Leading in times of crisis

Article also published in "Líder" magazine

If we were simply rational, we would be aware that the life of humans has always had its ups and downs. History is full of such demonstrations - and we all know them. But we have acquired a sense of linear progress: the future will be better than the past, and the power of technology and science will lead us along the path of that bright future. No one can say for certain that it will - or it won't. But even assuming that it will be - and the facts of recent decades show that human progress, in health, economics, longevity and democratic life, supports that optimism - it is imperative to admit that longer-term progress may be halted from time to time.

Let us be optimistic and admit that it is this linearity that is now being suspended. What can leaders do in the face of the current crisis? Before continuing, a parenthesis: what follows is applicable to all of us. The focus on leaders is only because of their responsibility as holders of power and influence. How can they act? They can first of all realise that the world around business is not entirely controllable - and that they need to deal wisely with that feeling that requires humility. What is required of them is to be endowed with an "infinity" mentality that enables them to recognise the following: (a) the rules of the game change over the course of the game; (2) the game is infinite, being played by known and unknown entities that change over time.

Within this framework of action, leaders must also respect an essential rule of leadership: the results of the performance of teams and organisations result from the contributions, not only of the leaders, but also - or even more so - of the followers. This is the only way to build a climate of trust that allows leaders and followers to embrace challenges with determination, courage and a cooperative spirit.

Pandemic crises help to understand that the omnipotence of leaders is a fallacy. But this should not simply lead to a feeling of complete powerlessness. Adversity is not only that - it is also an opportunity to learn about our finitude, our limitations and our potential capacity to grow, humanly and socially. Steps can be taken to deal more sensibly with the harsh reality. In times of crisis, we should think about these possibilities (underline: possibilities - not guesses or recipes). We return here to some ideas we explored in more detail in an article we published a decade ago in Dirigir magazine.

A calm sea never makes a good sailor

There will always be crises in the life of business and management. What distinguishes effective leaders from less effective ones is not the ability to avoid or escape them - it is the ability to face them with vigour, courage and a spirit of learning from mistakes. It is at critical moments that leaders allow themselves to be poisoned or courageously turn "poison into medicine". Or, to gloss an English proverb, "a calm sea never makes a good sailor".

What happened after September 11 in the USA is illustrative: several companies in the World Trade Center became more vigorous after the attacks on the twin towers. Due to processes of help and compassion, developed among surviving employees (leaders and subordinates), but also between them and the families of the perished employees, these companies developed hyper-resilience; they became stronger. In these critical moments, the behaviour and attitudes of leaders are important compasses for the creation of this hyper-resilience.

Bill George summarised the essential guidelines for 'leadership in times of crisis', proposing seven lessons:

(1) face reality;

(2) build bonds of cooperation and help, instead of carrying the world on your back alone;

(3) act on the root cause of the problems, rather than seeking quick, one-off solutions;

(4) be prepared for a long walk;

(5) never miss the opportunity to learn from a good crisis;

(6) in the midst of the storm, remain guided by core values of trust, transparency and integrity;

(7) be proactive, rather than simply assuming that after the storm, the bonanza will naturally arise.

In the following lines, we explore some of these orientations, which seem to us to be consistent with the current moment.

Value the team - no one is a leader alone

Faced with crises or failures, some leaders (at least the more responsible ones, as hyper-narcissists are more concerned with protecting or stroking the ego) retreat to their offices, concentrate on their thoughts and, in some cases, give themselves the exclusive right to deal with the problem. They take on the "loneliness of power". This withdrawal prevents them from knowing reality properly and distances them from contact with employees. Organisational members then fill the void with information and explanations, creating and feeding rumours.

Differently, some leaders take a stance that is both humbler and bolder, seeking help from employees. In 2000, with Xerox on the precipice of a serious financial crisis, Anne Mulcahy did not succumb to her own weaknesses in financial skills (she had made a career in sales and marketing) and humbly sought help from the experts. She met personally with a hundred of the company's top executives, asking them if they would remain with the company despite the difficulties (which she was not shy to spell out to them). Only two executives decided to leave. With those who stayed, Mulcahy created a team that was intensely loyal to him. Rejecting the "loneliness of leadership," he resisted declaring the company bankrupt and saved it, restoring it to its former greatness. The January/February 2005 NYSE Magazine had a cover story that read, "Anne Mulcahy proves that teamwork makes a leader. Jim Collins referred to the executive as follows:

"Hedid not hide his game from anyone and in a short time he put the company on the road to success. He never took the credit only for himself. Great leaders do not see themselves as gods, they believe in the effort of the whole team.Theyhave an inordinate dedication to what they do, their work is their mission, more than a question of success".

How to proceed, then? At critical moments, cultivate cooperative relationships with the team. Also seek social support outside the work context - among friends and family. You'll face adversity with greater vigour and can get advice and emotional reassurance. Own your vulnerabilities - and ask for help. Be honest. Keep yourself physically and psychologically fit. Don't take yourself completely seriously - enjoy the benefits of a relaxed and joyful life.

