“I Try to Spark New Ideas”

Christine Lagarde took over as managing director of the demoralized International Monetary Fund in 2011, succeeding the scandal-plagued Dominique Strauss-Kahn. A prominent French politician who once ran the international law giant Baker & McKenzie, Lagarde, 57, has tried to change the IMF’s culture while also coping with the European debt crisis and a sluggish global economy. In this edited interview with HBR’s editor in chief, Adi Ignatius, she talks about leadership, women in power, and how to foster change in a complex organization. HBR: You’ve had top jobs in government, in the private sector, and now at a big global institution. What have you learned about what it takes to be an effective leader? Lagarde: First, you have to believe in what you’re doing—to feel comfortable with the institution and its strategy. Next, you have to give it your all, engaging completely in the mission you’ve set for yourself. And finally, you have to care about your staff—making sure you hear them and understand their take on the issues, making sure that everyone feels part of the team and is drawing satisfaction from their work. Can just anyone achieve all that, or does it require certain skills? You need a certain kind of energy that makes you get up in the morning wanting to achieve something during the day. And you need the confidence to be able to stand up in front of your colleagues, your partners, and your staff. Women and Leadership Why are there still so few women in leadership positions? Because it takes so much time to reach the top. It takes a lot of energy to stay in the game, and quite a few women decide they aren’t interested in pursuing top positions. I don’t value one career path over another or assume that a woman in business is worth more than a woman raising a family. But I want to make sure women feel they have a choice. Do you accept the idea that women often hold themselves back? As a manager, from what I have seen, women are less likely to argue about the size of their raise or bonus, whereas many men argue that they’re worth a lot more. It’s an example, I think, of how some women fail to “lean in.” But surely it’s not just up to women. What can institutions do to ensure that more women reach the top? They should focus on numbers—whether you call them targets or quotas or objectives. Measuring performance can help remove obstacles and prejudice and ensure that women have the same career options as men. Is there a difference between “masculine” and “feminine” leadership? Studies show that certain characteristics are predominant in female leaders, like the ability to listen, the desire to form a consensus, an attention to risk. Which is why I think women are good leaders in times of crisis. It’s been said that women are often promoted to top positions in moments of crisis. You came to the IMF during a double crisis: Your predecessor was embroiled in scandal, and the global economy was in trouble. Does this phenomenon present women with unfair challenges? I look at it in terms of opportunity. When the situation is really bad, it’s a good occasion to prove yourself. And there aren’t that many competitors for such jobs, because people are afraid of being associated with failure. So you’re basically saying that women make better leaders than men. In a crisis situation, yes. My favorite example is Iceland. The country essentially went down the tubes. Who was elected prime minister? A woman. Who was called in to restore the situation with the banks? Women. The only financial institution that survived the crisis was led by a woman. Do you still see sexist bias in big institutions? I’ll put it this way: When we had to elect new partners at Baker & McKenzie, I would ask the existing partners to show a positive bias in support of aspiring young women, because there exists—and sometimes it’s intangible—rampant sexist bias against women in leadership jobs in male-dominated environments. When you sense that people are dismissive of you for being “just” a woman, how do you respond? I say, “Stuff you.” Does that work? On occasion. I was amazed when I read Madeleine Albright’s book, and she seemed to say that she could use slang and talk— Earthy? Yes, earthy. And I asked myself, Why would she do that? Having been brought up by proper parents, I was told not to use bad words. But having gone through all I’ve gone through, I realize that on occasion you can make a point by being earthy. You can be elegant. You can wear nice clothes and have a smile on your face. But now and again you need to say “Stuff you” to indicate that you’re not going to take any rubbish. “Stuff you” is not all that earthy. No, but it’s unusual in my way of speaking. Strengthening the IMF When you came to the IMF, did you think it needed cultural change? The institution has unbelievable strengths: diversity, being international, being respectful, holding consultations before making decisions. I don’t think there are many places in the world with so many PhDs per square meter. But it can also come across as quite rigid sometimes, and if you don’t challenge a culture, it can become stale. So, yes, I try to foster change. I’ve read that you were a synchronized swimmer. Are there times when you wish the IMF functioned with that kind of precision and teamwork? Yes, though it would be hard without the music. What does the head of the IMF actually do? Answer e-mail and sit through excruciating meetings like the rest of us? I go to quite a lot of meetings. I’m not sure I would categorize them as you do, although some seem awfully long. I spend about 50% of my time visiting our member countries—which I feel is very important—and 50% in Washington. When I’m abroad, I’m visiting with finance ministers, governors of central banks, prime ministers, and presidents to understand the economic issues they face and how we can help them. I also always meet with groups of women from business, NGOs, and academia. And while I’m away I’m well represented at headquarters by a strong team of deputies, and we stay in constant contact. What happens here at headquarters? When I’m here, I spend a lot of time bringing the leaders of our various departments together. It helps to have a group of bosses in a room talking about issues their departments don’t necessarily agree on—it brings the debate alive. I also spend a lot of time in board meetings, discussing issues ranging from the Japanese economy to the IMF’s support for Greece to the challenges facing emerging markets and low-income countries. Are there innovations