Why Business Leaders Often Fail at Politics and Policy

Business acumen and government acumen just aren't the same thing.

Posted Oct 08, 2018

This article is co-authored with D. Christopher Kayes

The idea of a corporate executive turning into a politician and policymaker is gaining momentum. Starbucks’ Howard Shultz has teased his interest in running for president, following in the footsteps of entrepreneur/reality TV star Mark Cuban and celebrity media titan Oprah Winfrey. Yet, one wonders whether leading corporations results in great preparation for the world of politics and policy making. Perhaps it only makes the newly minted politician particularly vulnerable to the limits of political life and ventures.

Greg Jeanneau/Unsplash
Source: Greg Jeanneau/Unsplash

The obvious pitfalls and challenges have been illustrated by a number of the business leaders who have taken the lead in government. The Trump administration itself may serve as a reminder of these challenges. Several of his business turned policy appointees have resulted in censure, premature resignation or firing. Those drawbacks are repeated in state and local governments as business leaders recast themselves as politicians. 

As professors who have taught leadership for some two decades, we have seen at least three important reasons why business leaders often fail when working in the policy or political arena—no matter their altruistic intentions or their experience inside Fortune 500 companies.

First, business leaders are accustomed to operational efficiencies where disorganization is handled with a brutal proficiency. The checks and balances, accountability and oversight found in government are ingrained into the policy apparatus and can drain the effectiveness and speed of seemingly feasible solutions.

The resignation of former ExxonMobil CEO Rex Tillerson as Secretary of State, after a little more than a year in office, reveals the woes of shifting from business to politics, and trying to manage a massive overhaul of an unfamiliar institution. Tillerson was trained to understand operational efficiency from the standpoint of engineering. His approach to safety at ExxonMobil set the industry standard for operational safety and was adopted outside the industry. But it’s clear that these efficiencies were not transferable to the State Department, which pretty much shelved his much-discussed reorganization effort after he left.

 Mark Riechers/Unsplash
Source: Mark Riechers/Unsplash

Second, unlike running a business, a model of leadership based on meeting the interests of a small list of stakeholders, policy leadership involves building a coalition of often competing interests while serving the needs of a large number of constituents.

The collaboration among Amazon, JP Morgan and Berkshire-Hathaway on health care may challenge the leaders of these large companies as they seek to reinvent health care. They aim to start a company that will change the way health care is delivered and paid for in the United States. After making their announcement, the coalition lagged in finding a leader and rounding up additional support among the fractious constituencies in health care policy and politics.

A third challenge for transitioning business leaders involves the notion of risk. The late Warren Bennis, a former professor at the University of Southern California and one of the early academics to study leadership, was one of the first to notice how policy makers and business leaders deal with risk. In business leadership, risk is seen as an opportunity to increase profits and advance on the competition. Shareholders and investors seek risk and will pay a premium for the opportunity to invest in risk.

Risk is not a value in policy, however. More often, it is a political liability, especially in the long run. The Flint, Michigan water crisis illustrates the downside of flirtations with risk. Venture capitalist-turned-politician Rick Snyder, Michigan’s two-term governor, was unprepared for the fallout of the water crisis that began when his state agencies contributed to a decision to shift Flint’s water supply from a trusted source to one that caused health problems for Flint’s children.

Warren Wong/Unsplash
Source: Warren Wong/Unsplash

Understanding the differences in risk, efficiency, and stakeholder interests in these three areas are the key to understanding the differences in leadership between the two arenas. Certainly, the often-cited poster child of the American CEO politician is former New York City Mayor Michael Bloomberg has managed to avoid most of these pitfalls.

A billionaire many times over, Bloomberg, who owns Bloomberg, L.P., the global financial services and media giant, served three terms as mayor. His leadership in New York City, while not without critics, was widely considered a success. He is proof that the transition is possible if you do your homework and have the right temperament and staff.

Politics, at its heart, requires building and maintaining a coalition of support. Assuming that time spent inside C-suites automatically prepares one for a career in policy and politics is reckless. Leadership isn’t necessarily replicable from one corporate venue to another and certainly not from one field to the next.

D. Christopher Kayes is a professor of management at the George Washington University School of Business.  He is the author of many articles and four books, including the critically acclaimed Destructive Goal Pursuit:  The Mt. Everest Disaster.  He has been a visiting professor at universities across the world and has consulted widely.