Some say that character is revealed by what you do when no one is looking. This may be true for an individual, but for leaders within organizations, I contend that perhaps character is revealed by what you do when everyone is looking. When the heat is on. When challenges abound. When resources are scarce, competition is fierce, and failure is a possibility.
In preparation for kasina's Costs of Compensation 2009 report, we had the opportunity to interview over 20 sales executives and leaders at asset management firms. While we were gathering data specifically about compensation, our conversations gave us a window into how organizations had reacted to the still very recent financial market crisis (our interviews took place from April through June). We walked away with as many insights on leadership and coping with crisis as we did on compensation.
In our report, we identified three broad approaches that asset management firms took to deal with crisis:
1. Duck and cover-try to wait out the storm.
2. Across-the-board cuts-acknowledge the challenge and take decisive, but broad action steps.
3. Opportunistic rationalization-use crisis as an opportunity to make needed strategic changes in a bold and targeted fashion.
While these broad categorizations helped us capture company responses to the crisis, we did develop a detailed and nuanced set of best practices that executives can use to successfully lead their organizations through crisis. Interestingly, most of these practices focus inside the organization, not outside, where the threats, chaos and noise usually originate.
We found that the following actions were vital to organizations that aim to survive, thrive, and capitalize on times of chaos:
1. Remain calm. Employees take their cue from leaders-not just their actions, but their behaviors, too. If you act flustered, stressed out, or take knee-jerk actions, your employees will get panicky and wonder whether things are really under control. Do not be like Kevin Bacon in "Animal House," frantically screaming "All Is Well!"
2. Acknowledge the challenge. Be straightforward and do not hide the truth. The folks you work with and lead have many sources of information - media, co-workers, friends at other companies, families. Especially in asset management, they know what is going on, can infer when asset declines strain the firm, and what tough decisions this poses. When times are tough, admit it. Do not put on a happy face, thinking that this will prop up everyone's spirits. More likely, it will just impugn your credibility within your company.
3. Keep steering the ship on course. Strategies should not change overnight. Like a good financial plan, a good corporate strategy should be fairly enduring, subject to regular oversight and periodic rebalancing, but rarely to total overhaul. If your strategy made sense for the firm last month, even if the markets tank, your primary competitor just launched 67 new products, or two C-level executives left your firm, your strategy need not change radically.
Our teams (and the clients who trust in our products) need to feel that the foundational elements of our firms-mission, vision, strategy-are enduring. Vanguard always hits the mark on this point-no matter the crisis, they consistently repeat the same enduring, clear messages.
4. Make the changes that need to be made-quickly and decisively. While the overall corporate strategy should change infrequently, sometimes significant changes are unavoidable. When assets fell 40% at most asset management firms, budgets needed to be slashed to make the inexorable math of corporate profits work. If changes need to be made, make them. Figure out how to make them as opportunistically (not across-the-board cuts), quickly, and clearly as possible. And tell people why they are being made. Robert Reynolds at Putnam epitomizes this point. In fairly short order, he has helped to define what Putnam was, what it is, and what it will be. Everyone understands the new destination, and can move onward with confidence and vigor.
5. Keep your eyes open for opportunities that exist-anything that upsets an equilibrium creates gaps, fault lines, vacuums. If your competitors are going through the same crisis you are, then look for opportunities to capitalize on the chaos. To quote Kipling, "If you can keep your head when all about you are losing theirs, yours is the Earth and everything that's in it."
Well, maybe not the Earth and everything in it, but perhaps yours is a sweeter acquisition price, a high-potential hire, an easy entry into a new market, or some other competitive advantage that you can grab while others are pulling their hair out. Some opportunistic asset managers used the recent crisis to make acquisitions or grab talent that was suddenly "on the street." If you can afford to, be bold. Black Rock's acquisition of Barclays Global Investors is a great example of this point. They used the melee in the market to scoop up a key addition to their corporate portfolio.
6. Throughout it all-communicate. It is critical to remember that our employees run the company. They talk to our clients, execute strategy, process transactions, make deals. We hired them because they are good and they are smart. They deserve explanations and should have an understanding of what is going on. When communication is absent, they assume that we as leaders are not doing anything, do not know what we are doing, or do not trust them with the information. A vacuum of information will be filled with rumor, innuendo, and assumptions. Dealing with crisis well involves all five of the prior points, but even more, it involves turning away from external forces, facing our own team, and talking to them.
It is still fairly soon after the financial crisis, but autopsies of what went wrong are starting to hit the bookshelves. Most of the ones I have seen relate to failures in oversight, financial engineering, or incentive structures. In time, I look forward to reading about how different leaders coped with the crisis and the resulting impacts on their companies' success. Just as fire can serve to melt metal or forge, shape, and strengthen it, crisis can ruin organizations or be used to shape and strengthen them. The factor that determines whether the company is ruined or strengthened is the character of the leader and his or her reaction to the crisis.
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