SOS WHAT TO DO WHEN SOMETHING GOES VERY WRONG

Anyone who has been in New Zealand’s corporate and government sectors for any length of time will know that despite the best intentions of boards, CEOs and senior management things can, and do, go wrong. The question is, if it happens to you as a leader,

When something goes badly awry within a company, it tends to be someone in the senior executive team who falls on his or her sword. Globally there are likely to be hundreds of examples of executives who have, rightly or wrongly, taken the blame for a failure within a business or business unit. So perhaps senior executives need to be thinking not ‘what if’ something goes wrong, but ‘when’ might something go wrong and be prepared for the worst-case scenario.

Author, director and former senior executive Bob Weir is in the throes of writing a book about company failure and has extensively investigated what happened at Solid Energy, South Canterbury Finance and Pumpkin Patch as well as up to 1,000 small companies.

His investigations led him to look at the personal side of what makes executives tick and into the executive decisionmaking process.

“And the only common factor in all failures is that it is people who make the decisions. It does come down to that – as humans we like to think we are rational people making rational decisions. But that’s not correct. Markets are not rational and people at the decision-making end of the business make their decisions based around their own biases, their experiences, personality, history and ego.”

The research also found Weir looking into the way the human brain works, the biases we all have and the impact of emotion on our decisions.

One conclusion he has come to is that problems within a company do not happen overnight. Weir likens it to a children’s book called Who Sank the Boat? by Pamela Allen where a donkey, sheep, cow and a pig all squeeze into dingy and when, last of all, a wee mouse jumps onboard, the boat sinks.

His research found that in cases where major business problems occur the cause of the problems tend to have been building up for years and it’s the equivalent of the mouse which finally means the problems can’t be ignored any longer.

Sandy Maier, an experienced independent director and chairman, agrees that generally these problems should not be unforeseen; it’s not like a meteor coming out of the sky. These things don’t happen suddenly, it is the problem recognition that can be sudden and these problems arise when something is missed by somebody.

Maier’s advice to senior executives who may suspect things are not going as well as they should be in their own business begins with what he calls problem identification and recognition. Stop putting off looking at, or admitting, there is a problem. This, he says, requires intellectual frankness and that is not always present in companies.

Not admitting to there being a problem can come from a lack of experience to understand what is going on or the senior executives may have done something that could have led to this situation. Putting your head in the sand may happen because of a lack of confidence; lack of experience or because you feel defensive.

Maier hastens to add that CEOs and senior management are people who are well motivated and well-intentioned and

they may be the victim of the situation.

But once you have recognised there is a problem the next step is to dig in and find out what the root cause is. Companies that become aware of a problem must then ask if it’s an environmental problem? Is one part of the company a problem? Is it one person? Or is it a competitive problem?

But Maier says there are a number of things that can impede your understanding of the analysis and while you may suspect something is wrong, people are busy, working in fast-moving environments and it’s hard to find the time to really analyse things.

“It’s amazing, but it’s not amazing, how people miss these things.”

Once people realise they have a problem, and have dug into the causes, Maier says the question then is to what extent the problem is solvable. Are you looking at a short-term loss? Can you close something down? Can you replace someone? Once you have the problem recognition, and root cause analysis you need to look at what the solutions might be.

He says others might describe it as: Where are we now? Where are we going? How are we going to get there?

Maier says a CEO has to be objective and think: “Am I having trouble recognising the problem because I caused it, or because I didn’t do anything about it, or just preferred not to think about it?”

It’s also important to realise the cause of the problem may not necessarily be figured out quickly and accurately, the first analysis might only be 60 percent right.

“You need to be mentally flexible to get to the root cause and keep digging.”

Problems, he says, are part of the CEO role. Everything might be humming along superficially but in most businesses the reality is that people can fail, systems can fail and markets change constantly.

He says you have to be alert and mentally agile, but a bit cynical too.

Kevin Gaunt, a former partner at Deloitte in the management consulting practice and a long-term member of IMNZ, agrees that what he has seen many times is that the CEO or the board are often mired in the situation and do not recognise what is happening. They might see it happening but psychologically they do not accept it because, like us all, they are human beings.

