Leading In Crisis
The current economic crisis is providing significant challenges for leaders throughout the business, government, and nonprofit sectors. Their ability to lead in a crisis will be sorely tested and will often determine whether their institutions fail or survive the crisis. The best leaders are those who are wise enough to use crises like these to strengthen their organizations for the long term. Sadly, many leaders have failed the test, though others are emerging as outstanding leaders.
There is nothing quite like a crisis to test your leadership. It will make or break you. Like a war, a crisis tests your limits because the outcome is rarely predictable. You not only have to use all your wisdom to guide your organization through it, but also dig deep inside yourself to find the courage to keep going forward. So who will pass the test? What have successful leaders done to set themselves apart? In my new book, 7 Lessons for Leading in Crisis, I examine a wide range of crises that hundreds of leaders have faced and how they dealt with them. This book is aimed at helping leaders at all levels of organizations, from those in the early stages of their careers to recently appointed CEOs. The book profiles successful leaders—PepsiCo’s Indra Nooyi, IBM’s Sam Palmisano, Apple’s Steve Jobs, and Berkshire Hathaway’s Warren Buffett—as well as leaders who have not fared so well, such as Chuck Prince of Citigroup, Martin Sullivan of AIG, and Richard Fuld of Lehman Brothers. From this examination, I derived seven lessons that apply to all types of crises, from external events like economic downturns, hostile takeovers, and weatherrelated disasters to internal problems such as product quality and recalls, accounting scandals and earnings shortfalls, legal and ethical issues, and organizational upheavals. These seven eternal lessons will be immediately applicable to all types of leaders throughout organizations in dealing with current and future predicaments.
Lesson #1: Face Reality, Starting with Yourself
Before you can lead your organization through a crisis, you have to acknowledge that you are indeed in one. Next you have to get everyone else to acknowledge it as well. Only then can you define the problems accurately and develop plans to deal with them. This is a difficult task, as leaders often go into denial about the urgency and severity of the challenges they are facing. Without accepting the problem is theirs to fix, they cannot understand what they are dealing with.
However, even when leaders acknowledge their responsibility, they may face significant resistance from their organizations in solving it, as people have great difficulty admitting their mistakes. This is why crises require so much skill on the leader’s part. For example, Warren Buffett’s masterful stewardship of Salomon Brothers in 1991 is clear evidence of the importance of skilled experience in leadership. And while leadership as a skill is important, the capacity for grasping the reality of a situation is equally vital. Denying reality destroys more careers and organizations than incompetence ever did. Instead of asking yourself why it is so difficult for other leaders to face reality, ask yourself instead, “Why is it so hard for you?”
The Critical Message: The crisis isn’t going to fix itself, so denying its existence can only make things worse—much worse. That reality must start with you and your acknowledgment of your role in the crisis itself. Then you have to guide your entire organization to face reality as well.
Lesson #2: Don’t Be Atlas; Get the World Off Your Shoulders
Do you ever feel like Atlas, like you’re carrying the weight of the world on your shoulders? Like the whole organization is depending on you, and you’re not sure you can pull it off? And that if you don’t, everything you have built for years will collapse overnight?
Faced with a pending crisis, many leaders feel that heavy burden and choose to take it entirely on themselves, turning inward and away from their colleagues and staff. One of the reasons leaders turn inward is that they fear failure and loss of self-esteem. And though it is easier said than done, if you embrace your fears instead of running from them, they will gradually dissolve. One of the best ways to do this is to turn to your corporate teammates and the important people in your personal world for help and support. A prime example of the importance and effectiveness of a trusted support network can be found in Greg Steinhafel’s stewardship of Target as CEO in 2008. With the U.S. economy in a free fall, Target had fallen behind Wal-Mart in store sales, and Steinhafel was facing pressure from activist investors to institute risky financial solutions. Instead of caving under the pressure, Steinhafel called upon directors and staff, his trusted mentor Bob Ulrich, and even outside financial advisors and legal counsel to formulate a comprehensive plan. With the right support and advisory structure in place, he then calmly and efficiently ushered Target back to prosperity.
The Critical Message: The essential learning here is that you cannot get through a crisis alone, so don’t try. The good news is you are not alone. People inside your organization and in your personal circle are more than willing to help you, if you ask them and are willing to open up. You will be much more effective in getting through a crisis when you get the world off your shoulders and share burdens with others.
