Boyden Spotlight on Leadership in a Time of Crisis

In this Issue

• Message From the Editor

I Leadership in a Time of Crisis

• Sidebar: David Gergen, Director, Harvard's Center for Public Leadership, talks about what kind of leadership the world needs now.

II  The Challenges and Opportunities of Crisis 

• Sidebar: Turning Crisis Into a Leadership Oppportunity. A new approach provides a better blue print for leadership in times of crisis

III Distinguishing Characteristics of Successful Leaders

• Sidebar:  Joseph Daniel McCool, author of Deciding Who Leads, introduces the next generation of talent and Leadership 2.0

Message From the Editor

This is a different kind of Spotlight from any we've published previously. We've chosen to focus this edition on a single subject of critical concern to all of us - the challenge of Leadership In A Time of Crisis.

Not since World War II have we experienced economic conditions like these. Former presidential advisor David Gergen uses the term "perfect storm" to describe the economic tsunami that has come crashing down on virtually all markets and sectors around the world. And though some may say they saw the tsunami coming, it exploded and spread with bewildering speed.

The Internet has removed the protective barrier of distance. Globalization has connected formerly isolated markets and geographies, transforming them into interdependent cogs in real-time global ecosystems.

Once it was a cliche, but now it is true: a sneeze in Sao Paulo causes a cold in Shanghai. Suddenly, all over the world, even the best run companies are watching core customers disappear and credit dry up. Entire industries are in retreat.

In crisis it is the charge of leadership to guide organizations to calmer seas, sustainable strategies, and renewed profitability. But the severity of this crisis raises important questions for all those involved in assuring that organizations have the leadership they need. 

The questions to consider are: Is the current leadership able to handle the job? Are new resources required? What are the characteristics of leaders who succeed in tough times? What kind of changes must be made and how fast? What are the strategies proven successful by experience?

This is a global crisis, and Boyden is a global company, with 70 offices in 40 countries. We've taken full advantage of Boyden's global network, engaging exemplary leaders from virtually every continent to help answer these critical questions. In addition we've reached out to thought leaders such as Professor David Gergen, currently Director of The Center for Public Leadership at Harvard, and to Joseph Daniel McCool, author of Deciding Who Leads and a BusinessWeek Contributing Editor.

We think you'll be interested and surprised by the answers.   

I. Leadership in a Time of Crisis

"There are many sectors facing real difficulties...we know this is part of a cycle. But it may not be just temporary. What we're seeing now may be the way it will befrom now on." 

John Ellis, Managing Director
  Boyden UK

"We want people who will be resourceful and productive...good times or bad. In our view leadership for bad times ought to start in good times." 

Jules Kieser, Managing Partner
  Boyden South Africa

Managing crisis is part of the job of leadership. It is not the only job of leadership. But there is always a "crisis" of some kind going on somewhere in virtually any organization or market or industry. It has even been suggested that some crisis is healthy.

The crisis may be internal or it may be external. It is the job of leadership to prepare for crisis. To analyze it. And to activate the organization, initially to limit damage, but also to leverage new opportunities a crisis creates.

If a crisis becomes big enough, however, and if conditions are dangerous enough, having people in place with the ability to lead and manage during extreme conditions becomes critical. Leadership becomes, in fact, an absolute necessity if the organization is to remain viable.

While crisis is normal, there is nothing normal about today's crisis. "There are many sectors facing real difficulties and we know this is part of a cycle," says John Ellis, Managing Director of Boyden UK. "But the speed with which it's happening is scary," explains Ellis. "Companies now want candidates who have already had experience going through a massive change program. That is no longer a nice to have. That is now a must have." 

Even Ram Charan, the pragmatic business guru who mentors CEOs for many of the world's largest companies, has sounded the alarm. Discussing his new book Leadership in the Era of Economic Uncertainty with BusinessWeek, Charan describes global economic conditions as equivalent to "a hundred year flood." Scientists use this classification to describe a dangerous convergence of conditions so rare it happens once a century.

The real concern, suggests Charan, is not simply that conditions are so difficult. The real concern is that we have no leaders in place today who have had the experience of managing in times this bad.

