|Six Leadership Lessons for Tough Times
Finance execs can glean a few insights from how some Fortune 500 CEOs are riding out the recession. What's your definition of a great leader? Join the conversation here.
November 5, 2009
Few business people accurately predicted exactly when the global economic bubble would go bust, nor how much carnage would be caused.
But a few savvy business executives knew how to react adroitly to limit the damage. What they did and how they did it, offer lessons for finance and accounting professionals.
In a series of interviews with 14 CEOs and chairmen of major firms including Fortune 500 companies, McKinsey & Co. highlights a few of the keys to corporate leadership in this time of turmoil. They produced a now widely-read report titled “Leadership lessons for hard times.”
What’s your formula for leadership in tough times?
The consultants devised six useful principles that any CPA can take to heart:
None of this, of course, is revolutionary. And the CEOs and chairmen McKinsey interviewed are the first to admit it. What is clear, however, is their resolve in pursuing principles they thought were right, often in the face of opposition and equipped with uncertain information. They could have guessed wrong. Only time will tell. But in the meantime, they demonstrate how leadership becomes both more important and more difficult in tough times.
1. Confront reality — and do it early.
McKinsey tells the story – soon to be legendary, I’m sure – that Ingersoll Rand’s business was still booming when Chief Executive Herbert Henkel noticed a line in an operating report that alarmed him: a sudden slump in the company’s transport refrigeration business. To Henkel, falling demand for perishable foods spelled big trouble in the global economy. “I couldn’t help thinking, what if that figure really is indicative of what’s out ahead?” he told McKinsey researchers. “What are we going to do about it?” Henkel cut the division’s growth forecasts to zero, though analysts thought he was crazy. It turns out he was wrong; growth fell by only 15 percent. But, Henkel said, “by not ignoring that one indicator, we did get a head start.”
2. Put strategy at the center of every decision.
Top companies are putting strategy on the agenda at every top-level meeting. “The world moves at a pace that requires strategy to be front and center all of the time,” NCR chief executive Bill Nuti told McKinsey. “There are too many variables that come into play in a normal cycle, let alone this one, that can rapidly change the course of your company, so I bring strategy up at every single meeting.”
3. Be transparent with employees …
McKinsey predicts that “one legacy of the current downturn will be a reinforced belief in the value of frequent, transparent communication with employees.” Uncertainty can cause its own calamities. So savvy leaders work hard to dispel rumors and keep people focused on the job at hand. “The only way to address uncertainty is to communicate and communicate,” said Terry Lundgren, Macy’s chief executive. “And when you think you’ve just about got to everybody, then communicate some more.”
4. …and with investors, bankers, suppliers, partners and other stakeholders.
Much to the consternation, I’m sure, of corporate lawyers, investor relations reps and the finance execs responsible for the U.S. Securities and Exchange Commission (SEC) filings, Northrop Grumman Chief Executive Ron Sugar told McKinsey, “Our policy is: ‘If in doubt, communicate.’ We always want to conduct our business with integrity and forthrightness.” And Pepsi Bottling Group Chief Executive Eric Foss agreed: “We’re facing up to our issues” and in this way, “demonstrating that we have a management team that knows what it’s doing.”
5. Build and protect the corporate culture.
“A healthy company enjoys not only strong financials but also a culture and values that bind it together,” according to McKinsey. They tell of the story of AutoNation, the car retailer turned around by Chief Executive Michael Jackson. When he came to the company, he confronted a “growth at any cost” mentality. “We wanted entrepreneurialism, but we also wanted the highest standards of integrity.” Over the next three years, he purged many of the “high-performing money makers whose risk profile would keep you awake at night.” This amounted, McKinsey said, to “a cultural revolution that has delivered a sustainable competitive advantage — and one that he isn’t about to jeopardize by shedding his best talent.”
6. Keep faith with the future.
Despite daily crises and emergencies, top executives need to remain focused on the long term. McKinsey calls it keeping faith with the future. But, just as importantly, many of the chief executives McKinsey talked with seem to have seen the economic downturn as an opportunity.
McKinsey doesn’t directly address painful layoffs, plant closures, divestitures or restructurings. Instead, the consultants say, “Many of the CEOs we interviewed were determined to ensure that their companies emerge from this recession with a competitive advantage by setting the course for higher productivity, acquiring a footprint in a new market, or not squandering a company’s talent or reputation in pursuit of lower costs.”
Proctor & Gamble, for instance, is increasing investments in research and development and innovation, McKinsey says. “You can’t cut the things that will impact your ability to reach your vision,” said NCR’s Nuti.
TELL YOUR STORY: What have you seen of leadership in tough times? How do YOU define a great leader? Join the survey; get the results.
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Copyright © 2009 CPA Trendlines/BSG LLC. All Rights Reserved. Used by Permission. First published by the AICPA.
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