Tuck

Slaughter & Rees Report - The Greatest Lesson of Ben Bernanke

February 3, 2014 --

Today Ben Bernanke has hopefully set no wake-up alarm. His eight grueling years serving as Federal Reserve Chairman finished last Friday. Historians will spend years seeking lessons learned from his tenure. Thanks to happenstance, months before his first day as Fed Chair one of your correspondents (Matt S.) knew what his greatest lesson would be.

On Nov. 4, 2005, the U.S. Senate confirmed Matt’s appointment as the international member of the U.S. Council of Economic Advisers (CEA). Upon hearing this news, then-CEA chairman Ben Bernanke strolled over to congratulate Matt officially having this new post. He then did something stunning. He said that in a few days Matt, not he, should lead the just-scheduled global economy briefing to the President. When Matt asked why, he replied, “Because you are now the international member—it’s your cup of tea.” Thus did Matt preview Ben Bernanke’s greatest lesson of leadership: be humble.

Scholars have long researched qualities of strong and weak leaders. Studies repeatedly find that great leaders tend to view themselves as great teachers, who in turn are open to learning from colleagues based on a humble understanding of how critical additional knowledge is to success.

This humble leadership needs two closely related facets. One is personal: an innate desire to question, learn, and adjust. The other is organizational: a structure of relationships and incentives that empowers colleagues to learn from and teach to each other to maximize the impact of good ideas, whatever their source. People and organizations so construed tend to be more productive, more nimble, and more successful. To this day, Matt marvels at the CEA opportunity Chairman Bernanke provided him:  “I continue to remain ready to run through a brick wall for him.”

Importantly, humble leaders are not omniscient leaders. Yes, their openness to learning will make them more likely to understand an evolving world earlier than others. But this quality does not mean mistakes are not made. Rather, it means that mistakes, when made, are recognized and responded to more quickly and more forcefully. Humble leaders are not necessarily the best predictors, but they are among the best loss-minimizers.

The converse of all this—arrogant leadership—is pernicious. In his landmark study of business disasters, our Tuck colleague Sydney Finkelstein repeatedly found that intellectual arrogance blinds leaders to critical news. Poor leaders do not craft an organization that empowers colleagues to share information—especially bad information. And when such information happens to trickle up to poor leaders, they often discount or ignore it altogether. Time and again, disaster befalls not because leaders don’t see problems coming but rather because they arrogate away the notion that such problems can become catastrophic.

Chairman Bernanke brought humble leadership to the Federal Reserve at an opportune time. Following “the Maestro,” he did not lord over new colleagues his many academic accolades. He instead refined the organization toward greater learning and teaching—e.g., with the new communication efforts. Chairman Greenspan had opened Federal Open Market Committee deliberations by speaking first, articulating his assessments and planned vote before all others. Chairman Bernanke? He ran such meetings by speaking last. Think about key decisional meetings you have attended: Does the principal speaking first or last foster greater engagement and wiser decisions?

Yes, Chairman Bernanke foresaw neither the plunge in U.S. home prices nor the broader financial crisis this fall would trigger. But when prices tumbled and crisis took hold, he adjusted his understanding of the world and thus acted with great alacrity. Yes, all this quantitative easing has been messy at times—with ultimate impacts that will not be known for years. But messy uncertainty is the unavoidable essence of crisis leadership.

Don’t forget that in early 2009, so many indicators showed the global economy shadowing the downward plunge of the Great Depression. Through his humble openness to learning and adjusting, Ben Bernanke did more than any other policymaker alive to avoid a second depression. And he did so voluntarily, at great personal cost. In an era where so many leaders, when challenged, quit early for easier lives, in 2009 Chairman Bernanke agreed to serve a second term. The perks? Four more years of immense stress, of public criticism, and of a modest wage at the opportunity cost of foregone millions in speaking and advisory engagements.

Being humble allowed Ben Bernanke to become one of the world’s most successful central bankers ever. For all current and future central bankers who will confront a global economy that will grow only more complex and opaque, this is his greatest lesson to try to emulate.

Articles © 2014 Matthew Slaughter and Matthew Rees. All rights reserved.
Publication © 2014 Trustees of Dartmouth College. All rights reserved.

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