangible and measurable by its various stakeholders?

It’s a question the education sector has been grappling with and Darrall Thompson, Senior Lecturer and Director of Teaching and Learning at the School of Design has had particular focus on the issue for the past eight years.

‘In the design school, challenging creative boundaries is a ‘risky’ thing to do, so we explored how the high level of risk taking, valued in graduates by the university can be constructively incorporated into the assessment criteria for student assignments, rather than marked down.’

The outcome, is a web-based software application, Re:view.

Originally designed to promote deeper learning, by engaging students with course assessment criteria, it’s finding resonance in the wider academic community and is being commercialised by UniQuest and digital marketing company, acidgreen, as an online assessment interface for educational organisations.

‘It’s proven to save marking time for teachers, increase ten-fold student engagement in work feedback and it has market potential beyond universities, for a myriad of selection and measurement applications, from staff recruitment and performance review, to business development.’

Thompson says as well as providing developmental feedback for students Re:view ‘helps academics focus on key assessment criteria in their subjects, to ensure students are being assessed according to development in the key course areas, grooming them to meet the needs of their future employers, or indeed, become great entrepreneurs.’

‘Ultimately, students will graduate with an official, longitudinal record of their performance in key attribute areas, over the duration of their course.’

In an employment environment that looks favourably on graduates with proven track records in a range of unmeasurables like creativity, innovation, versatility, adaptability, empathy with other cultures, communication skills, the potential for this measurement tool in the wider business world is still to be revealed.

Managing director acidgreen, Mike Larcher is investing in the commercial development of Re:view:

‘The benefits of Re:view are not limited to student learning and development, as the system also provides employers a means of measuring a graduate’s capabilities based on meaningful assessment. This creates enormous business world potential.’

CEO, Association of Financial Advisors, Richard Klipin, agrees.

‘When investors look at investing anything, they need to be sure they’re investing in real companies, with real people, that have realproducts, and it’s not just some esoteric idea that’s a bit out there,’ he says.

Klipin says, senior executives have this issue on their radar:

‘Their brand has to stand for something and their brand has to be consistent and authentic.

‘If you’re going to value a graduate attribute, it needs to be made explicit in the assessment process.’

Klipin says if Re:view can live up to its promises, it has real business potential.

‘We have report cards for kids at school and tertiary education, so having a system that allows a student and obviously academics and perhaps prospective employers to be able to assess and track and review, with the aim obviously of tracking performance and hopefully improving performance, has to be a sensible thing and a useful tool.’

Creative Innovation 2010, the wrap

Friday, October 1st, 2010

What kind of man walks onto a stage in a foreign city – where he has few acquaintances and fewer friends – and declares the newly opened public building in which he is standing an architectural mish mash? What kind of a speaker at a creativity conference declares the ‘chucking around of paint around should be confined to nursery schools and universities but the bit in the middle is about learning what needs to be learned’.

The event was Creative Innovation 2010, hosted by leading members of Melbourne’s art and business community, headed by leading Soprano and social entrepreneur, Tania de Jong.

The speaker was Austin Williams, Director of the Future Cities Project, in the UK and author of The enemies of progress, (Societas, Exeter, 2008). For the first hour of deep conversation during which he shared a stage with Edward de Bono and Rufus Black, Rhodes Scholar and Master of Melbourne University’s Ormond College, the audience would have been forgiven for thinking Williams had walked on to the wrong stage at the wrong event.

‘Excuse me, sir, the conflict resolution course meets next door.’

I would venture to argue that Williams was in exactly the right place at exactly the right time, and indeed cleverly placed by the conference organisers.

Why? Well let’s start with the words ‘creativity’ and ‘innovation’. Put the two together, add the name of just about any industry, and you’ve got the title of at least ten conferences in Australia alone, this year – back of the envelope calculation, granted.

