Why Washington is having to go to extremes to restore America's confidence
Is there any way to stabilize the current financial situation? — Roberta Lenhart, North Hollywood, Calif.
The government may have answered your question for us with its shock-and-awe $250 billion plan to deploy funding into large and small banks and loan guarantees to get interbank transactions moving again. It's too soon to tell if this program will unfreeze credit and reboot the financial system, but it's hard to imagine it won't go a long way toward putting things right again.
As we wait and watch, let's not forget why such a radical move was necessary. Washington was at the center of a perfect storm in terms of trust. President Bush, a lame duck in any regard, has an approval rating near 25%, and some of his recent speeches have made an art form of "mailing it in." Meanwhile, congressional leaders, with their even lower approval ratings, can't make a move without being suspected of ulterior motives, and some are, in fact, acting in a reckless, partisan manner. Two trust-damaging examples: House Speaker Nancy Pelosi's rant before the unsuccessful first vote on the $700 billion restructuring bill (now known as TARP) was essentially a stump speech, and Senate Majority Leader Harry Reid ruminating about an unnamed insurance company being close to failure sent that sector into a stock market tailspin. The only people generating any measure of confidence in the Capital are two appointees, Hank Paulson and Ben Bernanke. Yet even with their tireless efforts, their communication skills do little to dispel skepticism.
But we're not suggesting leaders can't build trust in mid-crisis. They can—by taking strong action, provided that action is taken quickly, openly, and straightforwardly. Together, speed, transparency, and simplicity form a "trust screen"—the closer any leadership move comes to meeting all three, the more trust it will create.
Indeed, several measures that were already being implemented in Washington—before Tuesday's announcement—passed this trust test. Take the increase in FDIC guaranteed funds from $100,000 to $250,000. It happened overnight, and people clearly understood its impact. The move was the essence of transparency and clarity.
But other parts of TARP weren't meeting the mark, in particular the plan to reduce foreclosure rates by buying up mortgages and the auctioning off of banks' toxic securities. Both programs practically shouted "Slow Rollout!" and appeared rife with complexity and potential for conflict. It was easy, for instance, to imagine homeowners demanding to know why the government was retooling their neighbors' mortgages and not their own.
And so, with Washington's piecemeal approach not working, the credit markets remained paralyzed. And a howitzer response became necessary.
In all this, there's a vital lesson for businesspeople. When crisis strikes, it's awfully late to start thinking about how much trust you've stockpiled over the years. Trust is the very foundation of effective leadership; it's the grease of change. Leaders need to be building trust every single day. In every communication, they must rabidly avoid complexity and gobbledygook. There can be no pabulum and no mindless cheerleading. Just the plain, old truth, delivered the same way to every audience.
Business leaders can also build trust by connecting with their people. We're not talking about walking the hallways saying "hi." We're talking about forging relationships by hanging out where the work gets done, talking and listening, eye-to-eye. They should run frequent no-holds-barred town meetings. They should talk about who they are and what they feel, their motives and dreams. The more authentic a leader shows himself to be, the stronger the connections. Authenticity feeds trust.
We're hopeful that TARP and a new President and Congress will bring trust back to Washington. But for businesspeople, the reality that such an extreme response was needed should sound like bells tolling. Build trust while you can; build trust today.