at the IMF you’re proud of? Lots of them. We’ve put in place a framework where people, including those at the top, discuss their objectives each year and then are held accountable for what they have done, or not done. A portion of compensation is tied to this, which helps encourage people to challenge themselves and their groups about how they do their jobs. Have you changed the role of managing director? I try to foster change, bringing people together to spark new ideas. I also try to reach out within the institution and make management more real. From day one I’ve been visiting departments unannounced. It surprises people; they don’t expect top management to just walk in. How should the outside world judge whether or not the IMF is succeeding? Well, this year we raised $461 billion to consolidate and strengthen the institution. I felt that we needed to have a bigger wallet, because if things get worse, we’ll need to be able to show that we are ready. The fact that so many countries decided to make these loans to the institution is a sign of trust in the mission and how we go about it. Do you feel that the performance of the global economy is on your balance sheet as well? It is, in the sense that we are here to observe and then to offer guidance and, in some cases, to lend countries money. When we do provide funds, we say, “You have to satisfy these conditions, and if you don’t, we won’t release the next round.” I believe that we are making a difference and that we are effective, but it takes time for that to be recognized. The IMF has faced criticism over the years. Ten years ago we had a terrible reputation in places like Latin America and Southeast Asia. The IMF was resented for having prescribed a very harsh set of conditions for many countries. But when I visit those countries now and talk to officials, they say, “OK, it was hard going, but thank goodness the IMF insisted on the conditions, because now we are through it. We have cleaned up our banking system, we have restructured our economy, and we have a much better fiscal policy.” We are often resented because we are the messenger of truth and the prescriber of tough decisions. Those prescriptions presumably reflect a kind of orthodoxy among your economists in terms of— They’re not Marxists, you mean? For example. That’s true. To what extent does that orthodoxy change over time? Has the IMF evolved over the years to become more flexible? I think we have evolved. We used to look mostly at fiscal policy. Now we focus a lot on monetary policy as well. We look at structural reforms and try to be more attentive to what an economy can actually deliver, especially in terms of growth and jobs. We also pay much more attention to safety nets, to things like pension schemes. And the conditions we set are far less detailed. So we don’t micromanage like we once did, and we give more flexibility to a country to decide how it will deliver in terms of fiscal consolidation, opening up markets, and removing the obstacles built into the economy. There was that famous picture in Indonesia from 1998, when your predecessor Michel Camdessus was shown standing over President Suharto as he signed an IMF agreement. Yes. It was unfortunate, because Michel is a wonderful man, and he was a great leader of the IMF who was totally committed to helping the Fund’s member countries. An Infamous Photo from the IMF’s Past Former IMF managing director Michel Camdessus (left) and President Suharto at the January 15, 1998, signing of an agreement aimed at boosting Indonesia’s failing economy. The photo was widely decried as a symbol of Western imperiousness toward emerging-market countries. Photography: Associated Press It was a low point for the institution. It certainly demonstrates how powerful a photograph can be. Toward a Vibrant Global Economy We’re at a phase now when many companies are doing well but are not adding jobs. How do we get an expansion that also creates employment? That’s a very important topic. There is a fear out there that we’re seeing the growth of a “robot” economy—that today’s growth is capital- and technology-intensive but not job-intensive. Can the IMF do something to, say, stimulate private banks to lend to businesses? We can advocate, we can exhort—and we do that in our reports—and we can identify where there are bottlenecks and where monetary transmission does not operate properly. But we don’t have the tools to make it happen. That’s up to central banks, governments, and regulators. What do you think it would take for the U.S. to regain its competitiveness? To me, competitiveness is delivered through either pricing or quality—and by that I mean a proper mix of technology, invention, and brands. One thing that would help is continued innovation, an area that has been extremely beneficial to U.S. competitiveness. My advice is to never give up on education and to never give up on the development of the sciences, because that’s where a lot of productivity and competitiveness come from. Are you concerned that China’s economy may be running into trouble? The key questions for China are: Will it move from the middle-income stage and become an advanced economy, and will it include people in a sufficiently cohesive way that the social fabric holds? There are also concerns about credit growth. Can the country keep a leash on shadow banking? Can it take on corruption? But I have been dealing with China for the past 20 years, and I have been amazed at how its leadership has been able to adjust. Are there things the world’s leaders need to do to fix the capitalist system? For example, reduce the focus on short-term results? Yes. Capitalism tends to move from crisis to crisis. The same goes for governments. If the next election is only two years away, why should anyone worry about medium-term objectives? It’s a big problem. Are there any so-called intractable problems you’d like to solve during your term? I would like to see much better synchronization and collaboration among global financial and economic decision makers. If all governments could extract themselves from their domestic bases and look at the long horizon of bigger issues, that would be a dream. This is the synchronized-swimming model. That’s right. Your term expires in 2016. What happens to Madame Lagarde after that? She will look after her grandchildren or do something else. I have no idea. Do you think you might remain at the IMF for an additional term? The membership will have to decide.

“I Try to Spark New Ideas”

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