Winning (13 page)

These people usually have to go.

Maybe that sounds harsh, but you are doing no one a favor by keeping resisters in your organization. They foster an underground resistance and lower the morale of the people who support change. They waste their own time at a company where they don’t share the vision, and they should be encouraged to find one where they do.

Take this extraordinary example. It’s about Bill Harrison, the CEO of JPMorgan Chase, who asked a well-respected, high-level executive to leave during his change process at the bank. His move was even more stunning in that Bill did it when his own political capital was low—in the middle of the Enron collapse, when many people wondered if Bill would personally take the fall for the bank’s loans to Enron and to other high-profile troubled companies.

During this period, Bill was instituting an executive training initiative focused on transforming the newly merged JPMorgan and Chase into a more market-focused bank, a big change for an institution whose businesses, like many of those on Wall Street, prided themselves on their individuality. The biggest resister was the CEO of one of JPMorgan Chase’s major businesses, a true star in his own right. He preferred the lone-wolf culture of an investment bank and launched a quiet revolt over Bill’s direction.

So Bill asked him to leave. It took tremendous courage given the circumstances. But Bill knew, and he was right, that the transformation of JPMorgan Chase could not move forward with such a resister—and his following—in the way. Candor and fairness made the departure go well. And Bill’s program went on to succeed too. In a survey of all bank executives taken two years after his leadership program started, those who participated in the initiative had a favorable impression of the bank’s direction twenty points higher than those who had not participated.

From a management perspective, few cases of removing resisters are as difficult as the one Bill Harrison faced. But even when a situation is not nearly as political or fraught, I have seen managers hold on to resisters because of a specific skill set or because they’ve been around for a long time.

Don’t!

Resisters only get more diehard and their followings more entrenched as time goes on. They are change killers; cut them off early.

Most companies capitalize on obvious opportunities. When a competitor fails, they move in on their customers. When a new technology emerges, they invest in it and create product line extensions.

But to be a real change organization, you also have to have the guts to look at bolder, scarier, more unpredictable events, and assess and make the most of the opportunities they present. This capability takes a certain determination and sometimes a strong stomach, but the rewards can be huge.

Take the 1997 Asian financial crisis. Currency traders certainly capitalized on this awful event; they live on exploiting change. But they’re not the only ones who should do this. GE had real success buying undervalued Thai auto loans in this period. Others prospered by buying real estate at fire sale prices.
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The Japanese banking woes of the ’90s gave numerous companies a chance to pick up assets at attractive prices and participate in a market that had previously been closed to them. Companies like the buyout firm Ripplewood Holdings, AIG, Citigroup, and GE, to name a few, made huge gambles in a horrible-looking environment that had just about every pundit predicting the permanent demise of Japan. Those bets are turning out to be big winners as Japan recovers.

Bankruptcies are another calamity that provide all kinds of opportunities. They’re tragic to the employees. Jobs are lost, and pensions disappear into thin air. But jobs and futures can also be created from the cinders. When Enron fell apart—a tragic business story if there ever was one—Warren Buffett was able to take a position in its former pipeline business at a bargain-basement price. And GE picked up its wind power business at what it considered a very good price. The Vivendi collapse was a disaster for CEO Jean-Marie Messier, many employees, and company shareholders. But its financial needs provided the opportunity for Edgar Bronfman to reenter the music business at an attractive price and for GE to purchase terrific media assets.

It goes without saying that no businessperson wants disasters to occur, but they will. There will be spikes in oil prices, buildings will be destroyed in earthquakes, companies will go bankrupt, and countries will come close. In today’s world, there is the persistent threat of a terrorist attack. Yet even if terrorism is eventually contained—unfortunately, something that is not imminent—there will always be elections and revolutions that change the course of history.

Most companies take advantage of obvious opportunities. But some also have the ability to make the most of regrettable circumstances—those “car wrecks”—and they should. Since 9/11, for instance, an entirely new kind of security industry has emerged. Of course, you wish with everything in you that such an industry didn’t have to exist. But these companies will benefit for having realized that change means seizing
every
opportunity, even the ones wrought by adversity.

With all the noise out there about change, it’s easy to get overwhelmed and confused.

But there are really just four practices that matter: Communicate a sound rationale for every change. Have the right people at your side. Get rid of the resisters. And seize every single opportunity, even those from someone else’s misfortune. That’s it.

Don’t get all caught up in your knickers over change.

You just don’t need to.

I
T
’
S NO WONDER
that crisis management is often referred to as firefighting. Like a four-alarm blaze, an event of the oh-God-no variety can really consume an organization. Managers huddle in meeting after meeting, trying to figure out what the heck is going on, while everyone else gathers in little clumps all over the office to whisper. They wring their hands over whose head is going to roll. They obsess about their jobs, pointing fingers up, down, and sideways. Often, panic rages so high that real work grinds to a halt.

Sound familiar?

Look, crises happen. As long as companies are made up of human beings, there will be mistakes, controversies, and blowups. There will be accidents, theft, and fraud. The cold truth is that some degree of unwanted and unacceptable behavior is inevitable. If people always followed the rules, there would be no police forces, courthouses, or jails.

