Facing Reality, Starting with Yourself
In my 2009 book, 7 Lessons for Leading in Crisis, the first lesson when encountering a crisis is to “face reality, starting with yourself.” This week we have contrasting examples of leaders confronting crises who took sharply different paths: JP Morgan’s Jamie Dimon and Best Buy’s Richard Schultz.
Schultz founded Best Buy in 1966 with a single store called “Sound of Music.” He has built his company into an international chain with 1,250 stores, 170,000 employees, and $50 billion in revenues. Although he twice turned the CEO role over to long-standing colleagues, Brad Anderson in 2002 and Brian Dunn in 2009, he never relinquished control. As Best Buy’s board chair, Schultz dominated both the board and the company, with few board members or executives who dared challenge his power.
Without question, Schultz is a brilliant entrepreneur who built a great organization. He was named one of the Twin Cities top five executives of the decade in the 1990s. In 2004 Best Buy was named “company of the year” by Forbes magazine. He amassed a personal fortune, retained 20 percent of Best Buy’s voting shares, and endowed the Schultz School of Entrepreneurship at St. Thomas University.
In the last three years Best Buy’s model of selling all forms of electronic hardware has lost ground to on-line retailers like Amazon, and its sales have slipped. Schultz and Dunn have been slow to react, resisted making fundamental changes in Best Buy’s business model. Last December Schultz got some very disturbing news from a reliable source in the company: CEO Dunn was having “an extremely close personal relationship” in Best Buy’s headquarters with a 29-year-old female employee. Schultz confronted Dunn with the allegations, which he denied.
What did Schultz do next? Nothing. He buried the issue, not mentioning it to Best Buy’s board, its general counsel or head of human resources. Nor did he launch an internal investigation to see whether the allegations were true. Not surprisingly, the issue surfaced again in March, this time directly to members of the board. The board took immediate action, terminating Dunn that day and hiring two experienced investigators, William McLucas and Tom Strickland, to determine the veracity of the charges. Their report led to Schultz’s forced resignation as board chair on May 14 and caused further turmoil at the company.
The lesson: Schultz failed to face reality and acknowledge his role in supporting, and perhaps dominating, CEO Dunn. As a result, he was forced to resign in disgrace, a sad end to a brilliant career.
In contrast, Jamie Dimon of JP Morgan, upon learning of the firm’s $2 billion loss in a hedging transaction, took full responsibility for the problems. He didn’t hide from the media, as he talked openly about what happened. He went on Meet the Press the next day, telling David Gregory, “We made a terrible egregious mistake. We were stupid. There’s almost no excuse for it.” The following day he accepted the resignation of the trader responsible for the losses. He acknowledged that the losses came at an extremely awkward time in the finalization of the regulation of the Dodd-Frank law in defining proprietary trades and hedging, but didn’t blame others.
The lesson: While the losses at JP Morgan are not insignificant, they represent less than 10 percent of the firm’s annual profits and can be absorbed without basic harm to the bank. While the crisis was front-page news for the past week and has triggered several investigations, Dimon will be able to put it behind him in due course and continue to build his bank. All because he faced reality and took full responsibility for the problems.