Leadership Mindsets in Central Banks: Shifting Toward Change and Growth

Providing agility as well as stability is the leadership mandate in central banks today

Imagine this: You and your team worked so hard on a very important report that you needed to deliver. This ad hoc report was, frankly, beyond your area of expertise, yet you took on the challenge and rallied your team to help. You were all very pleased with your output when, suddenly, the report came back, filled with corrections and ‘constructive’ comments from the Steering Committee. Will you beat yourself up, justify that it was not ‘your cup of tea’ and that you should not have accepted the task in the first place? Or will you shake it off, learn from the comments and bounce forward stronger? Believe it or not, the narrative that you come up with for yourself will greatly influence the action that you take, moving forward.

Dr. Zeti Akhtar Aziz, former Governor of Bank Negara Malaysia, described central banking as being an unfinished business, because there are always new challenges on the horizon, endless demands emerging from an ever-changing and more complex environment, and great expectations that the central bank will provide the solutions to resolve the financial and economic problems that confront us.

To this end, the SEACEN Leadership Competency Framework (SLCF) was designed to enable leaders at all levels of member central banks to understand the knowledge, skills and behaviors that they need to deliver on agility as well as stability in this age of extreme and rapid change: Adaptability (shift in mindset), Strategic Orientation (act in complexity), Risk Orientation (navigate in uncertainty), Innovativeness (advance in skillset), Stakeholder Inclusiveness (connect in collaboration), and Talent Growth (develop in team).

This blog will focus on Adaptability, in particular, these questions posed to leaders: What kind of mindset do we need to have? What do we need to be open to that we weren’t open to before?

What is Mindset?
According to Stanford Professor Dr. Carol Dweck, mindsets are the beliefs that people have about their own qualities, such as intelligence, talents, etc. They are the stories we tell ourselves about our own abilities – our beliefs about how smart, creative or athletic we are, to name some examples, and in what ways. In a fixed mindset, one believes that personal characteristics are stable and finite: I am what I am. In a growth mindset, one deems that today is just the latest starting point for who I can become and everything about myself can be further developed to some degree through effort and practice, including through coaching, mentoring and support from others: I will be who I grow to become.

Growth mindset does not mean that everyone is the same or anyone can do anything. I personally cannot wake up one morning and decide that I want to become a professional basketball player and expect myself to achieve it if I work hard enough – although it is significant to note that Michael Jordan famously didn’t make the varsity squad in high school. It only means that everyone has the potential for growth under the right conditions in the directions they choose. I may not become a professional basketball player, but there is no question that I can improve my shooting accuracy from the free-throw line. I absolutely can become a better writer, speaker, researcher, team leader, friend. I can also be healthier, stronger, more empathetic, wiser. The list goes on.

What we believe about the degree of stretching our abilities can propel or constrain our thinking and behavior. Let’s take intelligence, for example – something central bankers have a lot of. Dr. Dweck’s research has shown that praising a student’s intelligence ‘conditions’ her to have a fixed mindset. Why? Because now she becomes focused on a finite thing called IQ and starts to view all her potential according to that limit. Ironically, often, a person praised for her intellect becomes reluctant to expose herself to challenging situations that might call into question that reality even if her intelligence is high – our opening example, for instance. The last thing she wants is to fail in a way that will cast doubt on her IQ because her brainpower is her identity. It is who she is. She avoids any risk to others’ perceptions of her intelligence. She might even lie and cheat to preserve her image of being very smart.

Consider again the scenario in the opening of this piece. If the leader becomes fixated on his (and his team’s) limits, he could possibly blame himself for accepting such a challenging task in the first place, reprimand his staff for some of the misses, and avoid stretch assignments in the future. On the other hand, if the leader focuses on potential, he will be treating the comments as valuable learning opportunities and even seek more feedback. He would, most likely, request similar assignments where he and his team can apply these learnings and grow even more.

Leadership Mindsets in Central Banks: Shifting Toward Growth
How do these mindsets translate into the way central bank leaders lead? The SLCF delineated behavioral expectations across four levels of leadership in central banks, namely: Analyst, Middle Managers, Senior Leaders and Top Leaders. Having these in mind, I mapped out ways on how mindsets trickle down and manifest in leadership behaviors, guided by the SLCF.

Level 1 emphasizes Leading Oneself, the cornerstone of leadership, in an analyst’s role. In this capacity, the central banker has the opportunity to expand and deepen his technical knowledge and expertise as well as power skills. This is why at this level, one’s openness, especially as it relates to unfamiliar tasks, is crucial for it impacts his willingness and enthusiasm in taking on assignments that can stretch his capability. An analyst who fears taking on anything new feels vulnerable to ‘failing’ or ‘not living up to expectations’. In other words, he senses risk and potential backlash. This analyst probably views career progression as a ladder (i.e., focused on strictly upward promotional path) instead of a lattice (i.e., where stimulating roles, projects and assignments are pursued within the organisation both horizontally and diagonally), and hence, will get easily discouraged and become dissatisfied when he does not advance in the organisation as fast as he had hoped. Central banks, by design, have a limited and finite number of positions, and promotions come few and far between, which could leave a lot of dissatisfied ‘solid performers’ along the way if they do not have a growth mindset that makes them available for and appreciate stretch assignments and novel opportunities.

