14th July 2003

"Beyond sound-bite leadership"

By AMIN RAJAN

Beyond sound-bite leadership - THE LAST WORD Amin Rajan - Successful fund managers have to have more than investment skills.

The time has come for fund management companies to be run like a normal business that can survive different economic cycles - from peak to trough to peak. Good performance and service quality have to be backed by increased efficiency, lower costs and better risk control. Some are - at last - showing signs of normality: they are learning to cope with market volatility by adopting a variable cost business model, akin to the one used by oil companies.

It has meant converting as many fixed costs into variable ones as possible. To achieve this, they are trimming their product range, outsourcing non-core activities, and linking bonuses to stellar investment performance. But, experience shows that these cost-cutting measures do not, by themselves, create a resilient business. For this, fund management houses require a culture of leadership that sets challenging goals and motivates staff.

As Sir Brian Pitman, former chairman of Lloyds TSB, once observed: "Human beings are capable of far more than they believe. Everyone wants to be part of a winning team, since it gives them a tremendous buzz. Leaders make a difference."

When it comes to leadership, it is a worrying fact that one in two fund management firms do not - as yet - have the right people with the right skills to be able to restructure themselves for the new era.

That's the conclusion of the recent study from Create and KPMG, which was reported in FTfm last month.* Quite simply, the current economic climate is making more demands on the business acumen and instinct of fund managers' top executives than before.

But fund managers should not lose heart. Find the right leaders and you will find the right way through these difficult times. IBM went from being a mainframe manufacturer to a premier service provider under Lou Gerstner. BP turned from a regional oil exploration company into an integrated global energy giant under Lord Browne. In their separate ways, Mr Gerstner and Lord Browne set clear goals, built teams to deliver them and restored morale. They ensured that their top teams had the necessary skills, recognising that leadership is not a one-man show. How they did things was more important than what they did.

So, what skills are required in fund management firms and how can senior executives acquire them? The Create-KPMG study identified five generic sets. Leaders should be able to:

* up the ante: by raising the bar, spotting opportunities, displaying originality and promoting a can-do mindset;

* think strategically: by setting clear business goals, implementing actions and doing a reality check;

* be first among equals: by leading other leaders, influencing senior colleagues and creating an environment of mutual trust;

* motivate the staff: by clarifying the goals, getting a buy-in to their corporate ambitions, devising new ideas, and listening;

* deliver results: by articulating a realistic value proposition for customers and orienting all staff towards its delivery.

This list is not definitive, but it is long enough to underline the message that a new business model requires different styles and different approaches. But how can star investors become star leaders? Research shows that grafting business and people skills on to craft expertise does not work with conventional training. Who could have trained Bill Gates? He quit Harvard.

Several ways of improving the leadership gene pool are being used by leading fund management firms. Recruiting talent from outside the firm or industry is one of them. Another is to grow it internally, using one, or more, of three approaches.

The first one is executive coaching. The opportunity to have a regular risk-free conversation on business or personal issues with a trusted third party - inside or outside the firm - provides a practical sounding board. The second one involves non-fund management or "lateral" experiences. As part of their career progression, some fund managers have found it useful to have practical knowledge of functions outside their own areas of expertise. The third one is networking extensively inside and outside the firm.

There is growing interest in these and other leadership techniques. This is because there is a gradual realisation that a successful fund management business requires today's senior executives to be much more than great investment professionals. Professor Amin Rajan is CEO of Create, a research consultancy.

*Available from amin.rajan@create-research.co.uk NEXT WEEK Barry Riley.

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