The Financial Crisis: A Corporate Leadership Game-Changer?

Crises necessarily challenge assumptions. And certainly the recent turmoil on Wall Street has shaken many assumptions about economic and financial stability. Looking back on 2008, however, what can we learn about corporate leadership and management? In the Jan. 19 BusinessWeek cover story, titled “Managing Through a Crisis: The New Rules,” senior writer Emily Thornton suggests that current economic conditions have fundamentally changed how business leaders should make decisions, and that within economic turbulence resides new opportunities.

In the article, Thornton mentions several ways in which the decision-making milieu for managers has shifted, including reduced consumer confidence, tighter credit, the prospect of stricter regulations, and general ambiguity about both current conditions and future prospects. Furthermore, she discusses five specific sets of productive actions taken by chief executives in 2008, specifically:

• Change your mindset. Recognize that market conditions have changed, and that those changes should call into question many aspects of how you’ve traditionally done business.


• Get your financial house in order. Make tough choices, possibly including eliminating lines of business and issuing more stock, to strengthen your balance sheet and to secure your firm’s fundamental financial health.


• Make a move for market share. Focus on your core business and be on the lookout for newly available resources, both human and asset-related.


• Rethink your reward system. Avoid cutting compensation across the board; instead, find non-monetary ways to reward employees and improve morale.


• Dare to innovate. Taking the time and effort to innovate during the downturn could open new doors in the future. It’s risky, but may result in high returns.

The past year has forced us to think differently about what it means to undertake risk. Additionally, it seems that obtaining actionable information about potential risks is becoming increasingly difficult. It may not be a lack of information that fuels this difficulty; rather, it may be that managers today have such an abundance of information to process—via numerous financial reporting services, for example—that they cannot reasonably evaluate competing courses of action. Much of 2009 will be about figuring out what exactly happened to markets during 2008, but whether managers can use that information to guide their firms successfully remains to be seen.

This entry also appears at Stepping into the Void.

Cheers for a Well Managed "State of Emergency"

On January, 13, 2009, former President Bush made history one last time when he formally declared President Obama’s inauguration a state of emergency. Never before has a president invoked his power to declare a state of emergency in advance of a non-emergency. Mr. Bush justified his declaration with concern about the estimates of unprecedented crowds of nearly 1.5 million visitors who would flood the National Mall to watch a historic Inauguration. Was Mr. Bush paranoid? No. Despite his public reputation for being slow to respond to life-threatening emergencies (e.g. Hurricane Katrina), he was being mindful and preparing for the unexpected.
High reliability organizations, organizations that work in the constant presence of danger yet have minimal accidents, are characterized by their ability to consistently perform their organizational while being mindful and preparing for the unexpected.

In their book Managing the unexpected: resilient performance in an age of uncertainty, Organizational scholars Karl Weick and Kathleen Sutcliffe offer a description of the five hallmarks of these organizations. These five hallmarks include “(1) preoccupation with failure, (2) reluctance to simply interpretations, (3) sensitivity to operations, (4) commitment to resilience, and (5) deference to expertise. Since the 58 agencies involved in the Inauguration security detail only cooperation for one event, the fourth characteristic does not apply to this group. However, the security force’s successful management of a crowd of nearly three time the district’s population is grounded in the remaining four characteristics.

1. Preoccupation with failure. Instead of solely relying on the 40,000 strong Inauguration event security force, planners designed contingency plans in case a suicide bomber or a weapon of mass destruction were to breach the security. The government also set aside funds to assist the District in costs associated with having medical tents around the National Mall in preparation for any medical emergencies that might result from a security breach. In creating contingency plans in case of a failure of the primary security strategy, the Inaugural security force multiplies its chances of successfully achieving their mission in either an ideal or nonideal circumstance.

2. Reluctance to simplify interpretations. While none of the dozens of unspecified threats toward the event were realized, neither security forces nor the threat level were reduced at any point during the Inauguration celebration. The lack of substantive threats could have encouraged the security force to conclude that no one would be likely to attack the Inaugural proceedings. In avoiding the temptation to simplify their interpretation of the potential danger involved with the Inaugural proceedings, the security team stayed actively aware of their surroundings and consequently was better prepared to protect Inauguration participants.

3. Sensitivity to operations. Homeland Security Director Michael Chertoff and commanders from other federal agencies populated the inauguration security center from 8 am EST Saturday to 4 p.m. Wednesday. From this center, the various agencies participating in the security detail could monitor all live video feeds from the major agencies in the area and have immediate access to each other in case of a sudden crisis. By creating a physical environment where various agencies can have shared immediate access to the same information, and to each other, the security team was able to achieve high sensitivity to Inaugural proceedings which would allow them to affect security tactics on the ground almost as quickly as potential security breaches could occur.

5. Deference to expertise. Instead of relying solely on D.C. police force and U.S. Secret Service, security planners capitalized on the expertise of the Federal Aviation Administration, National Guardsmen, FBI personnel, Department of Homeland Security, and National Park Service. With the inclusion of experts across multiple agencies across government hierarchy, the security team was able to develop comprehensive security strategies and tactics.

All of the planning and preparation paid off. While there were 973,285 passengers who rode the Metro on Tuesday and 957 people who visited the medical tents near the mall, there were no Inauguration related arrests made throughout the entire day of celebration. Not one security breach throughout the entire event. Wouldn’t it be nice if all of our State of Emergencies worked out this successfully?