Act on the root of the problems - as soon as possible

Honeywell's military aviation unit was confronted with huge hidden costs in 1987. An amount that appeared to be 25 million turned out to be almost twenty times higher. The problem had been hidden for years - it had been steadily growing without corrective action being taken. For decades, the management of General Motors refused to accept that its cars had lost competitiveness against foreign vehicles. Market share losses were interpreted as short-lived phenomena. Instead of acknowledging mistakes, the company's management pointed the finger at external factors and hoped that, with the passage of time or government protection, the problems would be cured. The failure to act on the root of the problems compounded the decline, and the company went into agony - like a patient who dies because he does not remove a tumour in the early stages. Jim Collins was adamant: "GM's case shows that a company can be sick long before it looks weak.

IBM went through a similar process in the late 1980s. An internal analyst presented a worrying report on business prospects. But a top executive ignored the message, arguing that the data was wrong. The analyst, aware of the decline, left the organisation and created his own start-up. A few years later, the declines in sales were of such magnitude that the hole could no longer be denied. Were it not for this denial, the decline could have been reversed. And had it not been for Lou Gerstner's wisdom and his ability to face up to the "brutality" of the facts, "fall in love" with the company and transform a bureaucratic culture into one of discipline - the company might actually have collapsed in the years that followed.

These behaviours contrast with those of leaders who prefer to work inside a bubble, sheltered by those who only give them good news, and limited to the information they receive through reports. In this way, they face a colossal risk: that of discovering the real problems only when they take on dimensions that are difficult to govern.

A no less serious risk is that they only identify the symptoms of the problems, and then apply palliatives instead of instruments for healing. Worse: they deny reality and "kill the messengers of bad news". The catastrophe that befell Boeing following the fatal Boeing 737 Max accidents is instructive. The germ of the problem had long been born. The dangers generated by the safety system were known and had been exposed by some organisational members. But these critical voices were drowned out. Anyone who dared to "open their mouths" to account for the construction errors got into trouble.

Amy Edmondson summarised the origins of the malady as follows:

"This is yet another case study of how the absence of psychological safety - the security that one can speak up, present ideas, point out problems, or communicate bad news without fear of punishment - can lead to disastrous outcomes."

Medtronic took a different stance, in 1984, towards charging problems in pacemakers. It adopted a policy of complete transparency, both internally and externally (including with regulatory authorities). It was not satisfied with alerts that are only issued when certain statistical error/failure thresholds are exceeded. Rather, it promoted a culture of openly discussing problems and identifying their root causes at source - so that they do not re-emerge.

Some measures can therefore help leaders to act on the root of the problems at an early stage. Get hands-on. Approach people directly at their workplaces (even if they are teleworking!). Get information where the problems emerge. Take on board the views of the people you interact with in these meetings - not only do you get more reliable information, you increase your respectability. Don't be satisfied with the reports that come to your office through the line management. Promote a culture where people own up to their mistakes - otherwise they won't emerge, you won't learn from them, and the underlying problems will recur. If you have experienced continued success over years, don't be negligently arrogant, assuming that success is "obviously deserved". Don't underestimate small signs of breakdown, as if they were transient. Take them seriously as possible indicators of some problem that is beginning to emerge.

Remember: one of the biggest enemies of future success is past success.

Don't be fooled by the idea that "the worst is over".

Sometimes, at the epicentre of a crisis, leaders assume that "the worst is over" and that, in time, everything will return to normal. They forget that the crisis may have deep and distant roots - which manifested themselves only at the tipping point, currently that raised by COVID-19. Other times, the first signs of the crisis are devalued - and the company persists in the successful solutions of the past. Something of this nature occurred with several companies in the financial sector, which neglected the first dangerous signs coming from the subprime market.

However, change and facing reality are sometimes uncomfortable events. Leaders, instead of changing paradigms, continue to believe that the crisis will fade away and everything will return to normal. But this expectation is not always prudent. It took Intel years to understand the need to move from the memory business to the microprocessor business. Emotional involvement with the once successful business prevented the company from changing paradigm. Something similar occurred with North American car manufacturers (such as General Motors) who undervalued the potential contained in foreign, mainly Japanese and European, manufacturers.

It is therefore crucial that leaders do not dismiss the first signs of a crisis and that they prepare for a long journey. Major crises usually have roots that began to emerge ten or more years earlier. The fact that they emerge abruptly only means that the confluence of several factors had reached its mature state. Do not declare victory too soon.

Don't miss the opportunity to learn from a crisis

In a remarkable little book entitled"The Ten Commandments of Business Failure", Daniel Keough (former CEO of the Coca-Cola Company) recommended:

"For starters, never admit to a problem or mistake. If something seems to be going in the wrong direction, cover it up or, better still, wait until you have a real crisis, and then blame it on some external force - or whoever. Customers are usually annoying. You can always blame them for something wrongwith them."