For leaders, crises often stand out as the most painful and trying experiences of their business lives. Crises can create anxiety-ridden days, sleepless nights, and a churning in the pit of your stomach like no other challenge you face at work.
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And on top of it all, crises demand from leaders a daunting balancing act. On one hand, you’ve got to throw everything you’ve got into understanding and solving the crisis. You have to unleash a torrent of time and energy, mainly your own, at dousing the flames. At the same time, you have to put that activity into a compartment and carry on as if nothing is actually wrong. That’s what leaders usually neglect—to their regret. Because when you focus only on the crisis, it can overtake the whole organization, sucking it into a vortex of blame, dread, and paralysis.

This balancing act is obviously brutal to pull off in the midst of an event that feels like a living hell. At the outset, you never have all the information you want or need, and solutions often emerge much more slowly than you’d like. And the ending to a crisis rarely seems completely fair or right. Good people sometimes get hurt, and all you can really be happy about is that the mess is finally over.

Each crisis is different. Some are entirely internal affairs with swift solutions. Others are huge media events, with all sorts of legal ramifications. The uniqueness of each crisis makes it hard to come up with rules for getting through them.

There are, however, five things you can assume about how your crisis will unfold. These assumptions played out in virtually every crisis I managed, from Aircraft Engines’ bribery case involving an Israeli air force general, to the company’s battle with the government over time card accuracy, to the Kidder Peabody scandal, where an employee misrepresented earnings by millions of dollars. These assumptions aren’t a formula for managing a crisis, but hopefully they’ll provide directional guidance as you get from oh-God-no back to yes-we’re-fine again:

First, assume the problem is worse than it appears.
Managers can waste a lot of time at the outset of a crisis denying that something went wrong. Don’t let that happen to you. Skip the denial step, and get into the mind-set that the problem will get bigger, messier, and more awful than you can possibly imagine.

Second, assume there are no secrets in the world and that everyone will eventually find out everything.
One of the most common tendencies inside the crisis vortex is containment, in which managers frantically try to clamp down on information flow. It’s far better to get out ahead of the problem, exposing its scope before someone else does it for you.

Third, assume you and your organization’s handling of the crisis will be portrayed in the worst possible light.
It is not the job of the media to make you or your organization look good during a crisis, and they won’t. And never mind the media. Your own organization can be a tough audience during times of trouble. In both cases, the implication is the same: define your own position early and often.

Fourth, assume there will be changes in processes and people. Almost no crisis ends without blood on the floor.
Real crises don’t just fade away. They require solutions that overhaul current processes or introduce new ones and, just as often, upend lives and careers.

Fifth, assume your organization will survive, ultimately stronger for what happened.
We learned something from every single crisis that made us a smarter and more effective organization. Taking the long view might make living in the hellish moment somewhat more bearable.

SEEKING IMMUNITY

Last year in Amsterdam, we met a Dutch journalist who had recently recovered from an illness that had robbed her of her memory for two years. She recounted to us the worst aspect of amnesia for her, which she described as her lack of immunity in life. Every time she made a mistake, like touching a hot stove or not bringing an umbrella out in a rainstorm, it was as if it were for the first time. She never learned anything from experience.

At the time we met, the journalist was covering the crisis unfolding at the Dutch food retailer Ahold, which had been accused of serious accounting fraud. In our conversation, she wondered what would become of the company if its troubles passed. Having touched the stove once, would it do so again, or would its financial accounting be more tightly controlled than ever before?

I volunteered that Ahold might make other mistakes in the future, but it was highly unlikely to make a similar accounting error for a long, long time.

Companies typically go to extremes after a crisis. They throw up fortresses of rules and procedures to fight the enemy that got in once. Or to use the Dutch journalist’s metaphor, they build a kind of immunity to the sickness that felled them—the way a child cannot get chicken pox twice.

So, there is a sliver of silver lining to crisis management in that you rarely have to live through the same disaster twice.

That said, you can be proactive in preventing some crises.

There are three main ways, and most companies have the first two pretty much nailed.

The first is tight controls—disciplined financial and accounting systems with tough internal and external auditing processes. An organization’s line managers should be required to review and act on every audit’s findings.
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The second way to try to prevent crises is with good internal processes, such as rigorous hiring procedures, candid performance reviews, and comprehensive training programs that make the company’s policies nothing short of crystal clear. When it comes to acceptable behaviors, rules, and regulations, you simply cannot train too much.

The third way is less common and certainly less of a layup—a culture of integrity, meaning a culture of honesty, transparency, fairness, and strict adherence to rules and regulations. In such cultures, there can be no head fakes or winks. People who break the rules do not leave the company for “personal reasons” or to “spend more time with their families.” They are hanged—publicly—and the reasons are made painfully clear to everyone.

Perhaps the lawyers will warn you against saying too much. But if you’ve got the facts right, you should be comfortable laying out who broke the rules and how. There are enormous organizational benefits from making examples of people who have violated your policies.