We’ve had creative innovation in design, in accounting, in management consulting, in education, in health, we’ve had regional innovation events, skills creativity events, innovation for the young, the old and the young at heart. Business21C can put its hand up for hosting its own creative and innovative event this year, innovatively disguised ‘funky thinking’.

In fact, there’s been so much talk about creativity and innovation since the GFC undermined our belief in the financial system, that quite possibly the least creative thing you can do right now is host an event with either of those words in the title.

But de Jong and her colleagues recklessly put the two words together and staged an creative innovation extravaganza at Melbourne’s newly built Recital Hall, last month. And they pulled it off with style.

CI2010 worked. More than that, in places it was fabulous. One session even got a standing ovation – and that doesn’t happen often when there’s a management consultant on the platform. I have been trying to fathom why. It was not the impressive list of speakers. After all, in 2010 event organisers have to compete with the likes of TED.com who provide brilliant speakers 24 hours a day to a broadband connection near you. It wasn’t the musical interludes that punctuated the proceedings gracefully, either. It was, I believe, how the speakers were put together on stage: the brilliant and the brilliantly bolshie, the creative and the critical. And kept there. Panel sessions were up to two and a half hours long. No whack-up-your-powerpoints,-say-your-piece-and-sneak-off. Speakers spoke, and the audience drilled. Uncompromisingly, sometimes less than coherently, but relentlessly, for three whole days.

During that time, more than 30 speakers covered topics as diverse as pig farming, mental health, responsible design, irresponsible design, education, play, meditation, neuroscience and brand building for cities. And, in some miraculously found moments between all that content, we were entertained and soothed by a variety of artistic pursuits rarely associated with business discussion, from cartooning to piano, singing and painting.

But why are innovation and creativity taking up so much airtime in business discourse?

Either we are determined to become socially and environmentally responsible all of a sudden, or developed economies are waking up to the thought that they have to come up with new ideas to remain globally competitive. (After all, Australia, you can’t keep digging stuff out the ground and flogging it on, forever.)

The two schools of thought on this go something like…

  1. Western economic nations have painted humanity into a tight corner with their focus on growth, consumption, more growth, more consumption. We are running out of just about everything we need to survive as a species: space, water, fuel, food, clean air. This is a big thorny problem, one that some say can only be tackled by new kinds of thinking.
  2. It’s a matter of economic competitiveness. Take a look at statistics on patent registration around the world. Now compare them to those on national economic growth. There is a correlation. China, India and Korea have shown five, three and two and a half fold growth in the number of patents registered per capita of population in recent years. In developed nations, patent registration is slowing. In the UK and in Japan there’s negative growth. It seems, perhaps, new ideas are drivers of economic growth.

Whatever the reason, creativity and innovation are without doubt the new business black. But does the constant picking over of what creates creativity and sparks innovative thinking work? Or is it mid-life crisis navel gazing of mature economies in search of meaning?

To Austin Williams our potential to innovate is massively restricted by risk averse, precautionary parameters about what innovation should look like: sustainable, responsible, socially acceptable, for starters. Creativity, he says is stifled from birth.

But that’s just what he says. Thirty other speakers gave their insights and thoughts on creative thinking and innovative thinking practice over the three days of Creative Innovation 2010. Some agreed with Williams, some didn’t. But it was the diversity of thought and the opportunity to challenge that set CI2010 apart. Without critical thought and the confidence to challenge, can there be true creativity or meaningful innovation?

Short summaries of some of speakers key points are below. Videos will be online shortly and we’ll link to them as soon as they are. Have a browse, and see what you think.

Professor Jonathan West, Australian Innovation Research Centre, The innovation myth

The myth of innovation is that it arises from creativity. Innovation results from a lot of hard work over a long time, testing, creating and commericialising. Innovation is about changing the system into which the innovation plays. The 3 most important innovations of 20th century are: fixing energy into nitrogen, the atomic bomb, and containerisation (the container system for transport). In common they have the creation of a large scale and complex system to support them. For containerisation, it was a matter of reengineering a whole international infrastructure: ships, ports, dockers, trains, trucks and so on, but once achieved, global trade exploded.

