What is wisdom executives

Never did we expect more of leadership—and never have we been so disappointed. Many find it difficult to reinvent their corporations rapidly enough to cope with new technologies, demographic shifts, and consumption trends. Above all, leaders find it tough to ensure that their people adhere to values and ethics.

The gulf between the theory and practice of ethics exists in business for several reasons: There is a big difference between what top management preaches and what frontline people do. People behave less ethically when they are part of organizations or groups. Individuals who may do the right thing in normal situations behave differently under stress. Hit by fraud, deceit, and greed, people are angry about the visible lack of values and ethics in business.

For leaders to cope with these myriad pressures, knowledge is more critical than ever before. Sixteen years ago we published The Knowledge-Creating Company. Since then executives have come to recognize that knowledge can yield sustainable competitive advantage.

Companies have learned to capture, store, and distribute knowledge, so it continually catalyzes innovation. However, as we have seen, leading a knowledge-creating company is difficult. The problem, we find, is twofold.

The types of knowledge we discussed in our book are now well known: explicit and tacit. Managers tend to rely on explicit knowledge, because it can be codified, measured, and generalized. Wall Street firms thought they could manage greater risk by using numbers, data, and scientific formulas instead of making judgments about loans one at a time. The same holds for the U.

Do it boldly, do as you believe, do as you are. Dependence only on explicit knowledge prevents leaders from coping with change. The scientific, deductive, theory-first approach assumes a world independent of context and seeks answers that are universal and predictive. Yet executives fail to do just that. Leaders will continue to rely on new scientific discoveries to deal with the environmental, energy, and biodiversity issues facing the globe and on technological advances to develop smarter systems.

Creating the future, however, must extend beyond the company; it must be about pursuing the common good. CEOs need to ask if decisions are good for society as well as for their companies; management must serve a higher purpose. Companies will then start thinking of themselves as social entities charged with a mission to create lasting benefits for society. Unless companies create social as well as economic value, they will not survive in the long run.

In addition, the world needs leaders who will make judgments knowing that everything is contextual, make decisions knowing that everything is changing, and take actions knowing that everything depends on doing so in a timely fashion.

They will have to see what is good, right, and just for society while being grounded in the details of the ever-changing front line. Thus they must pair micromanagement with big-picture aspirations about the future. Over the past two decades we have been studying leadership in different kinds of organizations; teaching business leaders, especially in Japan; and interviewing generations of leaders in some of the best companies in the world.

Our goal has been to identify how leaders can systematically make decisions that will allow companies to live in harmony with society rather than clash with it. Practical wisdom is tacit knowledge acquired from experience that enables people to make prudent judgments and take actions based on the actual situation, guided by values and morals. When leaders cultivate such knowledge throughout the organization, they will be able not only to create fresh knowledge but also to make enlightened decisions.

The origin of practical wisdom lies in the concept of phronesis, one of the three forms of knowledge that Aristotle identified. In Nicomachean Ethics VI.

Practical wisdom, according to our studies, is experiential knowledge that enables people to make ethically sound judgments. It is similar to the Japanese concept of toku —a virtue that leads a person to pursue the common good and moral excellence as a way of life.

Aristotle also identified episteme, or universally valid scientific knowledge, and techne, or skill-based technical know-how. If episteme is know-why and techne is know-how, phronesis is know-what-should-be-done. Techne is knowing how to make a car well; phronesis is knowing both what a good car is and how to build it.

Thus phronesis enables managers to determine what is good in specific times and situations and to undertake the best actions at those times to serve the common good. Japanese companies have often been criticized for not being sufficiently capitalistic—that is, not returning enough capital to investors, not maximizing shareholder value in the short term, not moving quickly with offshoring, not laying off employees to reduce costs, not paying compensation that will incentivize top management.

But the flip side is a continuing belief that the best Japanese companies live in harmony with society, have a social purpose in earning profits, pursue the common good as a way of life, have a moral purpose in running a business, and practice distributed phronesis. In contrast to the old notion of capitalism, which pitted business and society against each other, the best Japanese companies, we believe, can become the exemplars of a new, communitarian approach to capitalism, as long as their leaders continue to imbue it with a social purpose.

Wise leaders make decisions only after they figure out what is good for the organization and society. They can quickly grasp the essence of any situation or problem and intuitively fathom the nature and meaning of people, things, and events. They constantly create informal as well as formal shared contexts for senior executives and employees to construct new meaning through their interactions. They know how to use metaphors and stories to convert the essence of their actual experiences into tacit knowledge for individuals and groups.

They exercise political power to bring together people with conflicting goals and spur them to action. They encourage the development of practical wisdom in others, especially employees on the front lines, through apprenticeship and mentoring.