As a result, there is a new imperative for organizations to acquire the leadership they need. There needs to be much greater awareness of the tough leadership that is required to keep organizations viable in tough times. How do requirements change for leaders already in place? What kind of leadership can turn a troubled organization around? Are these specialized skills or skills that every leader should have?

Conventional wisdom is that companies need leaders with the ability to drive sales, profits and expansion in good times. But in a crisis, companies need leaders accomplished in reducing cost, conserving resources, and managing day-to-day. "Hire in good times, fire in bad," says Jules Kieser, Managing Director of Boyden South Africa. "That is the philosophy in developed countries, but not necessarily the best way to go for emerging markets. In South Africa, it's better to hire for the long term. We want people who will be resourceful and productive in tough times, good times or bad." Kieser adds, "In our view leadership for bad times ought to start in good times."

As the dominos continue to fall in market after market, there are competing views about what kind of strategies will turn things around. But there are two things almost everybody agrees on. The first is that this crisis will not be resolved easily. Observes John Ellis: "We know this is part of the cycle. But it may not be just a temporary part. It may be this way from now on." The second is that few geographies and organizations will escape the effects. Tim McNamara, Managing Director for Boyden in Washington, DC says, "This is not a U.S. issue. This is absolutely a global issue. What is happening here is happening everywhere."

Professor David Gergen talks about a loss of trust in leadership and what kind of leaders our world needs now.

Advisor to four presidents, David Gergen was among the first to write about the crisis in leadership. Today he is an important voice in defining what happens when leaders fail and what to do about it. Now a professor at Harvard, he is Director of The Center for Public Leadership at Harvard's John F. Kennedy School of Government. Gergen also serves as Senior Political Analyst for CNN and editor-at-large for U.S. News & World Report.

Boyden: Do leaders really matter?

Gergen: Leaders are "the X-factor" that sometimes makes the difference in bringing together a nation. . . or a company. We have new research from Harvard Business School showing that, while CEOs may not be as big a difference in business as some believe, stronger CEOs continually make positive differences, which do add up over time. So does leadership make a difference? Absolutely.

Boyden: Given "the perfect storm" of global economic conditions, is the problem that our leaders have been overwhelmed by impossible circumstances? Or has a failure of leadership helped cause this crisis?

Gergen: There is growing recognition that we have worked ourselves into this crisis over the last several decades. Living beyond our means, encouraging people to buy houses they couldn't afford, and so on. That doesn't mean we haven't had some good and great CEOs. But I think we have to admit fundamentally there has been a failure in leadership.

Boyden: For the last three years you've helped run a survey to measure how much we trust our leadership in the U.S. What have the results shown?

Gergen: This has been a real eye-opener. In the survey's first year, 65 percent believed we had a leadership crisis. Now it's up to 79 percent. Seventy-nine percent believe we will decline as a nation unless we get better leaders. And by the way, this last survey was completed before our current economic problems began.   

Boyden: Soon you begin a new course in leadership at Harvard's Kennedy School of Government. Given all we've witnessed, how will you change what you teach?

Gergen: I've been asking myself that same question.

I do believe this is a teaching moment. It is important for the older generation to reach out now to that next generation of leaders. We need to talk about the mistakes we've made. We need to pass on the lessons we've learned.

One. Leaders matter. Two. Hubris brings leaders down. There's no question for me. People (leaders) bring themselves down.

They derail themselves. Like Icarus trying to fly too close to the sun, they forget the fundamentals.

We do have a wonderful minister at Harvard's Memorial Church, the Reverend Professor Peter J. Gomes, and he put it very well in a sermon recently. He said, "You must master yourself before you can learn to lead others."

Boyden: Is today's world more complex and challenging for our leaders? Should they be leading differently?

Gergen: Today's world is extraordinarily complex. For example, we are learning just how much of our economic problems have to do with globalization.

First, I think we have to begin  preparing people to live, to work and  to lead across multiple sectors - in  business, and service and government. To be prepared to work in any or in all three in a lifetime.

Second, we have to learn to cooperate and collaborate across boundaries, beyond borders. I think we have to start teaching people to see themselves as citizens of the world.

Not just citizens of a single country, but citizens of the whole world.

Why? Our biggest problems are no longer defined in terms of one place. They are not going to stop at a border. The toughest challenges ahead involve the whole world.

