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Leadership Under Crisis

By Kaleil Isaza Tuzman, Managing Partner, Recognition Group, LLC

Problem Approaches to Critical Corporate Missions
To paraphrase Justice Stewart, flawed leadership is one of those things you know when you see. You don’t have to be a corporate restructuring professional to be able to pick out a CEO in denial (a quick perusal of daytime business cable TV should do the trick) or a company embarking on a quixotic new market strategy while ignoring its most basic failings in client service. But as someone who is interested in helping a business navigate an operational or financial restructuring, what sorts of personalities in the executive suite can impede progress? What traits do you look to avoid? And, ultimately, what do you do about it?

Though leadership pathologies come in many shapes and colors, as a restructuring professional, I have found there are a few overriding character types that are particularly ill-suited to crisis management:

The Crusader
Colonel Charles George Gordon was one of the British Empire’s mythological figures. A career officer in HRH’s “gentlemen’s army” in the latter half of the nineteenth century, Gordon served in China, India, and, most problematically, the Sudan. The exploits of this tall, handsome, blond soldier were carried in the flourishing London tabloids of the time and more serious evening papers alike. He was often described as riding into battle alone, inspiring the natives who would follow him, conquering barbarian hordes as if solely by the force of his will. When he finally encountered his bete noir in the Sudan --where he was sent with the blessing of the British Parliament ostensibly to put an end to the world’s most active slave market-- Gordon was very much like the self-assured CEO those of us in the restructuring business frequently come across: a man with a sense of personal destiny, coming off a string of remarkable successes, and possessing of powerful charismatic leadership ability. In other words, a hero. Unfortunately, Gordon’s 1873 foray into the Sudan –heretofore a backwater of Egyptian-cum-British suzerainty—required anything but heroism. He did not realize he was a straw man, sent in to give the appearance of the crown’s abolitionist sympathies, while actually supporting and stabilizing the flow of slave labor to the Egyptian army, the Suez Canal project, and other “initiatives”. Within a short period of time, the deeply convicted Gordon was dead, having failed to capture the subtlety of his mission and left by the Empire to make his last stand in Khartoum, literally outnumbered a thousand to one.

With due respect to those made queasy by the theme of slavery in this example, the story of Colonel Gordon does illustrate the most pervasive and subtle pathology in the “Problem Transaction”: having the wrong person for the job. Enterprise-wide corporate transactions –a sale of the company, a large acquisition, a critical equity financing, a transformative strategic joint venture—require a great deal of “relativism”, balancing the competing interests of stakeholders who are often at each other’s throats. A crusading CEO, like Gordon, as honorable as his mission may be, must understand the realpolitik of the “deal”. As abhorrent as we might find a new JV partner’s customer service protocol, we must adjust our own to meet a middle ground. As absurd as we might find a new investor’s lawyers’ requests for veto rights over normal-course-of-business debt incurrence, we must know where to pick our battles as we sift through the quagmire of the Share Purchase Agreement. It is not anything new to say that a significant percentage of large strategic deals ultimately fall apart (before or after consummating an actual paper transaction) because of ego(s) in the executive suite. My experience, however, is that rarely does the CEO or business unit leader in question characterize their intransigence as a function of personal opinion or ego. Instead, illogical obstinance on particular deal points is nearly always justified using more new age corporate nomenclature: the new shareholders “just don’t understand our culture”, or an acquisition of this type would “debase our corporate mission”. While I am the first to recognize the importance of corporate cultural continuity and clear corporate mission statements, when these types of objections are raised in the 11th hour of deal negotiations –as they often are--, alarm bells should go off. The “crusading CEO”, taken over by missionary zeal, is particularly ill-suited for restructuring, or corporate survival transactions: recapitalization, operational redesign, distressed corporate sale. Despite the mythology around slash-and-burn actors like Al Dunlap, a large body of literature and personal experience supports the thesis that in the milieu of painful corporate transactions, what is most needed is a communicative, flexible, consensus-building leader, who is inclusive and decidedly non-dogmatic in problem-solving.

The Wishful Thinker
Many of us have heard the story of Admiral Stockdale, who helped guide a large number of the men under his command through years of excruciating confinement and torture as prisoners of war in the infamous Hanoi Hilton in Vietnam. He did so by setting “milestones” for his men: when you are beaten for two hours, you may give up this piece of information; after two days, this other piece of information, and so on. As gruesome as this sounds, it worked in giving his men something to work towards and a certain pride, in spite of the hellish context. When asked later by a reporter what type of men had not made it through the ordeal, he answered dryly: “the optimists”.

When we are under pressure, we often react by “putting a good face on things”. In a leadership position, it is common to imbibe as duty “keeping morale up” and “rallying the troops”. In truth, there is a clear consensus in organizational psychology that leaders who do not realistically assess and communicate crisis to their charges lose credibility and effectiveness almost immediately. Some time ago, I received a Friday morning call from a prospective restructuring client in New York City. I was in Atlanta’s Hart’s International Airport at the time, and the cell phone connection was not particularly good. “We may need some help as early as today,” the CEO intoned, “because the current dispute [with a critical joint venture partner] may make it impossible to meet payroll this evening.” I thought had misheard. We had been meeting with this individual for some time, and his cash crunch (as a result of having certain accounts frozen) had never been made clear to us. He went on, “fortunately, no one on the management team knows.”


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