Lesson #3: Dig Deep for the Root Cause
In the early stages of a crisis, it is easy to mistake the first symptoms that appear for the entire problem. It is human nature to attempt to fix the symptoms before the root cause is determined. Complicating the matter is the fact that, as a leader, your natural instinct is to challenge bearers of bad news about whether things can really be that bad, or whether they are just “doom and gloom” people.
You’re inclined to jump in and implement a solution to make the problem go away so your company can continue to move forward. However, if you move too fast to devise solutions, you may underestimate the depth of the problem, or misjudge its root cause, as the problem may be more serious than anyone appreciates. Another caveat is that if you surround yourself only with positive people, your team may reinforce your natural instincts to solve the problem before it is fully understood. Thus, you fix it with Band-Aids rather than surgery, while letting the real problem fester. Or your “quick fix” may eradicate the symptoms of the problem while masking its root cause.
Unless the root cause is corrected, the odds are high that the organization will find itself in yet another crisis in just a matter of years. It’s your job as a leader to prevent that, or next time around things will be a lot worse. It isn’t easy to determine whether you’ve gotten to the root cause. The only way to do so is to gather all your experts to analyze the problem and give them time to reach definitive conclusions.
When your organization is confident it has developed corrective solutions, an intense effort is required to implement the solutions. As the leader, however, you should express cautious optimism, but not complete confidence, that you have an acceptable solution.
The Critical Message: An organization cannot deal with a crisis until it determines its root cause, but people are often mentally blocked from recognizing it because the implications are often so frightening. So the leader must bring people together to confront their worst fears and address the risks. In Medtronic’s 1998 crisis, I learned my teammates were only willing to commit to the aggressive course of action when I was willing to take those risks on my shoulders. The hesitancy and fears of failure that many felt were then channeled into turning this risky decision into a major success.
Lesson #4: Get Ready for the Long Haul
It is tempting to think of crises as events you have to weather until things return to normal. As hard as it is to predict when a crisis will hit, it is even more difficult to forecast when it will end. And as bad as things may seem at the outset, more often than not the situation deteriorates before it gets better.
Unfortunately, leaders often fail to even see the crisis coming. Rather than acknowledging they should have recognized the signals in time, they blame external events and things outside their control. Many behave as if the crisis came out of nowhere, or was an act of God. Reality is usually very different. Xerox CEO Anne Mulcahy says, “A lot of crises seem to happen overnight, but they have really long roots, like 10 to 15 years in terms of the source of the real problems.”
The Critical Message: When facing the early stages of a crisis, it is essential not to declare victory too soon. Many leaders will learn from the global economic crisis not to underestimate the length and severity of crises they face, even if their crises have nothing to do with the economy. Prudent leaders recognize that survivability is their most important goal, so that they can come back strong as the crisis subsides.
Lesson #5: Never Waste a Good Crisis
In The Prince, Italian philosopher Niccolo Machiavelli advised his followers, “Never waste the opportunities offered by a good crisis.” Although it is hard to recognize at the time, a crisis provides a unique opportunity to create transformative change in your organization.
General Motors is a prime example of a company that wasted a good crisis. For three decades, GM management ignored the crises it faced. Management treated them as short-term events to get through, rather than opportunities to transform the company. Frequently, its executives turned to the U.S. government to help the company out of its predicaments: GM made requests to impose import quotas on foreign-made vehicles and delay federally mandated increases in fuel efficiency, and even lobbied the government to take over its health care benefits. By the time the automotive market collapsed in late 2008, it was too late for GM, and management was forced to turn its ownership over to the U.S. government.
Contrast GM’s experience with the visionary leadership of Jack Welch. When he was elevated to CEO of General Electric in 1981, Welch saw a world ahead that few others recognized. He envisioned intense global competition in which only the leanest and most competitive firms would survive. To get his slow moving, mature organization to go along, Welch created a crisis. He shifted key positions to executives who agreed with his philosophy and retired the rest. There was no challenge he did not tackle. No detail was too small to escape his attention, and perhaps his wrath. He eliminated 100,000 jobs, including many layers of staff and line. In the process, he turned GE’s bureaucracy into a high-performance machine.
The Critical Message: Leaders who don’t take advantage of crises to make long-term changes not only waste their opportunities, but also sow the seeds for a repeat experience. Like GM, your organization will face these risks if you don’t make the changes that are required.