He likens it to the frog in boiling water – heat it slowly enough and the frog won’t notice until it’s too late.

“It is really important not just to trust your own judgement, go and find external advice, because you have a huge investment in saving yourself as well as saving the organisation.” Somebody outside the organisation can ask the right questions.

“You need to bring someone in to challenge you and challenge your assumptions. The board may think it can do that, but it can’t because they are invested too. An outside perspective is important for the board too.”

Gaunt says that with external advice you have to be cynical about that too – you must find the right advice.

Go back and make sure you challenge yourself to make sure you understand what you are in business for. Many organisations tend to drift in a difficult situation. But in a difficult situation you have to be really clear on your objectives and that, in turn, will help you to make the right decisions. It also makes sure people in the organisation are concentrating on the right things.

He also suggests you look through the organisation and identify where the talent is and focus on that talent.

Weir’s advice to senior leaders, when something looks to be going wrong, is to be humble enough to say ‘maybe we got it wrong’.

He says liquidators say often of the biggest problem is hubris or arrogance and senior management believing they are right. They have huge investment in their strategy and will ‘ride that to its death’ rather than say they got it wrong. And, he says, as the senior management jobs are on the line too it’s very human to think that if it comes good, he or she will be okay.

Weir points out that when you are making a major decision where risks are involved any analysis of a project or risk assessment means you are “guessing the future” – it’s an educated guess and no one can predict what lies ahead.

So you need to think about what will be the signs that things aren’t going to plan. Think to yourself – if it’s not going well, these are the signs we need to look out for and be prepared to know how you will act on that quickly.

He says it’s a matter of not sitting on your pride but requires candor, courage and the right processes.

At a very basic level we are all human and we all have limitations and biases.

Maier’s advice to CEOs, noting that a CEO can be in the wrong place at the wrong time and some people have been in jobs where most things have gone right, is to be realistic about your talents, savvy about the sector, savvy

“It’s a matter of not sitting on your pride but requires candor, courage and the right processes. At a very basic level we are all human and we all have limitations and biases.”

what you are trying to do. “Once you are in a role, look around, be suspicious and ask a lot of questions, use your commonsense.”

CEOs need people skills. “Most of us expend all our energy on working with other people and an organisational staffing decision which puts the wrong person in place and then overburdens them with work, is when things can go wrong.

“CEOs need to have real knowledge in a huge number of areas, but know what you can do and be willing to have people around you who have stronger skills in some areas than you.

“It’s a tough game and you need team support, EQ and people skills.”

One area where he feels New Zealand falls down is that we are bad at reference checking, we are a bit complacent and trusting and he believes that despite good references companies should do some real digging.

He says every company has had an experience of someone saying ‘I can’t believe you are hiring that person’. You need to look further than the CV. That said though good candidates can get trolled for the wrong reasons.

Is that common in NZ? He says ask anyone in governance and you will find some horror stories; it’s more prevalent than people think.

Dr Ralph Bathurst, a senior lecturer at Massey University’s School of Management, when approached for the story, offers a somewhat alternative view of leadership.

He’s an orchestral musician and his teaching and research work has an emphasis is on the arts and how the arts encourage collaborative leadership approaches and organisational development.

He sees business and management as very resistant to modernising influences saying fundamentally organisations are resistant to staff creativity.

He doesn’t see the need for leadership, as it is traditionally characterised, and sees business as inherently conservative; businesses generally want to avoid the appearance of chaos or complexity because that affects the bottom line. “But ultimately that avoidance stifles us as humans; as people engaged in the development of that organisation.”

As a musician Bathurst believes you only need leadership when there is an unknown problem or an unknown solution.

He believes that the collaboration needed in a symphony orchestra is the model of the future. Once you take the conductor out, it is complex but it’s still a coherent whole and a determination of how business in the future might work. Listening for the gaps, opening space (for the instrument that is playing); how an orchestra collaborates to make the music.

“The model that people default to is a sports team but a symphony orchestra is more nuanced.”