Boyden: We now see more centralized control of the economies, more new funding and new contracts coming from capitals in many countries. What will this mean for our business leaders?

Gergen: I hope this is temporary. We don't want to swing too far in this direction for too long.

But it is important for business leaders to learn how government works. It is important for them to participate. And I don't mean through lobbyists. I mean business leaders need to go themselves. And get involved.

I can tell you that at least in Washington, we need more people with real business backgrounds. I'd love to see people like Jack Welch (former CEO of General Electric) bring more private sector skills to run stimulus programs in a business-like way.

Boyden: One last question, David: Is there any kind of "secret ingredient" for great leadership that nobody talks about?

Gergen: I do think people that are curious and people that know how to listen do have an advantage when it comes to leadership.

Because those are leaders who will always be learning. Those are leaders who will always be growing. Those are leaders who will be able to adapt.

To learn more from David Gergen on leadership, visit his website at http://www.davidgergen.com .

II. The Challenges and the Opportunities of Crisis

"Crisis forces people to look at performance. In fact, leadership may be easier in bad times than in good times. When you are leading in bad times, people know times are bad. People know that changes must be made."

Brian Renwick
Managing Director, Boyden China

"A time like this gives us the opportunity to make the changes we've needed to get done." 

Dinesh Mirchandani
Managing Director Boyden India

• Crisis is always about change.
• Leadership in crisis is about managing change.
• Leadership in extreme crisis ultimately is about changing your business.

Ram Charan believes that a new reality is created during extreme crisis, with new customer requirements. Charan says businesses must respond to those new requirements with new models, new products, and new styles of execution. This is not easy for leaders or for the boards that oversee them. But history suggests that having to change in response to crisis is not necessarily a bad thing.

"Crisis is a two way street," says Joseph Daniel McCool, author of Deciding Who Leads. "Crisis is destructive and it is constructive." Innovation often increases in times of crisis. The best new business models rise from the wreckage and bitter lessons of older, failed business models.

Nowhere is this process more visible than in the Silicon Valley. Bob Concannon, Manager Director for Boyden Chicago, and a veteran of boom, bubble and bust cycles in technology, says "What we've seen in California is that if you knock companies down enough times, it actually creates more creativity."

A classic example is chip-maker Intel. When lower cost competitors from Asia destroyed the market for Intel's memory chips, Intel in desperation shifted to programmable chips which could be adapted for a wider range of uses, including personal computers. Later when business didn't buy the more powerful chips Intel continually developed, Intel discovered home-users needed the extra power for multi-media computers. And even though the global financial crisis has forced customers to cut back on buying products that depend on Intel chips, Intel is not cutting back on research and development. Instead it is investing heavily in R&D so it will be ready when demand inevitably goes back up in the future.

Despite Charan's concern that leaders today lack the experience to manage organizations through a "100 year economic storm," there are leaders who have significant exposure to extremely volatile economic environments. Companies in emerging markets such as Brazil and in isolated geographies such as South Africa have learned hard lessons in surviving economic disasters.

John deMarmon Murray, Boyden's Managing Director for Brazil, says that country offers a successful model for leadership during economic crisis. Brazil went wild with hyperinflation from 1980 to 1994. Leaders had to find ways to operate businesses profitably even though inflation rates reached as high as 1,000 percent annually, and unannounced maxi devaluations plagued balance sheets and cash flows. Today, Brazil's inflation rate is 6% a year.

"It took tough-minded and skillful leadership to bring Brazil's economy under control," Murray says. "They took the country back to the financial fundamentals and kept it there." For example, in 1981 General Motors sent Rick Wagoner to help turn GM Brazil around. Wagoner understood currency markets and he shifted early to building small, highly efficient cars that used alternatives fuels like ethanol. (If General Motors had followed the same strategy in Detroit, General Motors might have avoided current financial issues.) Today Brazil is energy-independent. It enjoys the tenth largest economy in the world. And unlike the other developed giants, Brazil is not dependent on the U.S. for trade, because it opened up large export markets for soybeans and iron ore to countries such as China. Murray says, "Operations in Brazil still requires special knowledge. CEO's and their Financial Directors must have extremely good cash management and hedging skills."