We live in a complex world, with complex systems. Innovation is inefficient because it is about system change and we design our systems to be impossible to change.

Andrew MacLeod, CEO, Committee for Melbourne, Melbourne Innovative City

Presented the concept that the branding for the city of Melbourne should be the new paradigm in internatonal aid – to foster private and public sector development for investment, and for Melbourne to become to private sector investment and administration of international aid, what Geneva is to public sector investment and administration of aid.

Edward de Bono, Rethinking the future

Climate change is not the biggest problem facing humanity – the poor quality of our thinking is. And the fact that we don’t understand just how poor it is. Creative thinking has been trained out of us, because it hasn’t been valued. Now we need a Palace of Thinking where new ideas can be looked at and explored. Only by improving our thinking can we improve the ways we deal with some of the big issues facing us.

Michael Smith, CEO, ANZ Bank, Innovation and the rise of Asia – new opportunities, new risks

The rise of Asia offers new opportunity and new risks for business. ANZ Bank is one of fastest growing banks in Asia. Any large business that does not have a strategy that engages in Asia is exposing itself to risk. Successful strategies to compete in the Asian market must be innovative.

What do you need to innovate:

  • Shared mindset
  • Shared logic
  • Shared discipline (how to collaborate and create new knowledge accross organisations, not just recreating existing knowledge.

Claire Penniceard, Pork farmer, Failure, farming and food security

Claire Penniceard bred and raised hardy independent self managing beef cattle, on a zero input enterprise – no supplements no hay, no fertilizers. She bred grand champions but it was not economically or environmentally sustainable. She was the best, but the best was not good enough.

Having explored issues of dietary energy and food security around the world within parameters like environmental sustainability and animal friendliness, she walked off her successful beef farm to go into pig farming. It takes 74 of best beef farms to equal in production what one great pig farm does. Now she produces nine million dollars worth of export quality pig. They are housed and managed to enact all their natural life.

Dr Peter Farrell AM, CEO, ResMed, Innovation and entrepreneurship, the engines of economic growth

Entrepreneurs are often considered to be risk takers. They are not. They are opportunity seekers. Innovation is not creativity but requires it. Innovation occurs when a concept is anointed by the marketplace, when someone writes you a cheque. When we apply a new technology to something we know it’s called productivity, but when we apply it to something new it’s called innovation.

Stefan Cassomenos, Pianist, conductor, composer, From improvisation to composition

Failure is part of the creative process, and Cassomenos believes his entire process of composition depends on failure in some way before creativity is born.

Professor Patrick McGorry, Executive Director, Orygen Youth Health, Australian of the Year, Mental health and mental wealth

Australia’s health is its greatest natural resource, yet mental health is seriously neglected. It effects four to five million Australians and is the greatest killer in Australians under the age of 40.

Yet in terms of mental health care, an apartheid system exists: compare the facilities provided, staff numbers, visitors even flowers delivered to a patient with breast cancer, to those someone hospitalised for a mental health problem receives.

Professor Stephen Heppell, Director, ULTRALAB, Playful learning and why we all need cheering up

Play in learning is joyful, it surprises, challenges and engages. It teaches us to cope with the unexpected. Yet we lose sight of playfulness on our learning journey through life. We have to put play back into the centre of learning if we are going to be flexible thinkers, able to cope with change and with the unexpected.

Professor Peter Shergold, AC, The Centre for Social Impact, Empowering communities to transform democracy

Exciting and innovative stuff happens at the margins often on poorly funded pilot programs, where needs are greatest. The challenge for Australia is to become a hot bed of social innovation – political innovation and community innovation, drawing on a history of such initiatives as bush nursing.

