The Leadership Tax Bigger than EQ. More Important Than IQ.

Picture this: Your last three strategic plans returned only between 60% to 70% of what was expected. You tried improving execution in the first case, but realized your strategy needed to change. Then in the second case you changed the strategy, but found poor execution was to blame. Now, in the third case you don’t know which lever to pull, but recognize you’re facing the Strategy/Execution Paradox. You’re frustrated, confused, and sick and tired of leaving 30%-40% on the table. Mostly, you’re convinced flipping a coin won’t fix the problem. You want answers, but have no idea which questions to ask.

You’re paying The Leadership Tax, the gap between strategy and execution. Research shows strategies only deliver 63% of what they promise1. Many excuses are offered, but only leadership effectiveness determines how much of that gap is closed. The personality of the leader isn’t relevant, nor is the industry. It’s not if your organization pays The Leadership Tax. The only question is how much? You don’t know what you don’t know and The Leadership Tax is self-imposed through poor decisions. It’s a matter of mindset and skillset, and both can be learned. If management were to realize the full potential of its current strategy, the increase in value ranges between 60% to 100%.

Executive Functions

The rate of The Leadership Tax is determined by a leader’s ability to filter distractions, prioritize tasks, set and achieve goals, and control impulses. This skill set is known Executive Functions (EF), which is the primary force in managing, structuring and directing goal-based behavior. These skills must be developed because they are not innate. EF deficits produce performance inconsistencies and increase hidden costs creating The Leadership Tax.

Emotional Intelligence (EQ) — the ability to identify, understand, and effectively manage emotions, both your own and those of others — is important, but takes a backseat to Executive Functions. EF has three primary components:

1. Updating — The ability to keep information in mind while updating and integrating current data with new information.
2. Inhibition — The ability to discriminate thoughts in order to selectively attend to task-relevant information and engage in goal-directed rather than habitual actions.
3. Shifting of attention — The ability to flexibly shift between thought patterns and cognitive rules.

Leaders who master these skills optimize strategies where EF proficiency or deficits are demonstrated in:

• Situations that involve planning or decision making
• Situations that involve error correction or trouble shooting
• Situations where responses are not well-rehearsed or contain novel sequences of actions
• Dangerous or technically difficult situations
• Situations that require overcoming strong habitual response or resisting temptation

How a manager performs in these situations governs the rate of The Leadership Tax.

Self-Control

Self-Control is the ability to manage actions and emotions, and initially is assumed to be about impulse control, which it is — to a point. Willpower runs out and once it does people with EF deficits rely on hacks, which don’t work. This is evidenced through New Year’s Resolutions where less than 25% of people stay committed after just 30 days and only 8% achieve their goals. With more willpower we would all eat right, exercise regularly, avoid drugs and alcohol, save for retirement, stop procrastinating and achieve all sorts of amazing things. However, that’s not the case even though we realize Self-Control is the reason why these things aren’t a reality. The problem is we don’t have an bottomless cup of this magical stuff. Our need for instant gratification and the forces preventing change are powerful because the way we think doesn’t change. But habits stick around.

Habits — How You Act and How You Think

“The chains of habit are too light to be felt until they are too heavy to be broken,” said Samuel Johnson, an 18th century British author and poet. Warren Buffett often repeats this quote because he knows habits determine how people act. Our habits are connected to our ability to exercise the Self-Control we desperately need to accomplish goals, make sound decisions and form healthy relationships. Habits can help us stay on task and avoid temptation, but they can also lead us down the wrong path. Most people are more aware of their good habits — both behaviorally and cognitively — than their bad habits.

A habit is a response to a reminder as what we did in the past that got us a reward. Good habits are shortcuts making life simpler and easier. Bad habits are shortcuts also, but make life more complex and difficult because they conflict with our current goals. It’s human nature’s way of showing what got us rewards in the past won’t help us get the thing we value now.

What makes people with strong EF different is they turn hacks into habits. Decisions become automatic, effortless where they don’t have to think about distinguishing between the right thing and the wrong thing. Good habits put good choices on autopilot so people don’t need to rely on willpower to do the right thing. They don’t rely on a decision-making process of what’s the right thing to do — they just automatically do the right thing. This is the reason why high EF people are healthier, more successful and enjoy richer social lives. However, Self-Control isn’t a birthright.

Most people believe breaking bad habits comes from making a strong decision, forming a clear intention to change their behavior, and then relying on willpower. But willpower is unreliable because it runs out and when it does we go back to our old, ineffective habits. In effect we take the hard road by doing the same thing and expecting a different result, which drives everybody crazy. What does work is changing the environment we’re in. We can take the easy road — we just have to find it. Disrupting those reminders that triggers the habit is the key.

Changing a behavioral habit is different from changing a cognitive habit — and it’s cognitive habits that generates The Leadership Tax. Let’s say you’ve gotten a speeding ticket and that negative reinforcement is strong enough to change your driving behavior. However, people with EF deficits need to change their belief system — what you believe about your job, your organization, your industry and yourself. How you think changes by changing your perception of a situation and yourself.

Reengineering Your Belief System

The ability to update new information, inhibit thoughts and actions, and shift attention is largely due to how one thinks. Your belief system, like habits, is powerful for it determines how you act. Beliefs are learned and aren’t fixed. Your experiences, the people you engage with, and how you perceive those events all contribute to the formation of your belief system and as a result the efficacy of your Executive Functions.

How a person thinks is a habit and the key to strengthening EF is reengineering how one thinks. Changing a cognitive habit applies the same educational model where reinforcements and rewards are the levers of change, but cognitive habits require a distinct educational process. Cognitive Restructuring are a set of Cognitive-Behavioral techniques used to change the way people think. These techniques identify, challenge and modify ineffective thoughts, beliefs and images by linking thoughts, emotions and behavior. As one’s belief system becomes more effective, EF strengthens.

Through Cognitive Restructuring, people learn to identify and dispute irrational beliefs, cognitive biases and distortions that impede their ability to achieve goals. A cognitive distortion is an exaggerated or irrational thought pattern and Behavioral Economics provides an outline of biases that limits people’s EF. Irrational thinking routinely enter into our everyday decision making through distortions such as Confirmation Bias, Fundamental Attribution Error, Anchoring and Planning Fallacy, which all are a result of Executive Functions deficits. These cognitive biases refer to ways of thinking that produces errors in judgment. Cognitive Restructuring enables people to distinguish between good habits and bad habits, and the habits that no longer lead to the things we want. As a result, Self-Control is exhibited more consistently leading to greater EF.

The Acid Test: Transitions

Cognitive Restructuring, Self-Control, and belief systems are all connected through EF. A senior manager with EF deficits will continue to behave in the same way when promoted to the C-Level, thereby increasing The Leadership Tax the organization pays exponentially. Power, control and authority magnify existing deficiencies while creating new ones. Left to one’s resources, it’s categorically impossible to identify these Unknown Unknowns, let alone change them with C-Level responsibilities due to the increase in stress, habit development and the unreliability of willpower. Leaders with strong Executive Functions accomplish goals more efficiently and execute strategy more consistently. As a result, The Leadership Tax rate all but disappears.

√ References
Mankins, Michael C. and Steele, Richard – Turning Great Strategy into Great Performance Harvard Business Review (July–August 2005, pp. 2-10).
Written by Stephen Long. Have you read?

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