South Africa has also had lots of wide swings and many crises. As a result, says Boyden's Jules Kieser, "Leaders here manage with the memory of bad times in mind. They are more likely to reserve resources needed for survival and recovery later." Companies in emerging markets have learned they must always be prepared to shift operations and strategies. "Here we lead through change all the time," emphasizes Kieser.

"Crisis forces people to look at performance," observes Brian Renwick, Managing Director of Boyden China. But that does not mean leadership will be changed when performance declines during trough economies, Renwick says Chinese companies are more likely to continue to stick with existing management.  

Multinational and U.S. companies, of course, are deeply focused on quarterly results. As the current crisis deeply impacts business volume and profitability, and as unemployment soars, you'd assume turn-over of CEOs and other C-level executives would increase. But surprisingly, that didn't happen in 2008, at least not in North America.

Richard Jacowitz is Senior Vice President of Liberum Research, a service used by investment bankers and others to track changes of C-level executives at public companies. Jacowitz says that since the United States economy officially went into recession in December of 2007, turnover of C-level executives has actually declined.

2008 CEO turnover fell nearly 10 percent against 2007 figures. CFO turnover fell 14 percent. Overall C-level turnover was down nearly 15%.

Even more surprising is that as the global financial crisis has deepened, executive turnover has continued to decrease. Q1 saw a drop of 4.74 percent in C-level turnover. Turnover in Q2 dropped to 8.5 percent, then dropped 23 percent in Q3 (against 2007 numbers). And in the most recent quarter, Q4 of 2008, C-level turnover was 34 percent less than it was in Q4 of 2007.

Richard Jacowitz co-writes a blog for Liberum called Management As Change Agent (http://managementaschangeagent.blogspot.com). He recently wrote that despite a decline in executive mobility, 2008 still saw "a large number of high profile and significant executive changes...that often impacted their [companies'] overall performance." Jacowitz suggests that corporate management had saved their own jobs by cutting corporate expenses and head count, but that Liberum expected executive turnover to begin increasing as the crisis continued to worsen in 2009.

Why are boards not necessarily in a hurry to change out existing management? One answer may lie in a recent study that compared the length of CEO tenure with company performance explains why. The longer CEOs stayed in place, the better their companies perform - at least up to ten years. The paper by Professor Anthony Williams of Cass Business School in London suggests that after CEO tenure passes a decade, company results may begin to suffer. (Another interesting observation is that the research data shows internally appointed CEOs may generate slightly better results for companies than externally appointed CEOs.)  

In terms of strategy, regardless of who is leading, survival often dictates that leaders and teams focus on reducing costs and trimming activities that don't support the most core business and brand. But at the same time operations are optimized, leadership must also focus on core business strategies that will be need to succeed when things turn around.

The opportunity of tomorrow is almost always nascent in the organizational crisis of today. The bad times are the best time to get ready for the better times that will follow. Boyden's Brian Renwick thinks, "Leadership may actually be easier in bad times. People know times are bad. People know that changes must be made."

"A time like this gives us the opportunity to make the changes we've needed to get done." says Dinesh Mirchandani, Managing Director, Boyden India. "The terrorist attacks in Mumbai have shaken everything up. Meanwhile with global economic conditions now being felt, everything has just come to a grinding halt. People are fed up with a lack of leadership. They are finally willing to do something about it."

Turning Crisis into Leadership Opportunity

A paper written by five military officers who attended Harvard's Kennedy School of Government provides a blueprint for how to lead through a crisis.

Is there a specific blueprint for leading through a crisis after the unthinkable has happened? A 2005 paper written at Harvard's John F. Kennedy School of Government provides a pragmatic and easy-to-understand set of best practices for leading through a crisis. 

Five members of the U.S. military researched three different crises in order to document successful strategies for leadership in the worst of times. The three incidents included the Johnson & Johnson Tylenol poisonings in 1982, the Malden Mills Fire in 1995, and the 9/11 terrorist attacks in 2001. These were basis for seven strategies described in their paper called "Crisis - A Leadership Opportunity."   