Without irony, the most effective leaders refuse the recommendation. In 1993, as a consequence of measures taken by the Clinton Administration, Medtronic was faced with the risk of price declines for some of its more profitable products (e.g. pacemakers and defibrillators). If implemented, the measure would hamper the company's (strategic) investments in research and development, and undermine support measures for doctors during implants. The company's leadership faced the scenario proactively - it eliminated costs, restructured, reduced hierarchical levels and removed benefits awarded to its executives. The price reduction ultimately did not occur, but the drop in costs materialised. The company was then able to increase margins and increase spending on research and development. In other words: it transformed the (putative) poison into a remedy. Lou Gerstner's "rescue" of IBM is also a fine example of how a crisis (in this case, a dramatic one) can be a stimulus for recovery.

One of the authors of this text was told a case, allegedly true, that exemplarily underlines the lesson. Faced with sharply declining hotel occupancy rates, and with a growing mass of employees unnecessary to operations, the leadership came up with a shrewd move: restore the facilities through employee labor. Cooks became painters - and cleaners took over the removal of construction waste. The restoration, whose execution could be problematic for the operation of the hotel in high season, could then be carried out without inconvenience for the guests. There was no need to make staff redundant. And at the end of the crisis, the hotel was better prepared than its competitors - with committed, motivated and loyal employees. The reader should reflect on Portuguese companies that, after catastrophes such as fires, have become stronger.

Among the factors explaining this strengthening you will find the following:

(1) the leaders, endowed with resilience and tenacity, took a protective stance towards workers and jobs, denoting respect;

(2) those led developed a sense of gratitude that resulted in reciprocal and committed behaviours;

(3) other stakeholders, in the face of the conduct of leaders and led, bet on the company and supported it in recovery efforts.

Prepare the future

Leading is about leading people into the future. Often, in the midst of a crisis, business leaders assume that, once the crisis is over, everything will return to normal - and the successful path of the past will be resumed. They ignore, however, that market conditions have changed, that customers have developed new purchasing options, that competitors have modified behaviours and strategies - and that the actions of the authorities have been redone. In contrast, other companies take a proactive stance and prepare, during the crisis, to build a new future.

Toyota, after a serious crisis experienced in the 1950s, which forced it to lay off employees (contrary to company culture), took as its motto the need to create conditions so that the same would never happen again. The long term strategy has allowed it to go through crises more effectively than its competitors - and a typical cicada practice has contributed to this: accumulating in good times to resist during bad ones.

Sam Palmisano, CEO of IBM from 2003 to 2011, also set a new vision for the company - to become a global systems provider that meets global customer needs. Intel's leadership decided to invest heavily in Pentium microprocessors in the 1980s - when a critical economic situation led Motorola to divest due to a lack of liquidity. When the economy recovered and demand for microprocessors increased, Motorola was quickly overtaken by Intel - which today remains the industry leader.

Concluding remarks

Crises, failures and problems are an integral part of the life of organisations and businesses. Globalisation, global communication networks, and the integration of production chains have created interconnected systems that circulate opportunities but also threats. It is up to leaders to face these realities with tenacity, courage, integrity and a spirit of learning from mistakes - not denying them or looking for scapegoats. They can do so, in particular, by preparing the necessary skills for the next crisis - bacteriological, cybersecurity, geopolitical, financial. Crises are (also) opportunities. Therefore, if it is the rough sea that makes good leadership sailors, the main lesson is: make good use of the wave of opportunity. Remember that you are not the centre of the world - and that you need your led to face the future. It is in critical moments that your leadership will be tested. It is easy to denote compassion in times of fat cows - but it is in critical periods that this virtue is tested. Naturally, responsible behaviour is also expected from those led.

Perhaps the most pertinent question that leaders and followers should ask in these critical moments is: "what should I do so that our company is a community of realistic, cooperative, sensible and committed people??”.

Afterword

When you write, you reflect. And one reflects especially when receiving valuable feedback. Pedro Brito, to whom we are grateful for his comments, shared the following with us: in the last few days he had received messages saying that the "scare" had created "a certain balance of things". Here are the contents of those messages:

• In an era when climate change is reaching worrying levels, pollution drops considerably in a matter of days;
• Faced with the re-emergence of discriminatory policies and ideologies, a "creature" emerges showing that we can all be discriminated against;
• So focused on productivity and consumption, no rest and no breaks, we are forced to stop and reflect;
• At a time when education is delegated to educational institutions, the context brings families back together and gives education a chance within them;
• In an age when many interpersonal relationships take place through social networks (which, in the face of the "scare", becomes a necessity), we once again understand the importance of personal contact, of touch, of hugs.

These thoughts remind us of our finitude, the precariousness of life and our essence as social beings. And they reinforce an idea that has been reinvigorated in academic, socioeconomic and business circles: it is necessary that companies are seen as builders of human progress, a challenge that looms large at critical moments. Those that move towards this purpose will perhaps be more aggregative and, therefore, more resilient.

Article by Arménio Rego - Católica Porto Business School & Miguel Pina e Cunha - Professor Fundação Amélia de Mello, Nova SBE - Also published in "Líder" magazine

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