The Sterling Report
October 19, 2003Source: The Sterling Report, Vol. 1, No. 9
"Leadership Under Crisis" by Kaleil Isaza Tuzman
October, 2003
5:00 pm ET
Problem Approaches to Critical Corporate Missions To paraphrase Justice Stewart, flawed leadership is one of those things you know when you see. You don’t have to be a corporate restructuring professional to be able to pick out a CEO in denial (a quick perusal of daytime business cable TV should do the trick) or a company embarking on a quixotic new market strategy while ignoring its most basic failings in client service. But as someone who is interested in helping a business navigate an operational or financial restructuring, what sorts of personalities in the executive suite can impede progress? What traits do you look to avoid? And, ultimately, what do you do about it?
Though leadership pathologies come in many shapes and colors, as a restructuring professional, I have found there are a few overriding character types that are particularly ill-suited to crisis management:
The Crusader
Colonel Charles George Gordon was one of the British Empire’s mythological figures. A career officer in HRH’s “gentlemen’s army” in the latter half of the nineteenth century, Gordon served in China, India, and, most problematically, the Sudan. The exploits of this tall, handsome, blond soldier were carried in the flourishing London tabloids of the time and more serious evening papers alike. He was often described as riding into battle alone, inspiring the natives who would follow him, conquering barbarian hordes as if solely by the force of his will. When he finally encountered his bete noir in the Sudan --where he was sent with the blessing of the British Parliament ostensibly to put an end to the world’s most active slave market-- Gordon was very much like the self-assured CEO those of us in the restructuring business frequently come across: a man with a sense of personal destiny, coming off a string of remarkable successes, and possessing of powerful charismatic leadership ability. In other words, a hero. Unfortunately, Gordon’s 1873 foray into the Sudan –heretofore a backwater of Egyptian-cum-British suzerainty—required anything but heroism. He did not realize he was a straw man, sent in to give the appearance of the crown’s abolitionist sympathies, while actually supporting and stabilizing the flow of slave labor to the Egyptian army, the Suez Canal project, and other “initiatives”. Within a short period of time, the deeply convicted Gordon was dead, having failed to capture the subtlety of his mission and left by the Empire to make his last stand in Khartoum, literally outnumbered a thousand to one.
With due respect to those made queasy by the theme of slavery in this example, the story of Colonel Gordon does illustrate the most pervasive and subtle pathology in the “Problem Transaction”: having the wrong person for the job. Enterprise-wide corporate transactions –a sale of the company, a large acquisition, a critical equity financing, a transformative strategic joint venture—require a great deal of “relativism”, balancing the competing interests of stakeholders who are often at each other’s throats. A crusading CEO, like Gordon, as honorable as his mission may be, must understand the realpolitik of the “deal”. As abhorrent as we might find a new JV partner’s customer service protocol, we must adjust our own to meet a middle ground. As absurd as we might find a new investor’s lawyers’ requests for veto rights over normal-course-of-business debt incurrence, we must know where to pick our battles as we sift through the quagmire of the Share Purchase Agreement. It is not anything new to say that a significant percentage of large strategic deals ultimately fall apart (before or after consummating an actual paper transaction) because of ego(s) in the executive suite. My experience, however, is that rarely does the CEO or business unit leader in question characterize their intransigence as a function of personal opinion or ego. Instead, illogical obstinance on particular deal points is nearly always justified using more new age corporate nomenclature: the new shareholders “just don’t understand our culture”, or an acquisition of this type would “debase our corporate mission”. While I am the first to recognize the importance of corporate cultural continuity and clear corporate mission statements, when these types of objections are raised in the 11th hour of deal negotiations –as they often are--, alarm bells should go off. The “crusading CEO”, taken over by missionary zeal, is particularly ill-suited for restructuring, or corporate survival transactions: recapitalization, operational redesign, distressed corporate sale. Despite the mythology around slash-and-burn actors like Al Dunlap, a large body of literature and personal experience supports the thesis that in the milieu of painful corporate transactions, what is most needed is a communicative, flexible, consensus-building leader, who is inclusive and decidedly non-dogmatic in problem-solving.
