The team effectiveness exercise involves leaders sitting down with direct reports to identify personal attributes that make the team better and areas where improvement is needed. This exercise fosters trust and open communication within the team, providing an opportunity for team members to give and receive feedback openly. By creating an environment where everyone contributes and receives feedback positively, individuals can improve and the team can grow stronger. The exercise emphasizes the importance of leaders going first to model the behavior and encourages them to listen, apply feedback, and thank team members for their input, leading to a culture of continuous improvement. When conducted in an environment of trust, this exercise can significantly enhance team cohesion and performance.