Mark Scott, Managing Director, ABC, Building the digital town square

Fifty people in rural Australia are taking production skills and facilities to the communities, teaching people to put their stories online. If we can collaborate and share our stories we will understand each other more and have a real national conversation recognising the choice and expertise of the community is just as interesting as anything the ABC has to offer.

The experience of the Q&A audience which is growing every week has shown the value of audience led current affairs.

The future is not a place we are going is a place we are making.

Austin Williams, Director, Future Cities Project, Constructing communities, a contradiction in terms?

What is it about communities that politicians are trying to capture and bottle and sell back to us as the elixir of new ways of living? Why is it the community motif which means local and parochial is becoming central to national agenda? Three key elements of a healthy community are: voluntarism, purposefulness and autonomy. Initiatives like the big lunch which funded neighbourhood lunch events in the UK, are corrosive and insular. Is the world around you your neighbourhood or is it a bigger place? Communities are things of flux and change and should transcend the merely local. We are being taught to be good citizens rather than to be educated citizens – but through education comes citizenship.

David Rock, CEO, Results Coaching Systems, The neuroscience of creativity

We have a very small capacity for solving problems in a linear way. Most of the problems we solve at work are too big for our conscious resources so we have to access the unconscious which, relative to the conscious area of the brain is like tapping into the Milky Way.

The neuroscience of insight is the culmination of five years of study on how we can have more insights.

The four faces of insight are:

1. Awareness of an impasse, you need to stop and focus on what is not working.

2. Reflection reflection is required for insight to occur, because insight requires low electrical activity. Insights like the ring of a quiet mobile phone at loud party. Anxiety stops insights because it creates electrical signals which can drowned out the quiet electrical signals of insight.

Reflection is internally focussed. It’s relaxed and low effort.

You only need about 2 seconds of quiet to have the insight

Even a tiny threat can inhibit problem solving and insight.

3. Insight, at the moment of insight, dopamine-like substances are released. Having an insight changes the brain and packs a lot of positive energy.

4. Action, insight brings short term urgency for action. Action increases attention density. Attention density deepens insight.

Michael Rennie, Managing Partner, McKinsey and Co, Necessity is the mother of invention

Working at McKinsey and Co is working with the crack troops of western capitalism. Yet Managing Partner, Michael Rennie talked about bringing love to business – a place where there is more likely to be fear. There are two parts to innovation – the creative idea and and making the idea useful and applied. We are all creative. We don’t allow for reflection at work and most of our insights don’t happen at work.

Business21C was a sponsor of Creative Innovation 2010.

UTSpeaks: Our very survival

Wednesday, August 25th, 2010

On 3rd August, 2010, over three hundred and fifty people packed into the Great Hall at the University of Technology to hear from three of Australia’s leading sustainability thinkers, Professor Dexter Dunphy, Professor Thomas Clarke and Professor Jim Falk. Chaired by Network 10 Environment Reporter, Emily Rice, it was dubbed ‘an opportunity to think about our very survival’.

Emily Rice set the discussions in the context of the lead up to the August Federal Election: ‘The matters up for discussion tonight are complex. Julia Gillard is seeking consensus on climate change, but Tony Abbott thinks climate change is crap. The youth of today don’t view saving the environment as debatable. For them, it is non-negotiable.’

Emeritus Professor Dexter Dunphy of UTS Business painted a perspective  of the sustainability and economic challenges he believes the world faces. It was a call to arms for the audience to stop relying on someone else to come up with the solution to the planet’s woes.

‘You don’t grow potatoes by talking about them. We’ve done a lot of talking, but it’s time to actually do something about this planet and for society.’

In Dunphy’s view the global financial crisis and the trend towards business as usual are the two biggest threats facing the survival of the planet.

He outlined how climate change, peak oil and population growth are converging to cause dramatic changes in life as we know it and predicted that 2030 will be the tipping point in deciding the planet’s future.

‘If we don’t take dramatic measures between now and then, we will lose our ability to control climate change.’

The main things he said are vital included moving to zero net CO2 emissions, moving to a zero waste world and reducing demand for material resources.

