Seven Lessons for Leading in Crisis

[Moderator]

From the IIE website

By Bill George

Virtually every American institution is facing major crises these
days, from declining businesses to evaporating financial portfolios.
To get out of these crises, authentic leaders must step forward and
lead their organizations through them.

The current crisis was not caused by subprime mortgages, credit
default swaps or failed economic policies. The root cause is failed
leadership. New laws, regulations and economic bailouts won’t heal
wounds created by leadership failures. They can only be solved by new
leaders with the wisdom and skill to put their organizations on the
right long-term course.

Here are seven lessons for leaders charged with leading their
organizations through a crisis:

Lesson #1: “Leaders must face reality.”
Reality starts with the person in charge. Leaders need to look at
themselves in the mirror and recognize their role in creating the
problems. Then they should gather their teams together and gain
agreement about the root causes. Widespread recognition of reality is
the crucial step before problems can be solved. Attempting to find
short-term fixes that address the symptoms of the crisis only ensures
that the organization will wind up back in the same predicament.

In order to understand the real reasons for the crisis, everyone on
the leadership team must be willing to tell the whole truth. As J.P.
Morgan CEO Jamie Dimon says, “It’s not sufficient to have one person
on your team who is a truth teller. Everyone on the team must be
candid in sharing the entire truth, no matter how painful it is.” How
else can we solve problems if we don’t acknowledge their existence?

Lesson #2: “No matter how bad things are, they will get worse.”
Faced with bad news, many leaders cannot believe that things could
really be so grim. Consequently, they try to convince the bearers of
bad news that things aren’t so bad, and swift action can make problems
go away.

This causes leaders to undershoot the mark in terms of corrective
actions. As a consequence, they wind up taking a series of steps, none
of which is powerful enough to correct the downward spiral. It is far
better for leaders to anticipate the worst and get out in front of it.
If they restructure their cost base for the worst case, they can get
their organization healthy for the turnaround when it comes and take
advantage of opportunities that present themselves.

Lesson #3: “Build a mountain of cash, and get to the highest hill.”
In good times leaders worry more about earnings per share and revenue
growth than they do about their balance sheets. In a crisis, cash is
king. Forget about EPS and all those stock market measures. The
question is, “Does your organization have sufficient cash to survive
the direst circumstances?”

In the recent financial crisis, Citigroup ignored the risks inherent
in its investments in order to generate fee-based income to prop up
2007 earnings. When the markets turned, Citigroup found itself out of
cash and was forced to turn to the federal government to save it from
bankruptcy. In contrast, Goldman Sachs anticipated the difficult times
and built up its cash reserves. When the markets got really bad,
Goldman had adequate cash reserves to weather the storm.

Lesson #4: “Get the world off your shoulders.”
In a crisis, many leaders act like Atlas, carrying the weight of the
world on their shoulders. They go into isolation, and think they can
solve the problem themselves. In reality, leaders must have the help
of all their people to devise solutions and to implement them. This
means bringing people into their confidence, asking them for help and
ideas and gaining their commitment to painful corrective actions.

Lesson #5: “Before asking others to sacrifice, first volunteer
yourself.”
If there are sacrifices to be made – and there will be – then the
leaders should step up and make the greatest sacrifices themselves.
Crises are the real tests of leaders’ true north. Everyone is watching
to see what the leaders do. Will they stay true to their values? Will
they bow to external pressures, or confront the crisis in a
straightforward manner? Will they be seduced by short-term rewards, or
will they make near-term sacrifices in order to fix the long-term
situation?

Lesson #6: “Never waste a good crisis.”
This piece of advice comes from Benjamin Netanyahu, the next prime
minister of Israel. When things are going well, people resist major
changes or try to get by with minor adaptations. A crisis provides the
leader with the platform to get things done that were required anyway
and offers the sense of urgency to accelerate their implementation.

Lesson #7: “Be aggressive in the marketplace.”
This may sound counterintuitive, but a crisis offers the best
opportunity to change the game in your favor with new products or
services to gain market share. Many people look at a crisis as
something to get through, until they can go back to business as usual.
But “business as usual” never returns because markets are irrevocably
changed. Why not create the changes that move the market in your
favor, instead of waiting and reacting to the changes as they take
place?

Bill’s bottom line: In a crisis we learn who the real leaders are and
whether they have the wherewithal to stay on the course of their true
north.

Bill George, author of national best-sellers, True North and Authentic
Leadership, is professor of management practice at Harvard Business
School. The former chairman and CEO of Medtronic, he serves on the
boards of ExxonMobil and Goldman Sachs.