08/28/2009 05:12 am ET | Updated May 25, 2011

The Core Problem in Business - It's Not What You Think

GM's bankruptcy. Goldman's bonuses. AIG's collapse. It's easy to look at what's going on and say "How Stupid!" And this is true -- but perhaps not in the way you think. This is because study after study shows that the core problem in business is not a lack of cognitive intelligence. It's a lack of emotional intelligence.

Yet almost all of our focus, education and training misses this point.

Think about your work for a minute. What -- or perhaps who - are the biggest challenges you face? What are some of the tactics you have tried so far to fix them? Do these issues seem stupid sometimes?

Well, they are. Not because the people involved are stupid, but because the core of these issues is usually emotional in nature, and can't just be solved in our heads. People seem irrational sometimes because the roots of our issues aren't rational.

The simple truth is this: at their core, 80% of unresolved issues are not intellectual or ideological, but emotional in nature. And while we receive many years of schooling for our minds, very few of us are ever given classes on how to work with our emotions and the emotions of others.

Emotional "blind spots" are often the most prevalent -- and most crippling -- at the top of the company. Think about Enron. The executives there were known as "the smartest guys in the room" yet they managed to do some remarkably stupid -- and illegal -- things. Now we could look at them and say they were bad, evil people, and we'd never do such things. But is that really true? In my experience, everyone is doing the best they know how to get their needs met. It's just that sometimes, our best isn't enough. And most of the time, this is because we haven't yet developed enough emotional intelligence to deal with the challenges we face.

In Developing Management Skills, David Whetten and Kim Cameron summarize this research.

"A study of UC Berkeley Ph.D.'s over 40 years found that EQ was four times more powerful than IQ in predicting who achieved success in their field - even for hard scientists. A McBer study comparing outstanding managers with average managers found that 90 percent of the difference was accounted for by EQ. In a worldwide study of what companies were looking for in hiring new employees, 67 percent of the most desired attributes were EQ competencies. In a study of highly emotional intelligent partners in a consulting firm ... the high EQ partners contributed more than twice as much revenue to the company as did the low EQ partners."

Think about GM. From 1984 - 1999, GM was the #1 company in America. In 2009 it declared bankruptcy. For decades GM was able to hire from among the smartest graduates our schools had to offer. If we were to test the IQ of its people, it would surely be well above average. But over time, it developed a culture that was more and more dysfunctional. The conflicts between labor and management kept getting worse, escalating bureaucracy made change increasingly difficult, and a creeping sense of entitlement sucked away its competitiveness and creativity.

Because here's the thing. Emotional problems breed. Once an emotional issue has taken root in a company, it grows. It spreads. It infects others. Like a cancer, it eventually metastasizes, to the point where it can kill a company. Saturn was created as a way of reinventing the way GM did business. For a while it worked brilliantly. But eventually the emotional diseases in the parent company took over.

This is why companies report such incredible returns from coaching. Great coaching is all about training people -- in direct, pragmatic, applied ways -- on how to increase their emotional intelligence. It supports companies in curing the root of their problems, instead of just focusing on the symptoms.

One study of 140 companies showed that they received $5 for each $1 spent on coaching. Another study measured an ROI of 600%. "Asked for a conservative estimate of the the monetary payoff from the coaching they got, these managers described an average return of more than $100,000, or about six times what the coaching had cost their companies." - Fortune, 2/19/01

In my work as a coach, I'm regularly amazed by the level of hard results that occur when we focus on the "soft" side of the business. As Roger Enrico, a Vice Chairman of Pepsi stated, "The soft stuff is always harder than the hard stuff. Human interactions are a lot tougher to manage than numbers and Profits and Losses."

So how do you work with this? In a series of upcoming columns I'll be walking through 7 Secrets of Emotional Intelligence. Or if you want, please feel free to jump ahead and download the whole article.

Additional resources are available at

Do you have any questions on this topic? If so, please feel free to send them to and we may answer them in a future column.