He said the shift will need be similar to mobilising for war and will require social change. ‘Less stuff, more services with a focus on quality of life.’

Professor Thomas Clarke, Professor of Management and Director of the UTS Centre for Corporate Governance, spoke about ‘the impending inevitable integration of corporate governance, corporate social responsibility and sustainability’ for the business sector.

‘Today companies have to respect the imperative of being socially responsible and sustainable environmentally, in order to receive a license to operate.’

According to Clarke, Australia has the highest rate of greenhouse gas emissions in the world but our political leaders have not ‘grasped the scale of what is needed to prevent a climate increase to 2 degrees celsius.’

Commenting on the political fate of the Carbon Pollution Reduction Scheme and an Emissions Trading Scheme for Australia, he said:

‘It’s an appalling situation in Australia and the fact that we’ve lost two political leaders quite recently, who were casualties of this process, is part of the tragedy.’

Clarke said leadership and action on climate change needs to come from the business community and consumers.

Professor Jim Falk, Director of the Australian Centre for Science, Innovation and Society at the University of Melbourne and author of the recently published, Worlds in Transition: Evolving Governance Across a Stressed Planet shared his views on his theory of reflexive capacity for adaptive transition. His theory relies on people choosing to change their impacts on the planet and working together.

It is Falk’s belief that our lifetimes are incredibly significant.

He explained what a short time humans have lived on earth, in relation to its age and said technological innovation is less challenging than the social innovation needed to change the way we live.

Edition 7: Positive Psychology and Happiness

Friday, June 25th, 2010

What are you waiting for? Don’t wait until you’ve got a new car, a new job or some new romance in your life to feel happy. Get happy first, and it’s actually more likely that those things will come to you. So says UTS Adjunct Professor Timothy Sharp, aka Dr Happy in this Business21C Weekly. Also joining us in the studio is Senior Lecturer Tyrone Pitsis, award-winning researcher in the arena of positive psychology.

Happiness isn’t just good for the soul. It’s good for business. We ask what makes people work harder, longer and better? Meaning in their work, says Pitsis. Research across disciplines, from organisational theory to neuroscience backs it up. We chat through what makes happier workplaces more financially efficient, why people who find community in the workplace are in a better position to give of themselves, and how managers and workers themselves can create an environment for productive, meaningful, happy workplaces.

To hear more about the psychology of happiness – and why it’s good for you and good for your business – register for our next Business21C conversation at the Sydney Opera House on July 15 here.

Leaders not models

Tuesday, June 15th, 2010

Business school graduates preparing to take their place in the working world should rely on critical thinking, integrity and their strength of character to shape their business success. These attributes will always be more important than blind faith in financial models, according to former chair of the Commonwealth Bank and chair of the Future Fund Board of Guardians, <i>David Murray,</i> OA.

Murray was addressing the UTS Business graduation ceremony on 12 May. He took the opportunity to consider what failures in business leadership contributed to the devastating financial crisis, the ramifications of which are still spreading across the globe.

According to Murray, current business education is still influenced by the pre-financial crisis environment. Post-crisis thinking is yet to fully emerge. A business degree awarded today has been earned in a world which had come to revere the power of mathematical modelling, and hold firmly the belief that any risk can be quantified and traded – even when market signals inferred an extreme risk.

True leaders need more than the ability to model outcomes – they need thinking skills, judgement, and a moral code that relies on more than ego or popularity. Business graduates must ask themselves: Have we learned how to think, or have we learned how to model?

Murray used three examples of failures in leadership thinking that, in his mind, contributed to the financial crisis.

#1: Government bonds are not risk-free

Government bonds are not risk-free. Governments can go bankrupt, default and find themselves unable to pay. Even governments underwritten by the power of the robust and wealthy European Union. Just ask the holders of Greek bonds. Yet a key assumption behind the capital asset pricing model (CAPM), the mathematical model that underpins the valuation of assets today based on future cash returns and which determines the rate at which cash flows are discounted is that government bonds are risk-free.

