Leadership
Leading Through Turbulent Economic Times
This article appeared in the October-November 2020 Issue of Inversk Magazine. Get your copy here
It is in the time of adversity that the real character of a man can be known. Martin Luther King, Jr. quips “The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy”. I could not agree more with Martin Luther, particularly concerning leadership in times of economic crisis. Great leaders have overcome adversity whether in the economic, social, or political arena while poor leaders have dithered.
During the 9/11 attacks in the United States, President George W. Bush navigated through one of the most horrific terrorist attacks in the globe and rallied all the nations of the world behind him in the fight against terrorism. On November 6, 2001, he made a clarion call “You’re either with us or against us in the fight against terror” albeit being considered dictatorial this affirmed the mind of a leader. Ideally, Bush demonstrated that calm and confidence could be adopted in times of crisis.
Winston Churchill is perhaps the most reckoned leader who described one of the best leadership skills in a time of crisis. World War II was devastating Britain but rather than cry foul, Churchill rallied the Tories, the Britons, and everyone shaping the Allied war strategy. They supported his course going down as one of the most celebrated leaders in the 20th century. Both Bush and Winston showed how leaders could lead in times of crisis.
There is no handout there that provides guidelines on how to deal with the crisis because each crisis uniquely presents itself. During the time of economic crisis, recession rule, jobs are lost, share prices dip, currencies lose their value, stock market crashes, firms struggle to stay afloat and purchasing power parity declines. It is the time of economic trough. When a crisis happens, a leader has little or no time to make effective preparations. More so, a crisis does not have a timeline, and it may persist than expected. Currently, as the world battles covid-19, no one knows how long this will go on. Hope is the only thing that remains in a man.
The Enron scandal in which one of the largest global audit firms namely Anderson, collapsed shocked the financial world. It became magnum opus in the audit study. The leaders of Enron became embroiled in the wrongdoing. Despite many assurances by Kenneth Lay, the founder and the Chief Executive Officer of Enron about the comeback of the firm, it did not pull through. It demonstrated how flawed leadership could exacerbate a crisis.
Kenneth Lay felt a powerful sense of entitlement. According to Peter Elkind and Bethany McLean, the authors of The Smartest Guy in the Room, Kenneth Lay considered himself very visionary. In the time of crisis, he continued to receive millions a year in compensation from the firm. He further took loans from the company for personal consumption. He continued to give contracts and jobs to family members and used corporate jets in times of crisis. Even his counterpart Jeff Skilling who had joined Enron as the president and chief operating officer was unable to see the grim side of reality. Skilling, who has been considered as one of the smartest and incandescently brilliant in the company, could not salvage Enron.
Lee Iacocca, another invincible chief executive of Chrysler continued to throw parties for the elite groups when the company was still in a financial crisis. Lee presented himself with expensive gifts which would later be billed to the company. As these leaders continued to cloak themselves in royalty and entertaining elites, they hid from the reality, and within their fixed mindset, they failed to see the uglier reality.
These corporate leaders thought of themselves as the most intelligent guys in the room that could together beat the odds. Typically, their fixed mindset in time of crisis snowballed into chaos. Tyco and WorldCom had also collapsed under the same circumstances of flawed leadership. The world did not listen to their fixed mindset strategies.
In times of crisis, leaders must therefore demonstrate a growth mindset. The crisis may serve a growth mindset but becomes ruinous for a leader with a fixed mindset. Innovation and courage may not survive in a company or organization where fixed mindset leadership is on board. In 2000, Anne Mulcahy took over the directorship of Xerox. The company was recording poor performance, poor credit rating and had plunged into debt. Its shares declined from$63.69 to $4 a share, and the company was on demise as it could not even sell its copy machines. It had gone through financial turbulence.
It was a time of crisis . But three years later, after Mulcahy took the leadership of the company; it had recorded four profitable quarters. What had Mulcahy done that her predecessors were not doing? Mulcahy knew that as a leader she did not need to give excuses, to blame others, to cry foul as Kenneth Lay and Jeff Skilling would do. She knew that she needed to learn the situation, and she studied taxes, currency and inventory in her company so that she could make significant decisions.
Each weekend she would take home large binders and pored over them as if she was studying for exams. She became complacent with everything in the organization. In her book Mindset: The Psychology of Success, Stanford psychologist Dr. Carol Dweck says that Mulcahy told everyone the cold and hard truth that they did not want to hear. She had been able to maintain the culture of Xerox even during the time of crisis and eventually triumphed in such hard times.
In another quarter, in 2007 during the financial crisis, the leadership of Ford the auto-maker pulled through one of its grim economic conditions. It had nearly filed for bankruptcy, and the automotive giant was expected to fall. Nevertheless, Allan Mulally, who had joined the company, became the chief executive, the company pulled through helping the company to project profits.
Navigating through the crisis
Demonstrably, leaders must exude the growth mindset, readiness to learn and adapt. Many managers and leaders tend to become bosses. They yield power rather than transforming workers, themselves and organizations during a time of crisis. John Zenger and Joseph Folkman in their book The Extraordinary Leader: Turning Good Managers into Great Leaders say that most people, when they become leaders and managers, constantly learn and get a lot about how to learn. They are productive and enjoy each moment of training and learning. However, once they have learned the basics, they stop trying to improve. This becomes a leadership mistake, and in times of economic and financial crisis, they are sure not to prevail. Rather than dwell on the results of an emergency, it is imperative to focus on a few takeaways on how to respond and lead in time of economic crisis:
Being resilient and adaptive-Resilience management builds on additional emphasis on speeding recovery as well as facilitating adoption. There are four resilience elements that a leader can rely on to prevail in times of economic crisis. These capabilities include resourcefulness, rapidity, technical, and organization. In a time of crisis, leaders and organizations must understand their goals, constraints, and alternatives so that they can quickly and effectively counter the crisis. Carmeli and Markman (2011) have argued that resilience can guarantee survival, even when an organization is stretched.
Capacity to articulate direction for the company– A 2009 survey by McKinsey and Company found that leadership and direction as the most vital elements for a leader to adopt. A leader must show leadership by being inspirational to others in a bid to shape their actions. Direction would enable the organization knows where it is headed and that all people are aligned on how to get there.
Realign the company to the concept of high-reliability organizations – During an economic crisis, leaders should structure their companies to operate like high-reliability organizations such as airlines which can navigate through complex situations and in times of unpredictability. High reliability is committed to resilience, preoccupied with failure, sensitive to operations, reluctant to simplify and are deferent to expertise
Promote critical and creative thinking – In a time of crisis, leaders must discourage groupthink. Irving Janis popularized this concept in the 1970s where everyone in a group thinks alike. If the organization has been set up to promote groupthink, then decision making is in trouble. It is important to create ways that will foster alternative views as well as constructive criticisms. It is vital to allow contribution from others and allow the elephants to dance. This way, an organization would become vibrant in times of crisis.
Project honesty and confidence- Anne Mulcahy and Alan Mulally had one thing in common. When their organizations were sinking, they maintained confidence. Dr. Dweck says that Mulcahy was ready, to tell the truth, that many did not want to hear. During a crisis, everyone looks up to the leader. If the leader limps or becomes uneasy and projects fear, that fear and uneasiness transmit to everybody else like a contagious disease. While leaders give hopes and project honesty, they must remain realistic. They must strike a balance between these virtues.
The writer is an Economics Graduate, Certified Public Accountant (CPA-K) and Certified Investment and Financial Analyst (CIFA-K), working with Optiven Group Limited. Reach him via jthukujeremy@gmail.com