Lesson #6: You’re in the Spotlight: Don’t Lose Track of True North
For years I have explored the concept of a person’s “True North,” the internal compass that drives you to success. During a crisis, the spotlight on leaders is turned up to maximum intensity, and a leader’s True North is put to the test. People are so nervous and hungry for information that they hang on every word from their leaders, trying to glean clues from their body language, facial expressions, and even the color of their ties and dresses. In a crisis, everything is amplified one hundredfold.
The key to handling public issues is to be open, straightforward, and transparent. In a crisis, both employees and external observers are extremely sensitive to any attempts to dissemble or hide the truth. These will quickly be exposed, especially if subsequent events reveal your statements to be inaccurate or misleading.
Being transparent creates an open and human image of the organization. Its leaders seem like normal people who are tasked to take on difficult challenges. When you are open, you are better positioned to ask people for their support. If things get worse, as they often do, people are more sympathetic to your point of view if you have kept them fully informed. During this time, you should be highly accessible within your organization, wandering around the offices and labs, visiting factories, and participating in events around the company.
The Critical Message: These days the intensity of the spotlight is so great that leaders cannot get away with dissembling or being intentionally misleading. There are so many different channels for information to become public that the truth will eventually come to the surface. The velocity of information transmission is so fast that leaders must establish the groundwork for transparent communications long before the crisis hits. The key is getting out in front of the crisis in its first hours with clear statements, both internally and externally, that accept responsibility and build confidence and credibility with all your constituents.
Lesson #7: Go on Offense, Focus on Winning
Look at a crisis as a gift. It provides you a golden opportunity that may not come again to reshape your business and your industry and emerge as the winner. But you must be bold and focused.
In a crisis, many leaders assume if they can just get through it, everything will return to normal. So they hunker down and wait for the storm to pass. While they are hunkering down, they lose ground to their competitors who are reshaping the market.
Why not reshape the market yourself? First, you need a clear vision of what future markets will look like. This requires a keen understanding of how your customers’ needs will change as a result of the crisis. Second, you need a focused strategy to reshape markets to play to your strengths, while exposing your competitors’ weaknesses.
Then you’ve got to move aggressively to put your strategies into action, just as forcefully as you did to survive the crisis. If you can pull this off, you may be able to catch your competitors off guard. By the time they wake up to what your organization is doing, you will have solidified your leadership of the post crisis market.
A key part of this post crisis maneuvering includes making investments for the downturn. Visionary companies gear their businesses for the long term by preparing for sharp economic swings so that they can invest during the downturn. They recognize their competitors are likely to pull back investments when the economy turns down and markets decline. Well-led companies are aware of the lead time for capital investments, and they know they must invest heavily in downturns or they won’t be ready for the upswing. Doing so takes substantial cash balances to withstand downturns while funding the expanded investment.
There are seven crucial factors to keep in mind in order to keep on the offensive:
7 Steps to Focus on Winning:
Step 1: Rethink Your Industry Strategy
Step 2: Shed Your Weaknesses
Step 3: Reshape the Industry to Play to Your Strengths
Step 4: Make Vital Investments During the Downturn
Step 5: Keep Key People Focused on Winning
Step 6: Create Your Company’s Image as the Industry Leader
Step 7: Develop Rigorous Execution Plans
The Critical Message: Keep your head up during a crisis, rather than hunkering down, and maintain a laser-like focus on winning in the emerging marketplace. This period offers the best opportunity you will ever have to reshape markets to your advantage. The best leaders emerge from a crisis as winners because they are both aggressive and courageous in turning challenges into advantages. Beyond that, they are passionate about using their leadership to make a difference in the world.
The crisis you are facing—or inevitably will face—may be the defining moment in your professional life. Your defining moment comes when your life story collides with a crisis in the midst of your path. Here, you learn who you really are. When you are under enormous pressure and the consequences are greatest for you, will you be prepared to follow your True North?
This moment defines you to others as well. People remember how leaders respond in a crisis because intuitively they know this is the authentic test of the person. Each of us has the opportunity to make a difference in the world by leading others through crises to change a small portion of events. If we learn our leadership lessons well, then the history of this new generation will most assuredly be great
The world is crying out for your leadership. We face six major problems that are so pressing that we must address them now: global peace, health care, energy and the environment, job creation, income disparities, and education. These problems are so large and intractable that no one organization can possibly solve them on its own. That’s why they require each of us to use our leadership gifts to contribute to changing a small portion of these problems.
The time is ripe for you to step up and lead people through the current crisis. Be bold in your leadership because boldness has genius, power, and magic in it. If you stay on the course of your True North, you can make a lasting difference in the world. This is the ultimate fulfillment of leading people through a crisis.