The past eighteen months have been testing time for many businesses, and for their leaders. It has been instructive to watch the actions and behaviours, both of those that have failed and those that have come through the crisis comparatively well (at least, so far). No one was fully prepared – and in fairness, no one could have been expected to be prepared – for the scale of the financial crisis and the speed with which it unfolded. But there is no doubt that some companies and some leaders have come through better than others. Morgen Witzel, FSN writer and honorary senior fellow at the University of Exeter Business School, suggests how the right leaders are essential to navigating the financial crisis.
‘Businesses are often very bad at preparing for a crisis’, says Allan Leighton. The former chairman of Royal Mail and chief executive of ASDA knows quite a lot about crises, having weathered a few of them himself. In his 2007 book On Leadership, he argues that one of the most important things any leader can do in a time of crisis is simply to be there. Be seen to be in charge, communicate with others around you and manage the flow of information so that people know what is happening and what do: these are the key things. If they are not done, or not done well, then the company will flounder.
Andrew Grove, former chairman of Intel, offers the same view. In his own musings on leadership, published in his entertainingly titled book Only the Paranoid Survive, published in 1998, Grove insists that in a time of crisis the leader must take action. Doing nothing is not an option. He offers an example from his own company, Intel, which had been forced to recall and replace half a billion dollars worth of defective Pentium processors. When the problem was first detected, the atmosphere in Intel was close to panic. The crisis had the potential to destroy the entire company. Grove, who at the time was both chairman and CEO, had to move quickly to restore calm and then work out a plan for dealing with the problem, quickly and decisively. By taking action at once, he more than likely saved Intel.
Grove is one of nature’s pessimists. He believes that it is precisely when everything seems to be going well, the business is coasting along and raking in profits and everyone is happy, that there is most to fear. Most major changes, he says, are sudden, unplanned and potentially lethal to those not prepared for them. Borrowing a term from physics, he refers to these crisis events as ‘strategic inflection points’. How leaders respond determines the direction the business will go: up to greater success, or down to oblivion.
Never a man to mince words, Grove compares surviving a business crisis to walking in the Valley of Death. Those who are mentally and physically strong enough to endure the crisis will pull through. Those who are weak will fall by the wayside.
These are all good stirring metaphors, but what lessons can we draw from them? The first would seem to be that, as Allan Leighton suggests, we need to become better at preparing for crises. Of course many crises cannot be foreseen. Air France, for example, had no way of foreseeing that one of its Concorde passenger jets would crash in 2000; no Concorde had every crashed before, and there was no reason to assume that one would now. It could be argued that the present financial crisis was more foreseeable – as early as 2006, some analysts were predicting that the sub-prime mortgage bubble was due to burst – but again, no one could realistically have foreseen how far the effects would spread.
So we have to assume that crises can happen at any time, like thunderbolts from a clear blue sky, and then make certain that we and our organizations are robust enough to withstand them when they come. It is helpful to have contingency plans for likely situations, but not every situation can be foreseen. Lord Browne, former chairman of BP, used to test his senior executives by setting them scenarios such as, ‘How would we respond if the price of oil fell to $10 a barrel?’ In fact such an event was very unlikely, but that was not the point. Browne’s intent was to get his top team used to thinking about the unthinkable, and make them flexible enough to deal with unexpected events when they occurred.
The second lesson is that, as Allan Leighton again says, it is important to take action. Indeed, it could be argued that almost any action is better than no action at all. When, on the night of 14 April 1912, the passenger liner Titanic struck an iceberg in the North Atlantic, her captain at first dismissed this as a matter of no importance. When he did finally take action, it was too little and too late. Prompt action would not have saved the ship itself, but it might have saved some of the more than 1,500 people who drowned. In much the same way, banks that took rapid action when the sub-prime mortgage bubble burst were able to limit their losses. Those that sat tight and did nothing suffered far worse losses later on.
The third lesson is perhaps surprising: study the crisis and look for opportunities. Not every financial downturn lasts forever (though it can seem like it). The failures of some companies create opportunities for others: recall how other banks picked over the wreckage of Lehman Brothers, looking for particular businesses that could be salvaged, or how Santander acquired the savings business of Bradford & Bingley for a bargain basement price.
It may sound ruthless, but good leaders take advantage of the weakness of their competitors, and nothing exposes weakness better than a financial crisis. In his 2008 books The Advantage Makers, Steven Feinberg says that leaders do one of two things: they create an advantage, or they react from a disadvantage.
Right now, in the midst of turmoil and uncertainty, there are huge opportunities for creating advantage. Most businesses are not seeking to do so. Most are sitting tight, cutting costs, shedding jobs, concentrating on just trying to ride out the storm. These businesses may well survive the recession, but they will be weaker than when they went into it.
Leaders who have sufficient boldness and vision – and can command the necessary resources – can use this as a chance to put distance between themselves and their competitors. Of course the qualification is important: money is still tight and resources scarce. But Steven Feinberg challenges this as an excuse. One of the characteristics of visionary leaders, he says, is that they are able to do more with less, and do it faster.
Beware that crises can happen at any time, and be ready. When crises do erupt, take swift and decisive action to manage the immediate problems. Then, scan the environment and look for opportunities. It sounds simple enough, but of course in reality these things are far harder to do. Peter Drucker once observed that anyone could be a good leader when things were going well. What mattered most was whether people could lead equally successfully when things were going badly.
And there, perhaps, is our fourth lesson. When selecting and training leaders for the future, we should pay less attention to how well they will lead us in times of success, and how they will react and respond to crisis and failure. Forget the sunlit uplands; the true test of a leader lies in the Valley of Death.