The Wishful Thinker
Many of us have heard the story of Admiral Stockdale, who helped guide a large number of the men under his command through years of excruciating confinement and torture as prisoners of war in the infamous Hanoi Hilton in Vietnam. He did so by setting “milestones” for his men: when you are beaten for two hours, you may give up this piece of information; after two days, this other piece of information, and so on. As gruesome as this sounds, it worked in giving his men something to work towards and a certain pride, in spite of the hellish context. When asked later by a reporter what type of men had not made it through the ordeal, he answered dryly: “the optimists”.
When we are under pressure, we often react by “putting a good face on things”. In a leadership position, it is common to imbibe as duty “keeping morale up” and “rallying the troops”. In truth, there is a clear consensus in organizational psychology that leaders who do not realistically assess and communicate crisis to their charges lose credibility and effectiveness almost immediately. Some time ago, I received a Friday morning call from a prospective restructuring client in New York City. I was in Atlanta’s Hart’s International Airport at the time, and the cell phone connection was not particularly good. “We may need some help as early as today,” the CEO intoned, “because the current dispute [with a critical joint venture partner] may make it impossible to meet payroll this evening.” I thought had misheard. We had been meeting with this individual for some time, and his cash crunch (as a result of having certain accounts frozen) had never been made clear to us. He went on, “fortunately, no one on the management team knows.”
The wishful thinker, as I call this head-in-the-sand leader, is in a constant state of denial. Perception becomes more important than reality, and reality becomes increasingly abstract and difficult for him to assess. The CEO in my example above had not only become the “fixer”, as some organizational psychologists call it (thinking he has to fix the organization’s problems all alone, without the collaboration –indeed, the input—of those on his management team), but he had completely lost touch with his own employees. When I landed in New York that same afternoon, I of course discovered that his CFO not only knew of their cash situation, but was on the verge of quitting that same day as a result of the obvious pathology in communications with his boss. Even the front-desk receptionist was more expressive of the reality of their situation, as she had been receiving bike messengers delivering vendor collection notices for much of the previous two weeks. The wishful thinker does not realize that the role of the CEO is not to honorably “go down with the ship” or play peppy music on the deck of the Titanic. He must be gathering everyone as best as possible to plug leaks or, if needed, get on lifeboats. In practice, this means galvanizing the organization around the problem at hand –be it capturing one more large “house account”, completing a debt refinancing, getting a difficult audit done, or even preparing for large lay-offs. In the case of the New York client described above, we assumed an interim CEO role. After triaging the payroll problem by begging for a few days of abeyance from our strategic partner, we put together a turnaround plan over the weekend, and held a team-wide meeting on Monday morning, patching in the company’s offices around the country. At that meeting, we did everything exactly as it had not been done before, clearly communicating the depth of the crisis to every single employee, and even putting the revised budget (including planned lay-off dates in the event of failure to meet sales, financing, and cost-containment targets) on the company server for all to see. The only antidote to the shoals of wishful thinking, as Admiral Stockdale would say, is a clear-eyed plan, with milestones, to navigate the pain of the moment.
The MacArthur
If you connect the dots in the descriptions of problem leadership approaches above, you will hit upon a common theme: inattention to context. The crusader is fundamentally disconnected from context. He is in a state of quixotic, obsessive focus on a particular “mission” or approach (often tinged with questions of power and ego, particularly in merger and control-stake financing deals) that does not properly integrate the needs of other stakeholders -- or even, in the worst cases of denial, fails to recognize the requirement to get a rescue capital deal done in order for a corporation to survive. The wishful thinker is one step evolved: he at least knows he is ignoring context. Though he won’t necessarily tell you he thinks this way, he really believes that everything will be alright if he just keeps morale up and if he just believes hard enough –and by extension, makes those around them believe. At least the wishful thinker has a strategy, though flawed.
