Even good CEOs pick the wrong direction

The secret to leadership may not boil down to that vision thing. It may not be some exceptional ability to inspire others, nor the courage to zig when all signs point to zag.

Fresh research by top leadership gurus suggest that if great leaders have something in common, it could be this: a knack at escaping lapses of bad judgment. Or, at least the luck to do so. It may not even require an all-star's batting average in judgment. From Abraham Lincoln, our greatest leaders often have inconsistent judgment but, over long careers, find a way to be on the right side a few times when judgment is critical.

The latest judgment victims are Stanley O'Neal and Charles Prince, CEOs who made good calls to rise to the top of Merrill Lynch and Citigroup. But under their charge, the companies waded deeply into subprime mortgages that cost the companies billions of dollars and cost O'Neal and Prince their jobs. Time Warner's new CEO Jeff Bewkes won respect in 2000 by opposing then-CEO Gerald Levin's decision to merge Time Warner with AOL, what has since gone down as one of the worst business judgment calls of the decade.

David Novak has been CEO since 1999 of Yum Brands, the giant fast-food company that includes KFC, Pizza Hut, Taco Bell, Long John Silver's and A&W. Back in his days as Pepsi's marketing chief, he thought he had hit a grand slam. Crystal Pepsi, a cola that looked like 7Up, was his breakout idea. "CBS Evening News" devoted 140 minutes to it in 1992. Trouble was, the media lapped it up, but consumers didn't, and about the only evidence left that Crystal Pepsi existed is the 1993 Super Bowl commercial on YouTube.

In an interview, Novak chalks up the failure to bad judgment and says he landed back on his feet with a valuable lesson. He says he had rightly determined early in his career that big ideas always produce naysayers who will chirp, "It can't be done." He trained himself to ignore them. His judgment lapse was that sometimes the naysayers have a point. In this case, Pepsi bottlers had agreed with the idea of a clear cola but warned Novak that Crystal Pepsi tasted nothing like Pepsi.

Novak, author of "The Education of an Accidental CEO: Lessons Learned from the Trailer Park to the Corner Office," now listens and weighs criticism for merit. Other leaders never made adjustments, or never had the chance, and the battlefields of war and business are strewn with fallen generals who had but one major lapse in judgment.

Authors on judgment

As crucial as judgment is to success, when Noel Tichy, author of a dozen books on leadership, and Warren Bennis, author of more than 30, researched the literature, they found almost nothing about it. The two decided to co-author "Judgment: How Winning Leaders Make Great Calls," which goes on sale Thursday.

No previous book has been as "daunting and challenging to write," says Bennis, management professor at the University of Southern California, founder of USC's Leadership Institute and the 82-year-old dean of leadership gurus after the death two years ago of Peter Drucker.

Tichy, professor at the Ross School of Business at the University of Michigan, says they didn't consider Enron-like illegalities and ethical lapses but focused on CEOs who made judgment calls with the companies' best interests at heart.

The ousters at Merrill and Citigroup underscore that "with good judgment, little else matters. Without it, nothing else matters," Tichy says.

Judgment doesn't involve a simple decision, or what Tichy describes as "the call," but a process that begins with acquiring the right information and continues through execution. Judgment is not good judgment until it's backed up by execution, he says, and mistakes must be recognized and course corrections made.

One reason there has been little research on judgment is that it's easy to get CEOs to talk about their good judgment. Ask them about their bad judgment, and they stay quiet until 30 years have passed, Bennis says. When USA TODAY asked more than 100 CEOs, former CEOs and presidents of large companies for examples of their bad judgment, six responded.

They say that the easy decisions are made by managers at lower levels. That means judgment calls that rise to the CEO level are always difficult and make stringing together good decisions all but impossible and sink those who are not flexible.

"I have found that leadership is a constant process of course correction," says James Keyes, former 7-Eleven CEO, who was hired in July to run Blockbuster.