The seven strategies include:

1. Lead from the Front 
2. Focus on the Core Purpose  
3. Build the Team   
4. Conduct Continuous Planning
5. Mitigate the Threat
6. Tell the Story
7. Profit from the Crisis

Leading from the front means immediately taking responsibility, being visible, and staying accessible. Many Boyden clients, regardless of geography, mention "leading from the front" as something leaders must do when times are tough.

Focus on the Core Purpose is about establishing the importance of the mission, aligning it with reality, and giving meaning to the effort. Getting a crisis under control is hard and sometimes terrifying work. Controlling a crisis requires turning a company around, and replacing old business models with new. The paper quotes Friedrich Nietzsche as saying "He who has a 'why' can bear almost any 'how'." 

Build the Team is the central task for any leader, but building and maintaining teams is even more important in a crisis. What leaders can do individually is never as important as what leaders can inspire others to do. Building and maintaining teams involves inspiring trust and assuring transparency and fairness. 

Conduct Continuous Planning because situations don't stop changing. Churchill said "In war everything is on the move everywhere continuously." Leaders must continuously  re-evaluate and plan for worse case scenarios. Ram Charan says this is how Dupont, one of his clients, was able to completely reshape itself around the new economic reality between October of 2008 and January of 2009.

Mitigate the Threat involves taking action quickly. Taking action (along with continuous planning) requires gathering the best data from the best sources available at the time, listening deeply, and then acting decisively.

Tell the Story emphasizes the importance of communications in leadership. Everybody involved wants to understand what is happening and why. Telling the story in a simple, understandable, and true way will be effective in focusing and integrating the support of internal teams, external teams and the community. Leaders should be trained to talk with media and use multiple communications media, including the Internet. Look at how Al Jazeera used Twitter on the Internet to out-communicate Israel among influential groups of Americans.

Profit from the Crisis means moving quickly to seize any opportunity that emerges after the threat is mitigated. It emphasizes the leaders in crisis situations must continually "prepare for, respond to, and learn from crises."

While every crisis and every organization may be unique, success in dealing with a crisis almost always leaves an organization and its leadership stronger and better positioned for future success.

 

III. Distinguishing Characteristics of Successful Leaders

"The first thing you need is a strong ethical orientation in conducting business."  

Tim McNamara, Managing Director
Boyden Washington, DC

"The great leaders don't run from change. They embrace it."

Bob Concannon, Managing Director
Boyden Chicago

"This particular kind of leader has an ability to focus on business fundamentals ...and to look over the fence."  

Dr. Dirk Friederich, Managing Partner
Boyden Frankfurt - Bad Homburg

What kind of leader is required in times of crisis? Is one kind of person best suited to lead in the best of times? Is another and entirely different kind of leader more appropriate to lead in the worst of times?

"Different attributes are needed in different times, but that doesn't necessarily mean you need different leaders," says Jules Kieser at Boyden Johannesburg. "My feeling is you want the same person, good times or bad...a person who can see things coming."

Dr. Dirk Friederich, Boyden's Managing Partner in Frankfurt-Bad Homburg, agrees. "It's not good to change your C-level executives. In any case, the most important quality
of leadership is character. With character you get loyalty, transparency, and an ability to inspire and bring together the team." Though he himself holds a doctorate, Friederich doesn't consider education an issue. "What you're looking for are entrepreneurial qualities. A leader has to have the ability to look over the fence. You want someone who's flexible and understands different cultures. In Europe where we have legal limits on hiring and firing, globalization is a growing force. The ability to outsource is a big opportunity for handling crisis."

Tim McNamara, Boyden's Managing Director for Washington, DC, is clear about priorities. "The first thing you need is a strong ethical orientation in conducting business. Yes, you have to have someone who will really focus on enhancing shareholder value," he emphasizes, "but there must be underlying ethics. There needs to be less greed, more transparency and in some situations perhaps a resetting of the moral compass."

McNamara points to the trend for organizations to hire Chief Ethics and Compliance Officers. But that doesn't mean McNamara believes we lack role models for leadership in times of crisis. "Look at Lee Iacocca who saved Chrysler, Jack Welch, or Colin Powell. Powell is a great leader, and he is an ethical leader. He is not a man who has ever thought in a 'me first' way."