At the most insidious end of the spectrum of denial –where it is sometimes possible to think that one is context-appropriate-- is the leader who I call the “MacArthur”. The MacArthur, named such after the famous general’s maxim that the price of inaction is greater than the price of imperfect action, believes that leadership is essentially a question of taking action and being bold. Responding to a lost customer, a market downturn, or a troubled corporate transaction, this is the CEO is likely to have the “weekend epiphany”. We’ve all seen it: the leader who squirrels away for a day or two in the face of a corporate crisis, and returns with that master plan: the silver bullet that will solve the salesforce’s diminishing pipeline, the deal structure that will entice a new lending consortium, or the product that will instantaneously reverse the trend in market share deterioration. “If only we could just implement this new master plan…,” goes the implication, everything will be alright. Although management consultants the world over are in agreement that when the going gets rough for a business, it is most critical to focus on the historical core competency of that business –be it a particular product, an approach to customer service, or a core brand identity—it is the MacArthur who is most likely to lead the organization on a new adventure just when he should be fortifying the base. Now, I don’t mean to imply that a bold new initiative (be it product/service-oriented, or even an M&A/financing project) can never be a legitimate solution to a corporate crisis or quagmire. Many tomes have been written on the important of boldness in leadership, outside-of-the-box thinking, and so forth. It is the addiction to boldness as a leadership strategy that is the problem here. In the context of corporate restructuring, planning is critical --even rushed, weekend planning as in my New York client above. Reactive leadership comes most naturally when under fire. The key is to process problems quickly (breaking out costs more effectively by line of business activity, rooting out the component of the business that acts as the fly in the ointment in a prospective merger deal, assessing senior management deficiencies), and then make triage and strategic decisions based on this analysis. Too many CEOs, desperate to feel and look responsive to crisis, will lop off business units, senior managers, or service providers peremptorily, creating a restructuring environment of chaos and capriciousness that can confuse and alienate employees, customers, vendors and strategic partners.
An old boss of mine used to say that he though the business world was divided between those that identify problems and those that come up with solutions (and he never left any doubt as to which demographic he preferred). In jotting down the thoughts above on “problem approaches” leadership in corporate restructuring, I am at great risk of being lumped in the former group. Though I will have to remedy this association in a future article, there are a couple of broad-brush antidotes that can be mentioned in the remaining space. A friend of mine in the restructuring field calls one of these remedies the “sunlight cure”. All three leadership pathologies mentioned above –crusading, wishful thinking and “MacArthuring” (taking action capriciously)—thrive in an environment of mis- or dis-information. The more a CEO or a senior management team is forced to openly communicate on the corporate crisis of the moment, the more difficult it is for the Wishful Thinker to be in the thrall of his own belief. The more feedback a CEO receives from customers, vendors and employees –even from the media-- on an atrophying product line, the less likely his response will be reactive and capricious. Communication and forthrightness in dealing with crisis, between and amongst all stakeholders, is the best antidote to denial in the executive suite.
The second overall cure to the problem leader is the most obvious, and yet it is not acted upon with enough frequency: replacement. With respect to CEO relations, the last few years of Enrons and Worldcoms should have taught us that Boards of Directors, investors, lenders, and even senior management must become more independent, more assertive, and more whistle-blowing –not just in the sense of rooting out mendacity and fraud, but also by realistically assessing the capabilities of a company’s maximum leader to confront painful corporate change successfully.
Kaleil Isaza Tuzman is the Managing Partner of Recognition Group, LLC, a restructuring advisory and investment firm based in New York City. He has written and appeared on the subjects of entrepreneurship and corporate restructuring in numerous national media outlets, and has functioned as an interim CEO for troubled companies in the manufacturing, services, media, telecom and software fields. For more information on Recognition Group, LLC, please visit www.recognitiongroup.com or to send feedback email: kaleil1@recognitiongroup.com
Contact:
Recognition Group, LLC
Kaleil Isaza Tuzman
212/774-3701
Source: The Sterling Report, October, 2003