A phronetic leader must make judgments and take actions amid constant flux. Our research over the past decade shows that to lead in this fashion, six abilities are essential. We will describe them in the following pages and offer suggestions on how to develop those skills. But these leaders set their sights higher: They believe that their actions should have a moral purpose akin to what Max Weber had in mind when he linked Protestantism to capitalism.

To do what you believe is good. Doing the right things, when required, is a calling from on high. Managers must make judgments for the common good, not for profits or competitive advantage. The majority of companies that have failed did not maintain that balance.

Everyone is, first, a member of society before one of the company. Thinking only about the company will undoubtedly result in failure. There are four ways of cultivating the ability to make judgments about goodness.

One is experience, particularly that gained by facing adversity or failure. Yanai constantly reminds himself and others of the challenges he overcame—operating a single store way out in the country, being refused a bank loan, being pushed around by powerful wholesalers, facing near bankruptcy on numerous occasions. Yanai is so proud of having made mistakes that he called his first book One Win, Nine Losses. Another way is to write down principles drawn from life experiences and share them.

Several of his canons address goodness head-on: Put good ideas into practice, move the world, change society, and contribute to society. Reward good conduct and punish evildoing. Demand the highest level of ethics in your business and work. A third method is the relentless pursuit of excellence. I was amazed at the standards of excellence he pursued. Never once did he cut corners. Finally, judgment can be cultivated by becoming well versed in the liberal arts, such as philosophy, history, literature, and the fine arts.

Management is a liberal art, as Peter Drucker said; liberal because it deals with the fundamentals of knowledge, self-knowledge, wisdom, and leadership; art because it is also about practice and application.

Having too many violent organisms creates chaos. Having too many non-violent organisms invites predators. But a nice mixture of both ends up making everybody better off.

This happens with humans as well. If every human was extremely extraverted, that would probably be bad nobody would ever shut the fuck up. But if every human was highly introverted, that would also be bad. You can make this same case for tons of human traits. And not just diversity of race, gender, or religion, but diversity of personality , interests, philosophies , and worldly pursuits.

Democratic systems let the wisdom of evolutionary processes play out in the social realm. This is why democratic societies tend to be more economically innovative, culturally dynamic, and physically safer than the alternatives. Tyranny fails because it attempts to crush diversity—it removes the opportunity for evolutionary stable strategies. The same way every organism in a species being non-violent is evolutionarily suboptimal, forcing every person in a society to adopt a specific ideology, religion, or goal is socially suboptimal.

It makes a society rigid and fragile. Paradoxically, the price for diversity is constant stress and anxiety. Diversity means differences and differences mean conflict. Highly extraverted people annoy highly introverted people and vice versa. Highly religious people offend highly non-religious people and vice versa.

People from rural and urban areas have different life experiences and different values. People with differing beliefs yell at each other, fight, and complain about how awful everyone else is.

In a sense, democracy requires constant dissatisfaction. On the one hand, you value compassion to some extent. You want to help people who are suffering. Yet, you also kind of value personal accountability—i.

In these cases, the person leading is not in charge of those who follow and isn't necessarily involved in execution. This means that leading must be limited to the successful promotion of a better way, thus influencing people to change direction but NOT helping them get there. That's what management is all about. This definition of leadership includes leading by example, which can also be shown without being in charge of those who follow and without getting involved in implementation.

By defining leadership as showing the way for others , it becomes an influence process, one that can be shown by all employees. It can also be shown sideways and up as well as by outsiders as it's not a role within any group. A major reason for not thinking of management as a role, by definition, is that we manage ourselves: our time, finances, careers, or anything else of importance to us.

Management can be defined as achieving goals in a way that yields the best return on all pertinent resources. When we manage our time, for example, we prioritize so we can get the best return on our scarce time. Management works by making resource allocation decisions and by facilitating the activity of people through coaching, communication and empowering, using the full range of interpersonal skills. Managing people means being a catalyst or facilitator.

To be effective, executives need to get the balance right between being an authority figure and being a catalyst, facilitator and coach.

See How to be More Effective at Work on how to balance self-reliance and interdependence. Leadership and management as defined here are totally style-neutral. Thus we can completely reject the old fashioned notion that leaders must be inspiring while managers can only be transactional or mechanical. People can lead in a quiet or low key manner; they don't need to be charismatic if the target audience doesn't need that kind of emotional arousal. In a highly technical context, for instance, they might be technical experts with only modest social skills.

Also, those who manage people can be nurturing, warm, good communicators, motivational and developmental. There is no implication that the process of management must be controlling and restricted to a task oriented emphasis. Executives, because they occupy roles with heavy responsibilities, need to have a number of sterling personality traits.

All role occupants need to be trusted, even lonely lighthouse keepers. The more that's at stake, the trustworthier the person needs to be. To manage people effectively, an executive needs to have good interpersonal skills and emotional intelligence.