• Jeff Waggoner

Leading through Crisis:

When consequences are severe, just as in a crisis, leaders must build trust

We all know the basics of leadership from the perspective that a good leader sets a vision or goal that is worth aspiring to, inspires the team to want to go there, and coaches the team to develop and then execute a plan to get there; actively clearing roadblocks along the way. The thing we first learn about leadership, and are most subject to forgetting, is that leaders are not chosen by title or virtue of investment or ownership, or by a board; they are chosen by those who would follow. That choice is an ongoing one and is at the center of the challenge of leading through crisis.

In normal times, the keys to great leadership boil down to the following:

  • Have and effectively share a vision that is worth pursuing to a team; a goal that team can be inspired to achieve. Effectively sharing that vision should include motivating and inspiring that team through the value of the common goal as well as the recognition of individual and team contributions to achieving that goal.

  • Define a framework of values that the team can rally around and identify with; develop these with the team and ensure they are truly reflective of the values of yourself and the team. There is a theory that any set of values will do so long as they are true values of the team; but I think it’s worth recognizing that if those values don’t include some facets of service, respect, and integrity, among possibly others, then the team and the goal might be questionable.

  • Build trust by leading by example, demonstrating integrity, empowering others, and making hard but fair decisions. Integrity in a leader requires openness, honesty, and fair dealing. Empowering others is an important facet of trust building for the two simple reasons that mutual trust builds upon itself whereas unilateral trust feel imposed, and because a unilateral trust environment limits the team and erodes confidence in openness. Making hard decisions is about clearing roadblocks when the roadblock is a member or the leader of the team, or resource limitations dictate taking on changed risk. However, those decisions must be made because the status quo leads to a quagmire.

I am the veteran of over a dozen turnarounds, some induced by poor bets made by leadership, some by failing to lead, and some induced by environmental factors such as severe market corrections where the company’s revenue disappears in a matter of days or weeks. I have observed some common things in these situations that are useful to understand when it comes to leadership in crisis.

  • The team saw the crisis coming before the leader or no later; especially if the crisis is leader induced.

  • Everyone knows hard decisions must be made, what they do not know is whether those decisions will be fair minded or rational. This breeds fear.

  • Fear can kill team cohesion, effective decision-making, and the ability of a team to accomplish anything more rapidly than any other force in a team. Focus always shifts to survival rather than reaching any goal.

  • Trust building is the principal key to success, through openness, communication, honesty, and perhaps through changing leaders when trust cannot be rebuilt.

The team saw it coming. In every single turnaround of which I have been a part, and in many of the successful growth stories I have helped lead or led, the team saw it coming and often before leadership. Your team is on the ground, talking to customers, reading the news, talking to competitors and partners, and constantly trying to put together what leadership does not know or is not telling them.

When the market fell out of the bottom in 2001, people on the ground knew that irrational investment and supply far outstripping true demand was happening. Signs were strong as early as 1999. In 2008, people knew that the financial markets were built on a house of brittle Collateralized Debt Obligations (CDO’s) and the whole thing was going to come crashing down. Signs were strong as early 2005. In the current Pandemic, news out of China was confusing and purposefully obfuscated, but the signs of something coming were present a full 2 months before the real impact hit the US.

There are a few things to be learned from this fact. The first is crisis prevention. Successful teams have the trust built in for the team to voice their concerns and be heard. Your team’s instinct to put together a better picture than you’re giving them can be a tremendous advantage. Successful leaders set up systems to collect these concerns without bias, collect data that can validate or refute those concerns, and make objective and open decisions without penalizing team members that voiced the concern. Just as building a culture of innovation requires freedom to fail, building a resilient culture requires freedom to voice concerns without retribution.

The second is that when the crisis arrives, openness is the way to go. In every instance in which I was brought in to lead a turnaround, the existing senior management team voiced the concern of “what do we tell the team?” and always leaning toward less being better. That instinct will disintegrate trust faster than almost any other possible move, because the team saw it coming. They already know far more than leadership thinks. They aren’t waiting for management to tell them the situation, they are waiting to see if they will be honest. Do not instill panic, but be open and honest including about that which you don’t know and haven’t decided but without going too far. Doing this will build trust. It should be understood, however, that candor over the uncertainty must be followed by decisive direction and action because, over time teams will assume a lack of direction or action is indicative of reversed openness or incompetence and leaders are planning something cataclysmic (to members of the team).

I once saw a highly intelligent and capable leadership team acquire another company

and then announce that the business had more people than it could support and they

would open and interview positions in the new combined company from the top down;

then leadership went silent. By the time the process had reached the department level

(teams of ~50); the company had the best 60% of its workforce walk out the door to

competitors and took over a decade to recover. What began as a seemingly noble pursuit

to use a fair process to get the best and brightest of the two companies caused the exact

opposite effect because, in the absence of action, those members of the team assumed

their leadership were incompetent and/or dishonest.

The third is that boards and CEO’s who are also owners/investors must be honest with themselves about their own role in the crisis. Leadership induced crisis is a very challenging situation in that trust may not be possible to rebuild. Especially in startup and scale up companies, it is common for bet-the-company moves to be made. Leaders can be easily forgiven by their teams for making those bets and being wrong; so long as they did the right things as part of those bets. Those include being open and honest about the scale of the bet, setting up systems to listen to their people and the environment while the change plays out, and setting up systems to collect objective data based on potential failure scenarios to course-correct as deviations occur. In other words, a leader putting their team into high-risk situations is fine when the team understands it and proper care is taken to manage the risk as a team.