Level 2 covers the middle managers, the ‘silent’ heroes. In a recent NY Times article by Pete Gamlen, middle managers are the unsung heroes of an organisation because they serve as the “invisible glue” that gives organisations a chance to succeed by “knowing that moral formation is part of the job” by “helping their people become the best versions of themselves”. They also operate at the critical junction between strategy and implementation. They create the operational plans and direct the actions that make a strategy succeed or fail. In many ways, Middle Management is where Agility succeeds or fails. In the SCLF, adaptive leadership in this level entails Development – both in work processes and in people. A middle manager espousing a Growth Mindset would proactively adopt new tactics to address challenges and seize opportunities that allow himself and his team to thrive. Since he believes that intelligence and skills are dynamic, he capitalises everyone’s potential to grow through training, coaching and other on-the-job development interventions.

Level 3 includes heads and deputy heads of departments who have the power to facilitate rewards and talent mobility. Leaders at this level have a more holistic appreciation of the central banking operations and can anticipate future skill requirements due to evolving strategic imperatives, technological advances, and expanding mandates. Growth mindset is manifested when the leader acts as a matchmaker of talents, plugging people where they fit best capitalising on their strengths while providing avenues to grow within the organisation. Furthermore, leaders at this level define and regulate what gets rewarded and how. Emphasis is given not only on actual outputs but also on improvements made and learnings gathered.

Level 4 encompasses top leadership in central banks, where adaptability lies in being able to pivot and change long-term strategies in response to shifts demands and landscape. To this end, two things become crucial – systems thinking (i.e., the ability to objectively take on different points of view and navigate their interconnectedness with respect to the issue at hand) and feedback, including the leader’s ability to revisit and question his own ideas and approaches when necessary. The latter might seem very fundamental, and one might argue that it should have been taken up at the lower levels. The reason why this is at Level 4 in SLCF is because it is at this level where having a fixed mindset, particularly on feedback as a function of how one sees his vulnerabilities (manifested in Level 1), can rear its ugliest head.

Dr. Deborah Gruenfeld, Professor of Organisation at Stanford’s Graduate School of Business says: “For those of us who have insecurities about how important we are, how influential we are, whether other people respect us, those insecurities never go away. But as you move up in your career, what you find is you just find yourself on a bigger stage in which to act those things out”. Her research has shown that “people tend to become more focused on their own goals, a little more impulsive and less sensitive to social norms when in positions of power”.²

Top leaders in central banks are really looked up to for cues on acceptable and ideal behaviors and practices, which set the stage for the organisation’s culture in general. When left unchecked, fixed mindsets of leaders in Level 4 could lead to organisational silos that kill collaboration, resulting in intellectual rigidity while dampening innovation and self-preservation that tend to threaten goal compatibility within the central bank.

How Do You Fare?
Depending on the situation – the stakes, our level of energy, our level of interest, competing demands – we might find ourselves more in the fixed mindset at times and more in the growth mindset at other times. This we must remember – Mindset is a continuum and where we are on that continuum should be a choice, and not a default mode. One of the things that we can do is to be aware of the triggers or situations that steer us into having that fixed mindset. It could be stress, anxiety, tight deadlines, new or challenging projects, competition or any circumstance that leaves us feeling vulnerable. We might be inclined to have fixed mindsets concerning a specific skill, a particular colleague, or a certain relationship. How do we react and proceed? We would argue that in times of change it is best to lean toward a growth mindset. Here are some of the ways in which you can manage yourself to further instill the Growth Mindset:

• Manage the narrative. The power of ‘yet’. I can’t do it, yet! Adding the word ‘yet’ after a difficult and seemingly impossible task or situation encourages learning, maintains engagement, and increases your confidence in facing oppositions head on.
• Highlight the lesson, not the failure. Yes, we do fail once in a while. We are not perfect, after all. Rather than focusing on our failings, we can treat the experience as a learning opportunity. Reflect on the things that you did well on, and things that need improvement and adjust. Next time is going to be better.
• Dare to expand beyond what’s comfortable. When we exercise, we know that our bodies only become stronger when our muscles start to shake and tremble. The same thing is true with skills. We only realise our true potential when we stretch ourselves. Challenge yourself one step at a time. Say ‘I am open to…’ rather than ‘I won’t be able to…’.
• Emphasise learning goals, not only performance goals. This might be a little difficult to do especially since, as leaders, we are usually being judged on our outputs. Let us keep in mind that it is our responsibility to ensure that we are also agile enough to meet future skill requirements. Hence, it is prudent to continually have learning goals for ourselves as well as for our teams.
• Reflect and redirect. Former PepsiCo Chief Executive Indra Nooyi said, “As a leader, I am tough on myself and I raise the standard for everybody; however, I am very caring because I want people to excel at what they are doing so that they can aspire to be me in the future”. I particularly like this statement as it shows clarity and mindfulness of oneself and of one’s aspirations as a leader. As central bank leaders, let’s ponder: Are we promoting a culture of geniuses (know-it-all) or a culture of development (learn-it-all)? Are we ready to adjust our leadership style to listening more versus talking the most? Are we open to being open?

Adopting and advocating for the growth mindset in a consistent manner is no easy feat and will take some time. As central bank leaders, we are constantly toggling between stability and agility. This is the paradox that is highly relevant to central banking. It does not have to be one or the other though. As highlighted in the SLCF, central bank leaders can help achieve their organisations’ mandates of price and monetary stability by remaining adaptive and flexible, both in their mindsets and in the way that they lead.

1. Note that these manifestations might cut across all the levels of leadership in the central bank but that the categorization was based on the leadership expectations indicated in the SLCF as well as the “leadership” level where the mindset’s resulting behavior could have the most ‘impact’. ↩︎
2. The Psychology of Power & Influence | Stanford Graduate School of Business ↩︎