John Allison is president and CEO of the Cato Institute. He is also former chairman and CEO of BB&T bank, where he spent many years developing his own leadership philosophy. He is perhaps best known for helping his bank weather the 2008 financial crisis. Allison refused to deal in loans that could not be justified by the facts of reality. We got to sit down with Allison and discuss his new book The Leadership Crisis and the Free-Market Cure.
The Freeman: Many of our readers are just embarking on their careers. Some of them are likely to have a difficult time with the transition from formal education to the real world. If you had one piece of advice for them, what would it be?
Allison: Try to become as clear about your purpose as possible. How would you like to make the world a better place to live while doing something that you would enjoy? There are many ways to make a difference. Businesses create products and services that improve the quality of life. Good doctors, good homemakers, make a difference. The purpose does not have to be grand, just something you view as having a positive impact that you will enjoy doing.
Your purpose may change as you explore life’s opportunities, but clarity of purpose is critical to an empowered life.
The Freeman: It seems your view of justice is that it is not just an abstraction — that it can and should be applied within organizations. Put another way, why is there injustice in, say, grade inflation, or in failing to discriminate based on performance?
Allison: Justice, properly defined, is the virtue of judging a person’s character and conduct objectively and of acting accordingly, granting to each individual what he deserves. This concept requires that we reward superior performance and deal with nonperformance. Nonperformance hurts the other members of the team. Equally important, it is not fair to the nonperformer. I have never met a happy nonperformer. Individuals are not going to be happy attempting to perform a task for which they are not qualified, and in a free market, there are opportunities for almost everyone to be productive in the right job.
If a professor gives a student a better grade than he deserves, the professor has done the student an injustice. The student believes he knows more than he does, which is not healthy. Also, knowledge is cumulative, so not achieving mastery at a lower level impacts the ability to achieve mastery at a higher level.
The Freeman: You suggest in your book that victims cannot be leaders. How have you been able to keep victimhood narratives out of the organizations you have led?
Allison: If you view yourself as a victim in any aspect of your life, you are giving your power away. If you are a victim, someone else has to change to make you happy and you cannot change anyone else. It is true that bad things happen to good people and good things happen to bad people. Mother Nature just is. However, you are responsible for doing the best you can with what happens to you.
In order to discourage individuals from viewing themselves as victims, we constantly reinforce and reward taking personal responsibility for all aspects of your life. We also encourage those who are interested to pursue self-awareness training to understand the foundations of their emotional beliefs.
The Freeman: We were delighted to read that you once required participants in a BB&T leadership program to read Economics in One Lesson. Why? And did you get any pushback?
Allison: Economics in One Lesson is the best explanation of fundamental economic fallacies that are still prevalent to this day. One of the most important concepts presented is the lack of understanding and consideration of the secondary consequences of public policies. Our leadership program participants enjoyed the book. To my knowledge, we never received any pushback.
The Freeman: You make no bones about your commitment to the freedom philosophy. And yet, as a businessman, you are biased to care about results. In your estimation, what has been the most effective way to get people to see things from your perspective? What gets results?
Allison: The method I have used in business to convince individuals to move in the right direction is to first present a logical and integrated worldview, as I attempt to do in my book. The next step is to consistently apply these principles. The proper application of the concepts in fact produces superior results. Nothing encourages acceptance as much as successful outcomes. We applied the concepts over and over again as we integrated acquired companies and superior results always followed.
It is often said that “good guys finish last.” This is not my life experience. I have found that consistently acting on principle is the foundation of long-term success. Of course, your principles must be consistent with reality, logically developed, and integrated.
The Freeman: In your leadership position at the Cato Institute, how do you apply your results orientation?
Allison: We created a strategic plan, which included setting priorities, and established primary performance measures for our organization. Each individual was also challenged to set goals for their own performance working with their manager. The primary performance measures are revenue growth, production (output), and impact. Revenue growth is an indicator of our sponsor support for our work. Production is necessary if we are going to have influence. Impact is the ultimate measure. Are we influencing public policy in the direction of a free society? Impact is difficult to measure, especially because much of our effort is long-term in nature. However, there are a number of areas where impact is visible. The good news is that we have achieved substantial improvement in all the performance measures.
The Freeman: You write, “Mother Nature, to be mastered, must be obeyed.” What do you mean by that, and how does that idea figure into an integrated leadership philosophy?
Allison: This statement is in the context that any decision process must begin with accepting reality. Reality is irrefutable. The law of gravity is the law of gravity. The existence of the law of gravity does not mean you cannot build an airplane. However, the airplane must be consistent with the law of gravity. Being reality grounded — that is, accepting the facts — is necessary to begin making rational decisions.
Evading is refusing to focus your mind on reality when at some level you know you should, and this is the ultimate psychological sin.
The Freeman: You set out “objectivity” as one of your five basic management concepts. And yet, the great Ludwig von Mises claimed that subjective value lies at the foundation of all human action. It is clear that leaders must learn to take a dispassionate view of the facts rather than leading by opinion alone. But to what extent is there room for respecting the subjective in leadership and business? Where does it fit, if at all?
Allison: “Objectivity” in this context simply means making logical decisions based on the facts of reality. Obviously, in many situations, we do not have all the facts, nor can we necessarily integrate all the factors that might impact the outcome. So there is a subjective (subconscious and nonmathematical) component based on past experiences that can be part of objective decision making.
However, the dictionary defines subjective as based on personal feelings, taste, and opinions. While there are some individuals who can be successful decision makers because their subconscious integrations are naturally logical, this type of mind is rare. Making decisions on personal, subjective whims often leads to disaster.
The Freeman: You write that happiness is the point of the pursuit. Why is happiness not merely material welfare or a feeling of bliss? Why is well-earned self-esteem an important ingredient?
Allison: Happiness is a psychological state that comes from the achievement of your goals while living consistently with your values. Self-esteem is a deep level of confidence that you are capable of living successfully given the facts of reality and that you are fundamentally worthy of achieving happiness.
Happiness in this context is not about having a good time on Friday night, although it may be nice to have a good time on Friday night. Happiness should be seen in the Aristotelian context of a life well lived (eudaimonia). Blood, sweat, and tears happiness. When you are 80 years old, you can look back and say, that was very hard and I am glad I did it.
Can you imagine someone being happy in this context who has low self-esteem?
The Freeman: John Allison, thank you very much.