Across the Atlantic, Boyden's John Ellis in London says, "Some leaders are simply 'fair weather sailors.' If companies want to find a person capable of turning things around, they may have to rethink their leadership." He says the important abilities are a functional understanding of the business issues involved and a complete awareness of current operations. That means not just managing from the top, but managing closer at every aspect of the business from the bottom up. "They must be totally clear about what needs to be done," he says. "They must be able to take people on that journey."

Ellis says now the demand is for leaders who have actual experience dealing with massive change, and the people issues associated with it. "Today, there is an enormous amount of talent available for hire. However, there are very few people who have the full suite of capabilities required to lead a company in crisis."

Boyden's Bob Concannon in Chicago says that leadership remains the most important factor for companies struggling through a difficult economy. "You need tough leadership, people who can weather the storm. You don't want someone who can't handle the risk.

"People talk about needing hunters in good economies and farmers in bad economies." Concannon believes companies should not be quick to change leadership. "If you talk about leadership today compared to ten years ago compared to eighty years ago, the things that make leaders successful haven't changed. The big issue is change. That issue never goes away. The great leaders don't run from change. They embrace it."

Joseph Daniel McCool talks about the next generation of talent and Leadership 2.0.

Joseph Daniel McCool is the author of Deciding Who Leads and Contributing Editor for BusinessWeek.

Boyden: When does the future of leadership start?

McCool: This global economic crisis is really making people question traditional leadership methods and values. The future could arrive sooner than expected.

Boyden: How will things change?

McCool: We are already seeing a new competitive dynamic. Foreign interests are buying into many sectors. Government (out of necessity) is becoming an active partner in private sectors. Companies have to learn to do even more with less. Market forces are ricocheting from geography to geography in search of more efficient production and more specialized skills. Companies are being shocked into new and better business decisions.

Boyden: How are companies changing?

McCool: Companies are beginning to realize they need to think farther ahead. They are beginning to moderate their excesses. They need to move from a binge-purge approach with their workforce to a more sensible and sustainable operation. The "me first" school of management leadership may have worn out its welcome.

Boyden: What about talent?

McCool: There is a lot of new talent available. Some are new and some are sort-of-new.  Some of the sort-of-new are actually experienced talent from the financial services sector. Access to sophisticated financial knowledge has not been available in the past, which will be helpful to many companies. What we don't know is what will happen when Wall Street talent finds out what Main Street pays. There will be a reckoning on this point, for sure.

Boyden: Will the next generation of talent be different?

McCool: The next generation of talent is already changing some rules. For one thing they just aren't interested in making super-sized salaries at the expense of killing themselves, not having time with their families or harming the planet on which they live. They want to be involved in processes and products that are green, sustainable, and make them feel good when they get home at the end of the day. They want their tech to be "cleantech." Despite their smart phones and MP3 players, they are extremely people-oriented. They prefer to work in companies committed to taking care of their teams.

Boyden: Do they have different capabilities?

McCool: This generation of talent is naturally skilled in leveraging technology and surfing information. They are the ones who really know how to map and navigate the new competitive landscape. Velocity is not an issue for them. Business is not as fast or complex as the games they play on their PlayStations, Xboxes and Wiis. The demand for more speed in corporate decision making is not a problem.

On the other hand they have zero interest in growth for growth's sake. They're more into
a shared approach to getting things done. This is beginning to feel a lot like Leadership 2.0. They are as interested in leading from the side as in leading from the front.

Boyden: What's really interesting?

McCool: Many current leaders are talking about rethinking growth, about redefining success, and about redefining what's required to lead today's companies. I think there are a lot of global companies that cannot be led by one person alone. The CEO role has become too complex, too global, and too demanding for individuals. Individual executives need to have the courage and honesty to acknowledge they can't do it all.

Boyden: What are the lessons learned?

McCool: We all learned some bitter lessons from Enron and Tyco. (Enron and Tyco leadership are doing serious jail time.) The new lessons learned come from Wall Street and the financial sector. These are about setting false goals for too-large profits and too-fast growth. Companies must be willing to confront the critical leadership issues standing in the way of future growth and shareholder returns.

Boyden: What's the bottom line?

McCool: Our present leadership and our future leadership are converging into a shared view of the future. It looks like the dawn of a whole new era of leadership.