An investor and non-owner CEO were told the company and its core product were not

ready to scale. They ignored the results of product/market validation and skipped

business model validation despite being explicitly warned of what would happen.

Without buy-in from the CEO, the leadership team set up systems to collect data and the

CEO and investor ignored the data as it came in. Revenue growth was driven from 60%

to zero with a much more expensive sales team chasing customizations for the wrong

prospects in a desperate attempt to close any deal. When the company was clearly going

to run out of cash 8 months later, the ability of members of the executive team to trust

the CEO and investor was so eroded that either they or the CEO had to go. In this case,

the investor chose the CEO to stay, but paid a heavy

cost in continued cash investment and poor valuation growth.

Everyone knows hard decisions must be made. When leadership refuses to acknowledge the facts on the ground or isn’t clear about the criteria by which these decisions will be made, fear grows rapidly. When the team is possessed by fear, very little good can happen.

Having been dropped into quite a few organizations, I have found one of the best ground rules is to transmit what you stand for quickly, often, and clearly. People are nervous when change is coming into play, a new leader who makes it clear what will be viewed as constructive and what will be viewed as counterproductive, will give a nervous team a set of handholds to steady themselves. Coupling that with honesty about the situation – both what is good and bad will build even more confidence. When these factors are present, the team will focus more on things that have been laid out as positive behavior and less on their fears.

I was dropped into a rapidly scaling company led by 3 executives who had trifurcated the

company into warring fiefdoms. Trust was low, fear was strong, the company was

growing but also burning cash faster and faster. Further, the company was on a track to

devastating churn because it, generally, wasn’t performing for most of its customers and

wasn’t aware. The going-in leadership strategy was to clearly and repeatedly state

the problems, develop the team’s values, and over-communicate those values of

openness, teamwork, respect for each other and for customers through value creation,

and how individual and team behaviors related to those values. In short time, those

members of the company who could form the new executive team, some from the

previous team and some from middle ranks, made their intentions clear and the culture

was turned around. This culture transformation enabled the successful financial and

operational turnaround that followed.

When it becomes clear that the team is not working because of a skills or attitude gap, give members of the team as much patience as circumstances allow. Skills can be corrected with training, mentorship, and additional team members. Attitudes can be coached. For that to work, and for the team to see that team members should trust the leadership, sufficient time must be given for team members to go through the 5 phases of change. When circumstances allow, give people time to grieve and recover and help them through it using coaching and appropriate guardrails (see below).

Resource limitations will always limit the time available, so make that clear as well and act before resources become critical. It’s always better to reduce staff in as transparent a way as possible, without undermining any team member’s confidentiality or pride. If possible, be open about the resource limitations and time frame if it’s short and then act within that time. Take care of departing team members as much as possible / reasonable to the circumstance.

Fear can kill team cohesion. Focus will shift to survival and potential backstabbing. A lack of focus on the goals of the organization may quickly become the least of your concerns. I have seen team members undercut each other, engage in purposeful sabotage, destroy records, and take actions that introduced significant risk and/or outright damage to the business. The most challenging of these destructive behaviors is the “sleeper.” Sleepers are people who agree with decisions openly, speak as if they are working in the team, but privately engage in actions that are contradictory to agreed strategy or tactics and/or engage in private conversations to attempt to undermine leadership. Sleepers are the single most dangerous factor in most crises, because their effect cannot easily be estimated, anticipated, or countered. For this reason, good crisis leadership requires actively looking for sleepers and responding appropriately. I have generally used the 1 warning rule; if I catch someone behaving a as a sleeper, I have a very candid conversation. A second violation gets them removed from the team immediately.

I was a senior exec in a turnaround team brought in to complete the integration of 30+

competitors and restore the rollup company to profitability from -76% EBITDA. We were

at least the 3rd team brought in after the original management teams of the acquired

companies continued to compete with each other, post-acquisition and dealt with

financial performance issues with layoffs, of which there had been at least 4 rounds.

Trust was zero; sleepers were everywhere. The team was predominantly those with

ownership ties or those who couldn’t find jobs elsewhere in a down economy. It was

toxic. Despite repeated attempts by many to sabotage the recovery of the company, we

were successful in restoring profitability in less than one year using a combination of

trust building, openness, and the 1 warning rule for sleepers. In most cases, this single

warning restored alignment or prompted a voluntary departure.

Trust building is the principal key to success. Leading through crisis requires that the team follow when they may be fearful. When the objective is in question and the path may contain peril, teams require extra attention both to confidence building as well as to possible destructive behavior. No team will follow if they feel leadership is no longer going where they want to go, if they believe leadership doesn’t understand or is not up to the challenges and circumstances, or if they believe leadership won’t take their well-being into account when leading. Teams don’t require leaders to be heroes, possess magical capabilities, or transform all problems into benefits. They require trust and candor. A team that sees that in their leader and has the resources and skills they need possesses the necessary magic required to solve almost any challenge and will happily face the crisis and thrive.

A leader that understands the challenges and differences of crisis leadership can then lead their team through the strategic and tactical steps of Thriving in Crisis.

A necessary first step of that process is assessing yourself and your team and making any adjustments necessary in skills and approach. If you would like some help working through these issues, someone to supplement your team, or just an objective ear to listen to questions and concepts, please contact us.


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