Follow the leader

There is a torrent of media stories about the economic slowdown, but barely a
trickle about the characteristics of the people best equipped to lead businesses
through a slump.

Few companies predict the transitional events that jeopardise their
stability, and fewer still take early steps to prevent disaster. The result is
that many have the wrong kind of CEO in place to guide them through the
corporate turbulence.

As trading conditions deteriorate, boards must turn their attention to the
suitability of their management team ­ and of the executive leadership in
particular ­ to the task. Changing the captain when the ship is sinking is a
typical response to failure but often comes too late.

Most people still believe that good senior managers should be competent,
irrespective of the situation they confront. They’re wrong. The senior corporate
position should be occupied by an individual selected for their specialist
ability and experience to handle companies in specific phases of their lifespan.

For example, this isn’t the time for those whose skills are managerial to be
leading companies. At times like this, true leaders are needed. But despite the
efforts of countless coaching and professional development gurus, the reality is
that successful leaders cannot be manufactured. Leadership cannot be taught. If
it could be, why is there such a persistent shortage of leaders?

A manager cannot become a leader, or vice versa, at will. The functions are
different, and the skills of a manager are not as relevant in a turbulent,
transitional environment as those of a leader, who is skilled at directing
radical change but can be a destabilising influence in more stable times.

But what kind of creature is the transitional leader? The characteristic that
the great leaders of history shared was the capacity to motivate anxious people
to achieve things they never thought themselves capable of. Leaders don’t do
this by laying down rules and demanding compliance and greater application, but
by establishing a bond of belief.

Dominant skills include a high tolerance of stress, imagination, intellectual
flexibility, excellent communication skills and the ability to manage complexity
by approaching it without preconceptions about industry norms. Good managers
have a different balance of skills related to systematic control that are
appropriate to the more stable phases of a company’s lifespan.

For the next couple of years the challenge for companies will not be about
continuity and incremental development. The key objective is to get over this
turbulent phase in good shape; those companies that do so will be well placed to
capitalise on the economic upturn.

Companies need to know whether they are vulnerable to a transitional event,
and shareholders and non-executive directors should evaluate whether the
business has the right mix of managerial skills and experience available to deal
with the challenges.
When a business encounters difficulties, an unsuitable management team goes
through the following sequence of stages: denial, concealment, discussion and
negotiation, followed by confrontation and collapse.

When managers encounter potential distress they tend to seek safe havens and
vantage points. These are defensive reactions that reflect a perception that the
problem ­ and therefore the solution ­ is an external one. But this is often a
dangerous delusion that allows the company’s situation to worsen, sometimes with
catastrophic results.

In the current economic circumstances, companies will fail not because their
financial arrangements prevent any remedy but because they fail to address their
managerial risk at an early stage.

Some managers have little respect for cyclical forces and believe that their
company will be resilient or that they can negotiate away the consequences of
poor performance. Those who have not experienced a downturn ­ and that’s most
top senior executives ­ will not have the skill set necessary to deal
effectively with such an unfamiliar situation. For them this will be an
undiscovered country and represents a significant risk.

If your company’s senior management deny the reality of the business’s poor
performance by directing intellectual resources towards excusing dismal results
(claiming they are the victims of unusual and unexpected events), then you
should be concerned.

Companies dominated by an individual are also at risk, as they tend to lack
the managerial strength in depth needed to deal with a crisis, and often no-one
about them is strong enough to give the autocrat bad news. A business with no
clear leader is also vulnerable, as a collegiate style typically leads to
equivocation, with directors withdrawing into the comparative security and
obscurity of their management areas.

If the recession capabilities of senior management are not up to scratch, the
business needs to act sooner rather than later to bring in an experienced
individual to lead a remedial programme. Unlike incumbent managers, a remedial
executive has no emotional attachment to assets or programmes, and is not
encumbered by a pre-existing relationship with lenders and creditors, and is
therefore able to approach the task dispassionately.

Transitional leaders or turnaround specialists (what you call them depends on
how critical the problems are) are not consultants but professional executives
skilled in dismantling the organisational scaffolding that inhibits flexibility
and adaptation. They implant flexibility, allowing businesses to restructure and
move forward in a mode stronger than mere survival.

But as stability returns, a transitional leader is rarely the right person
for the most senior job. The timing and manner of their exit is as important as
their arrival, as it signals the period of difficulty has ended. At the outset
an experienced remedial executive will set the objectives that will trigger
their exit.

UK investors and non-executive directors do not understand that the
managerial task has become specialised and that one person cannot be expected to
deal effectively with whatever the world throws at them.

To some extent the long period of uninterrupted growth has made us complacent
and we have failed to develop sufficient sensitivity to the gathering storm or
to develop the remedial management skills that will now command a premium.

Those that have the skills and experience will be in demand over the next two
Anthony Holmes is a transitional leadership expert

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