Making course corrections

George Jones, CEO of giant book retailer Borders Group, says he learned about course correction when he was CEO of Saks Department Store Group from 2001 to 2005. He says he arrived to find both the company and the industry issuing so many discount coupons in newspapers and via direct mail that customers ignored other efforts at luring them into the stores.

Jones says he rightly identified the unhealthy coupon practice but says he forgot that Saks was not operating in a vacuum and customers were soon stampeding, coupons in hand, to the competition.

Course correction: "If you take something away from your customer, you must be prepared to immediately give them something meaningful back," such as a distinctive product, customer service or enhanced assortments, Jones said.

The judgment trap often comes disguised as opportunity. Howard Putnam was CEO of Southwest Airlines from 1978 to 1981. During his short tenure, he helped Southwest implement much of the culture and strategy that made the airline successful. Then Braniff International Airways came knocking with a job offer. "The challenge was so tempting, it clouded my judgment," Putnam says.

He was shown financial data but says he hurried his decision and failed at due diligence. He discovered that Braniff had overestimated the airline's chances of survival and had but 10 days of cash, which Putnam stretched into seven months before ushering the airline through bankruptcy and an asset sale. Today, Putnam is a motivational business speaker and author.

"You live with your decision and do the best you can," says Putnam, who wrote about the Braniff experience in the 1991 book "The Winds of Turbulence: A CEO's Reflections on Surviving and Thriving on the Cutting Edge of Corporate Crisis." His wife, Krista, tells him that she is glad he took the Braniff job. Otherwise, Putnam jokes, she would have always had to listen to him talk about how he could have saved the airline.

Iron Mountain President and COO Bob Brennan, a psychology major in college, says his judgment was also clouded by opportunity. He was CEO of Connected, a data backup company, and he remembers the heady days of preparing for an initial public offering. "Suffice it to say, I didn't scrutinize the market well enough," he says. Rather, he listened to market hype and substantially overestimated the value of the company. Finding little interest among potential investors, the IPO filing was withdrawn. Connected later was acquired by Iron Mountain in 2004.

Brennan said it taught him not to let excitement and mood interfere with judgment. He was able to earn group trust and rebuild his team by taking responsibility for the failure. He also learned that failure can reveal true partners and distinguish them from "those who just wanted to be attached to success."

Brennan jokes that he learned another lesson when he did not receive the expected windfall from the IPO: "On a personal front, estate planning isn't necessary when you don't have an estate."

Listen to your gut

The difficulty CEOs face is that, while opportunity can be a judgment trap, it is also the lifeblood of business and what they are paid to recognize and act upon. Harold Burson is the founding chairman of Burson-Marsteller, the giant global public relations agency launched in 1953 by specializing in industrial clients, what today would be called business-to-business.

An obvious extension of that practice would have been information technology, but Burson-Marsteller became only one major player when it should have owned the category, the 86-year-old Burson says.

That was his biggest slip in judgment, and he blames it on his preoccupation on taking the agency global, which he did, an indication that bad judgment can be the cruel result of not executing in one place while executing in another.

CEOs need information but are sometimes doomed by the wrong information, Bennis says. "It's analogous to the heart. If you don't get the right amount of oxygenated blood to the right place, you have a heart attack," he says.

Of all the reasons CEOs cited for their bad judgment, Tichy and Bennis say the most common was that they misjudged others. In other words, when the authors finally got CEOs to talk about bad judgment, they most often talked about the bad judgment of others. The mistake, looking back, is that they did not recognize or act on the signs that others were up to something inept or unethical.

"I was overly loyal and supportive to executives," Burson says. "They were family, and I was an overprotective parent at the expense of the business," Burson says. "One cannot put the business at jeopardy by protecting a weak performing senior executive who is a personal friend."

Listen to your gut, Burson advises, and says that early on in his career he could instantly judge a good hire from a bad one by listening to the tempo of their typing.

Rapid and sustained typing was a winner. Slow and belabored meant "we had a dud," Burson says.