Corporate leaders have a lot to learn about how to manage crises from those who confront them daily
CIA director-designate Leon Panetta isn't the only outsider faced with running an institution where missteps in a crisis can mean catastrophe. As the recession deepens and distressed companies turn to outside leadership, new CEOs will, like Panetta, find themselves at the helm of high-pressure and perhaps hostile organizations with little room for error.
As someone who has worked as chief psychologist for Scotland Yard and is currently a consultant to some of the world's largest corporations, I believe that new corporate leaders in this time of crisis can learn a lot from national security leaders who breathe crisis daily. New CEOs certainly can't avoid crisis, but by adhering to a few simple principles of leadership from the world of national security, they can greatly increase their chances of averting catastrophe.
Create esprit de corps in peace time. In periods of relative calm, and especially at the beginning of a new regime, it is essential to create an aligned organization characterized by shared purposes and mutual trust. Hard times sorely test an organization's strength. If esprit de corps hasn't been established before hard times hit, people are likely to engage in self-protective and self-serving behavior.
Scotland Yard, for example, was considering disbanding one of its departments. The head of the department in question, instead of staying and visibly leading his people through the transition and helping maintain unity, took the decision personally and ducked out on a noncritical foreign trip. Within a matter of days, people in his department began to panic about their futures, seeking other jobs and pointing fingers at each other. Ultimately, top leadership didn't need to disband the department—at the first sign of trouble, it simply melted away. Unfortunately, some very good people were unnecessarily lost because of the department leader's self-regarding behavior.
Establish roles and responsibilities—and rehearse them—before disaster strikes. On July 7, 2005, terrorists detonated bombs on three London Underground trains and a bus, killing 52 commuters and injuring approximately 700 others. Although subsequent investigations found some fault with the emergency response in areas like adequate medical supplies and handling of inquiries from relatives of victims, from my vantage point I saw remarkably swift and coordinated action by police, fire, ambulance personnel, and other first responders. They had rehearsed many times and, as a result, knew precisely what they were supposed to do.
Many people have called the Jan. 15 emergency landing of US Airways Flight 1549 in the Hudson River a "miracle." But the 155 passengers who came through it owe their lives not to divine intervention, but to the training, discipline, and readiness of the airline captain and crew, as well as the police divers and New York Waterway ferry boat crews who got them to safety.
While rehearsal on the model of police and military training may not be literally applicable to the crises that corporations face, the lesson that can be drawn is that leaders should know exactly what they are supposed to do in the face of sudden and potentially catastrophic occurrences. These include everything from a liquidity crisis to the death of a key executive to a market meltdown to a company-caused environmental disaster or a severe business interruption.
This type of preparation extends beyond the crisis-management, disaster-recovery, and succession plans that typically gather dust on bookshelves. It requires an explicit and repeated acknowledgment of roles in each case and, where possible, "high-fidelity" practice exercises that include dealing with the media and internal communication, activating reporting structures, understanding accountability levels, and gathering the right information. The time to make mistakes is during practice, not when the company is on the line.
Make key appointments based on experience, ability, and strategic objectives. In the planning for security for the 2012 London Olympic Games, I've recently seen the worrying example of leaders making appointments based on criteria other than fitness for the task at hand. Everyone, from powerful politicians to corporate sponsors, wants to be associated with the Olympics. As a result, judgments about who leads on particular responsibilities are not consistently being based on who might be the best person for the job, but sometimes on the basis of favoritism, political clout, or other extraneous considerations.
In the business world, litigation, shareholder activism, and the good corporate governance movement of recent years have led to fairer and more robust hiring standards. But examples still abound of crises turned into disasters because people in key positions got there for some reason other than their fitness to discharge the organization's mission. Business leaders must summon up the courage to make competence, not personal agendas, self-aggrandizement, or parochialism, the chief test for appointment.
Don't believe in your infallibility. In the popular imagination, Scotland Yard has long enjoyed a reputation for near-infallibility. Fortunately, Scotland Yard itself doesn't believe it. In my time there, I debriefed more than 800 people in the wake of high-profile incidents. We looked not only at people but also at processes, interdepartmental relationships, use of press and media, leadership, management, communication, and resources from the perspective of what went well, what didn't and, what needed to change. While it was too late to correct mistakes that had already been made, we worked hard to get to the bottom of them and prevent them from recurring.
Teams with leaders who believe that their judgment is infallible eventually cease to function as teams and become mere rubber stamps. They learn not to bear bad news, offer alternative views, or challenge the leader's beliefs. At the same time, leaders may have their judgment further clouded by short-term results. Case in point: the rich returns on mortgage derivatives that led some financial services leaders to ignore their risk-management experts.
Unfortunately, national security organizations and other institutions have not always adhered to these leadership principles themselves, often with disastrous results, as in the intelligence about Saddam Hussein's possession of weapons of mass destruction and the response to Hurricane Katrina. Nevertheless, such departures, as in some of my experiences with Scotland Yard, only further confirm the power of the principles themselves.
It will be interesting to watch as Leon Panetta establishes his leadership at the CIA. Like new CEOs who come to their organizations from afar but have extensive experience, he may be considered an outsider, but it's important to remember that he, as a former White House Chief of Staff, knows national security first-hand. And now that crisis is as routine in the economy as it is in national security, there has never been a better time for the commercial world to learn leadership lessons from the clandestine world—for the company to learn from The Company.