EQ=Economic Intelligence?

Posted by: Jena McGregor on November 8, 2007

I had an interesting breakfast yesterday morning with Rosalinde Torres, a partner in Boston Consulting Group’s organizations practice. Torres, who has studied organizations ranging from governments in Africa to major corporations, thinks one of the skills missing from most leaders is “economic intelligence.” It’s the other EQ, I suppose—and on the other end of the spectrum in terms of soft skills. More CEOs, she believes, need to have a more macro-economic view of the world, able to sense how changes in far-reaching parts of the globe will affect their strategy and how economic fluctuations should make them think about their risk exposure.

That’s little surprise, given how much boards tend to focus too narrowly on whether or not potential leaders met their numbers. While MBAs might take some economic courses, the degree in the U.S. isn’t exactly a hotbed of high-minded economic debate. As a result, Torres believes that as globalization prompts more boards to look for know-how in the dismal science among their potential chief execs, the corner office make-up may change. She believes the European business education, which tends to focus more on economics, may end up producing more and more global CEOs.

Reader Comments

Derrick

November 9, 2007 4:35 PM

That's pretty interesting. I recently had an experience with my VP and our Controller. During the meeting where we were discussing end of year numbers my VP said to the Controller, "well I'm not a financial person so I need you to really explain this basically to me." The negative thing is what we were talking about was a financial problem that wasn't really a financial problem. The issue was with addition and subtraction on a spreadsheet.

I didn't explain that well but the point is my VP looked dumb and it was even worse because they weren't able to figure out the "financial problem".

Basically I think it's true with this like everything else, a little knowledge goes a long way.

Anthony

November 10, 2007 6:28 PM

I think a very delicate balance is needed here. Macroeconomic knowledge is clearly a skill that managers should have in their toolkits. However, Classical macroeconomic theory is limited - Peter Drucker says that Classical economists account for the entrepreneur as an "external force," like "climate and weather, government and politics, pestilence and war, but also technology." This Classical perspective is what I was taught in both undergraduate and graduate business school - the focus was completely on optimization and equilibrium.

Drucker brings up some great points though. He notes "Joseph Schumpeter...postulated that dynamic disequilibrium brought on by the innovating entrepreneur, rather than equilibrium and optimization, is the "norm" of a healthy economy and the central reality for economic theory and economic practice." The U.S. economic success is a perfect example of this principle.

Disturbing, however, is the fact that business schools don't teach this, and rather focus solely on optimization and equilibrium. I would argue that managers who don't consider the merits of Schumpeter's contributions are actually worse off and could be less efficient managers.

I'm interested about what others think on this subject. Would managers be more effective knowing that "creative destruction" is a backbone of modern American economics?

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