It’ll mostly be known to history as the Financial Crisis, the toxic combination of frozen credit, bad debts, stock market crashes and currency plunges all accelerated by the collapse of investment bank Lehman Brothers, which occurred ten years ago this week.
But the disaster, and how organizations pulled themselves out of it, was much more, experts say. “It was a leadership crisis, a crisis of character,” says Kevin Cashman, Korn Ferry’s global leader of CEO & Executive Development. That’s why leaders can take away lessons from the volatile time no matter whether they are bankers, bakers, or anything else in between.
Here’s are the lessons the crisis, whatever it’s called, etched into the minds of some of Korn Ferry’s experts across the globe.
Hubris is a business liability. Contrary to popular opinion, many smart risk management experts had been sounding the alarm bells in 2007 and 2008, but people in power ignored them. A high percentage of leaders of business that eventually failed had a high level of hubris, says Alan Guarino, vice chairman of Korn Ferry’s CEO and Board Services practice. “They believed their own press and began to feel that their organization worked for them as opposed to them working for that organization.”
Leaders let their own identity be defined by the power they wielded. Subordinates ultimately became afraid to tell the boss that “the emperor had no clothes,” Guarino says.
Be decisive and keep your employees engaged. In a financial crisis, revenue may go into free fall, and the only lever a chief executive officer might have, in least in the short term, is cost containment. “You must be tremendously decisive and cut deeper and farther and more decisively than you think you’ll need to, because cost could be end of your company,” Guarino says.
That said, “you still should invest in your people,” and make engagement and morale the most important things, Guarino says. “In a crisis, fear is ubiquitous, with employees afraid of losing their jobs and nest eggs. A strong. decisive leader inspires his workers and fills them with courage.” Employee motivation, which is important in any situation, is needed in spades during a crisis.
Develop support networks. Senior management roles, especially the CEO, can be lonely jobs already, but most of the time there’s a degree of respect people show to anyone who is an executive. But after Lehman Brothers fell, many financial services executives found themselves treated as pariahs, even if they had nothing to do with the crisis. Their support networks eroded, and many began looking to whomever they could, including executive coaches, for the sense of moral support they previously received from friends, family, and colleagues. “On a micro level, support networks are critical for leaders, especially when leading through change and turbulent times,” says Kirsta Anderson, global solution leader for Korn Ferry’s Culture Transformation practice. Network building is critical to professional development in good times and bad. Employees at all levels should seek out mentors and sponsors to help them with challenges, exchange ideas, or just vent.
Embrace diversity and inclusion. Diversity is the deliberate strategy to bring in different talents from different backgrounds into a workplace. “Think of diversity as the mix while inclusion is making the mix work,” says Andres Tápia, a senior client partner in the firm's Diversity & Inclusion practice.
Indeed, some experts say a lack of diversity and inclusion could have contributed to Lehman’s undoing. Leaders at large organizations can think they knew how their companies became big and successful, “and this can lead to calcified thinking,” Tápia says. “It’s hard to see the threat when you are all in the same club, are part of the same culture and went to the same schools. “It just reinforces your views. But it is the alternative voices that may see it.”
Inclusion and diversity should be part of a leader’s toolkit for the long-haul for demographic reasons as well. Two-thirds of undergraduates are women, as are most graduate students. Women are now 50% of doctors. Those are a leader’s next group of workers, customers, suppliers, and investors.
Balance risk with innovation. “Having a high tolerance for both risk and ambiguity are vital competencies for leadership into today's world,” says Michael Distefano, Korn Ferry’s president of the Asia Pacific region. “However, research also indicates that managing that risk and having a prudent approach to innovation and pushing boundaries is also required to prevent Lehman-level catastrophes.”
Finding that balance can be tricky. On the one hand, you must encourage your people go fast to stay ahead of the competition. On the other, the world remains snake-bitten by accepting too much risk and the long-tailed negative ramifications it has created. “Putting the client first and creating solutions and products that serve their best interest without overextending any of the respective stakeholders involved is the best way to drive an innovation, risk-tolerant agenda and keeps the agenda on track,” Distefano says.
Be agile. During the financial crisis, it was the agile leaders and organizations that were able to weather the disruption by reacting quickly and decisively to market turmoil. It meant jettisoning the status quo and embracing the unknown. Only then could the organization not only survive but, in some cases, thrive.
While there’s no financial crisis now, disruption has become part and parcel of doing business. It might mean realizing that yours is not a financial business, it’s a technological business. Or that you are not a B2B company, yours is actually B2C. And to be agile means, in large part, becoming digitally savvy.
“Digital leadership is an important form of leadership,” Tápia says, “and it’s coupled with inclusive leadership.”