Maybe public vilifications and punishments sound harsh. But they are the best way to increase the chances that when someone in your organization lights a match—that is, commits an integrity transgression—at least a couple of onlookers will immediately shout, “Fire!”

Prevention is by no means a perfect science, but it’s your first line of defense against a crisis. Don’t rely on hard experience to build your immunity—unless you have to.

THE ANATOMY OF A CRISIS

Before we talk about each assumption, let’s take a short look at how crises tend to unfold—and roll—to their conclusions.

Most of the time, crises blindside you. They begin with someone stopping you in the cafeteria and asking a perplexing “Did you hear?” kind of question, or with an e-mail or letter about a possible “irregularity,” or with a phone call you would never expect in a million years.

The last of those is what happened in 1985, when the general counsel of GE phoned to say there was an investigation of time card irregularities going on in our Valley Forge, Pennsylvania, factory that made missile cones for the government.

I had never worked in a business where employees apportioned their time by project, let alone filled out a job time card myself. All I knew was that the people in our aerospace business had nothing to gain from jiggering this process, since the engineers involved were all paid on salary only. My initial reaction was a totally unruffled “Uh-hunh, keep me posted.”

He did, and before I knew it, the time card situation had erupted into a firestorm that took a lot of people’s time and focus during my first couple of years as CEO.

Now, sometimes crises explode with a single event, like the
Exxon Valdez
breaking up off the coast of Alaska, dumping millions of gallons of crude oil, or when Johnson & Johnson suddenly discovered that someone was tampering with bottles of Tylenol.

But most crises don’t detonate like bombs—they emerge in fits and starts. I don’t know the details of the Merck situation with Vioxx, but I would bet that it actually started a few years ago with a couple of seemingly random incidents of heart problems in people taking the drug. Those reports might have led to a vague suspicion by some scientists that Vioxx was involved, and eventually a larger study was undertaken. From there, the situation probably grew into the full-blown recall that took place in the fall of 2004.

Most often, that’s how crises go—they seep out and roll toward their solutions. Like snowballs down a mountain, they bounce and zigzag and pick up weight and speed. You can never be entirely sure where their paths will end.

You can be sure, however, that they will end. The trip to the bottom of the mountain will probably be unpleasant, but eventually it’s over and normal life resumes.

That is, until another crisis emerges.

PLAN OF ACTION

And now for the five assumptions to keep in mind when a crisis happens.

Assumption 1: The problem is worse than it appears.
No matter how hard you might wish and pray, very few crises start small and stay that way. The vast majority are bigger in scope than you could ever imagine with that first phone call—and they will last longer and get more ugly. More people than you thought will be involved, more lawyers than you’ve ever seen will poke their noses in, and more terrible things will be said and published than your worst nightmare.

So adjust your mind-set early on. Go into every crisis assuming the absolute worst has occurred somewhere in your organization and, just as important, that you completely own the problem. In other words, go so far as to assume your company did it and you have to fix it.

My tepid response to the time card crisis is case in point here about the importance of having the right mind-set, which I did not. With my lack of experience in crisis management, I assumed the problem just couldn’t be that bad, given that no one stood to gain personally from misallocating their hours. Maybe a few people had been sloppy with their time cards and winged it, I thought—but so what?
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The “so what” was all in the timing. Caspar Weinberger had just been named secretary of defense, and he was spearheading President

Reagan’s campaign against government “fraud, waste, and abuse.” The newspapers were filled with stories about companies charging the government $400 for hammers and $1,000 for toilet seats. We were up next.

The facts, as we came to learn, were that 99.5 percent of the thousands of time cards filed in the Pennsylvania plant had been filled out correctly. It didn’t matter—0.5 percent of them were not and that was a violation. Instead of facing that, we got all caught up in our own logic. It went like this: most of the time cards were correct and the errors were accidental…overall we had actually undercharged the government…this is all just a political witch hunt.

With a seasoned mind-set, I would have said, “We were wrong. Let’s do what it takes to correct the situation and put it behind us.”

I’m not saying that the correct mind-set means you should always fold at the get-go. Sometimes you are absolutely clean and you need to fight. In 1992, a former employee turned whistle-blower from our diamond business claimed that we had colluded with De Beers to set prices in the industrial diamond market.

Knowing the people charged with collusion, I felt certain that this was just a case of a disgruntled guy who should have been let go with more sensitivity. Nevertheless, we dug into the investigation as if we were guilty, looking for every shred of evidence that could be used against us. We turned up nothing. That allowed us to take on the government with everything we had, and we won big when a federal judge threw out the government’s case in 1994.

The same “we own it” mind-set got us successfully through another crisis. In the late ’80s, the people running our appliances business in Louisville, Kentucky, began to hear rumblings from the field that an unusual number of refrigerator compressors were requiring repair a year or two out of the factory. The highest volume of breakdowns was coming from the warm-weather states. After a few months, the problem spread north, and I was brought into the loop.

We immediately assembled a SWAT team of experts from every part of the company—metallurgists and statisticians from corporate R & D, design engineers from Aircraft Engines who had experience with rotating parts, and marketing people who had studied the consumer impact of other national product recalls.