We hold this belief in risk-free government bonds because sovereign governments have the power to raise revenue and/or reduce expenditure if faced by the prospect of default on their bonds. Even if they refuse to act, there has been a belief that another government will bail them out, and because they will need future funding, they will see the error of their ways and fall into line. In human terms, people forget that those who lend their savings to others are entitled to be repaid.

The implications of this misplaced assumption are considerable. If you do your maths based on an incorrect set of figures, the outcomes will be unreliable. If you calculate investment risk, based on an arguably false sense of security that the CAPM model offers, then you will not have an accurate picture of the risk you are taking.

#2: Rating is not an exact science

When a ratings agency rates a bond or mortgage as triple A, the model assumes a probability of default of 4 in 10,000. That figure gets input to the computer program, on the assumption that the rating is an exact science. If a subsequent rating is lower, many large institutional investors in the world are forced to sell the lower-rated assets because their portfolio model requires that they only invest in triple A rated assets. This can set in motion a downward spiral in prices.

#3: Loss + declining ratings + mathematical models + leveraging = dangerous spiral

Banks incur a probability of loss on loans from the day they fund them. Yet, the ‘mark to market’ model which underpins accounting standards, does not allow banks to build reserves in good times for future losses. Thus the huge losses brought to account during the crisis had the affect of exacerbating it. Even worse, the declining market prices reflected a market momentum driven by the ratings, the mathematical models and super leverage – a dangerous spiral.

How could our financial leaders (public and private) allow spirals to develop with such serious cosequences both now and for many years to come?

Outcomes flow from inputs and systems. Without examining the nature of systems, it is impossible to assess likely outcomes. This requires critical thinking because every system is governed by people who need and respond to leadership, symbols and signals – all of which will affect the systems.

Leadership requires the exercise of judgement, and this relies on the values and beliefs of leaders.

Successive Greek generations have come to believe that tax avoidance and government indebtedness are okay. Greek leaders thought it was acceptable to lie to the rest of the world about their fiscal position – and they weren’t telling small lies. The outcome is that people have been killed in riots in Greece, as the size of the adjustment is so large and people try to get to grips with what it will mean in terms of their personal financial security.

In Britain’s case, a hung parliament coming after an enormous budget deficit means that firm fiscal action will probably be deferred, and an early next election may still not produce a clear mandate and decisive action. This is not about credit default swap prices, it is about people, their political systems, beliefs and behaviours.

How then do our graduates of today – the leaders of tomorrow – think about their role in the future?

In Australia, 16% of school leavers earn a university degree and only 4% a postgraduate degree. Because leaders need thinking skills to operate at higher levels of complexity of work, we should assume most will come from the graduate cohort.

Imagine our future if our leaders think everything can be modelled, and that the models are flawless.

No doubt, every graduate is thinking about promotion. At UTS, history tells us that business graduates acquire substantial skills and are more likely, on average, to get good work and get on the experience curve. But this leaves the exercise of judgement which requires exposure to critical thinking and an understanding of people and human systems.

Pre- financial crisis, two large systemically important banks in the United States had the same strong credit rating. They were both SEC- (US Securities and Exchange Commission) and Sarbanes–Oxley-compliant. They both complied with the Fed’s supervisory requirements and were capital adequate. Their PE ratios were similar.

Why is it that one virtually failed and the other did not? Clearly the leadership of one bank made some superior judgements about what they would and would not do. Not only that, the people in this bank trusted their leaders and had confidence in their judgement. This culture of trust and confidence turned out to be more important than all the regulation.

Leaders require an additional dimension – a moral code and strength of character which is not based on neediness, ego or popularity. There is no textbook on this but there is one good way to get on the path to good leadership.

Remember that ultimately, reputation is all you have. It can only be nurtured and be preserved by integrity of behaviour.