In his reminiscences, the legendary Austrian pianist Artur Schnabel revealed the startling secret of his success, exclaiming: "The notes I handle no better than many pianists. But the pauses between the notes -- ah, that is where the art resides!"
Likewise, a ruler of men must create intangible and tangible value during a major crisis, which often is a structural break. In many instances, this requires counter-intuitive and counter-cyclical measures (see illustration).
Make 'leadership overture'
A great composer starts his opera with an enthralling opening. The helmsman, too, must launch the process of creating value during a crisis with what I call a "leadership overture" that is captivating. True to the double meaning of the word "overture", this strategic lead-in not only sets the right tone from the beginning, but also presents an opening for developing relationships.
The man at the bully pulpit must regularly alert followers to the possibility of major crises and highlight his organization's vulnerabilities, which its shiny facade may hide. He constantly has to look for storm clouds, and when they are approaching, immediately warn all of his people. The torch-bearer also must highlight the great opportunities that arise from a crisis. The fluidity of the situation makes it easier to change things. Oftentimes, veritable fortunes are amassed in extremely turbulent times.
To prepare followers for hardship, the man in the saddle must first endure heroic sacrifices himself. He may forego a large bonus in the current year and even hand back extra payments from the preceding years. Alas, most executives wait until infuriated shareholders threaten to torch the headquarters, and then only make symbolic concessions in the hope that their adversaries have short memory spans.
Those who pull the strings must use the crisis to strengthen the ties with all constituencies. An emergency is a rare chance to accumulate invisible capital, because this is the moment people find out who their true friends are. Unfortunately, many an executive commits the grave mistake of exploiting the distressed. He may sense that the bargaining power of his employees has decreased, since their positions are less stable and there are fewer vacancies outside the organization. Instead of treading a fine line between requiring employees to make sacrifices and protecting them, many fanatic capitalists smell blood and announce excessive wage cuts coupled with much heavier workloads. As a consequence, they destroy trust, goodwill and loyalty.
Other executives might simply panic and lay off a large part of their personnel. They thus break up vital internal networks and lose valuable knowledge carriers who may also possess exclusive external relationships. When things improve, the man in the hot seat will lack staff and have to pay inflated salaries to prevail in the ensuing war for talent. Then, the former employees might use their insider knowledge to exact revenge on those who fired them.
To stimulate creative thinking, just imagine that employment is fixed, whereas everything else can be cut! This exercise might help generate powerful new solutions. At least, layoffs may become the last resort instead of the habitual first executive response. Seeing brutal behavior elsewhere, employees will particularly appreciate a benevolent chieftain who cares for them, and reciprocate with extra efforts.
The great and the good at the top must adopt a long-term view and proactive stance when dealing with other stakeholders, too. A customer in dire straits will greatly appreciate if the top management of his supplier visits him to inquire about his situation and offers generous help. Instead of categorizing regulators as antagonists and trying to manipulate them, tycoons should develop trust-based relationships with these officials.
Make game-changing moves
Having secured the support of crucial constituencies, the guiding spirit is free to use a crisis to step back, recharge, gain perspective, develop new insights and explore new paths. Liberated from manifold shackles, he can launch breakthrough projects that may even create new industries.
Alas, there are many "pendulum executives", who swing from one extreme to the other. They overinvest during booms and underinvest in recessions. Because of time lags, they often receive a double blow. They suffer from overcapacity when demand contracts and lack a sufficiently strong business engine to benefit from an upswing.
Instead of exclusively worrying about the worst possible outcome, the high and mighty must devote attention to the best case, too. During crises, they can extend the organization's footprint and gain dominance, for example, through mergers and acquisitions. Whereas in normal times, anti-trust agencies are watching such moves carefully, government might actually encourage consolidation during a major recession.
In the course of the Asian financial crisis, many Western companies acquired cash-strapped targets in Asia at fire sale prices. In the wake of the global downturn triggered by the subprime crisis, companies from the East, especially China, might take over Western counterparts and occupy abandoned positions.
A crisis is also a good time for developing green field sites. Few competitors will vie for favors from the government. Faced with dwindling investment, authorities will give generous support. Business sovereigns might secure exceptional assets such as prime locations and outstanding talent, which may help preempt competition.
Crises constitute favorable occasions for the prime mover to test and roll out revolutionary ideas. Followers are more ready to change when they realize that they are on a collision course. Of course, it is notoriously difficult to secure funding during a downturn. This should goad magnates into selling sunset businesses to free up cash for more promising ventures. If this is impossible, captains of industry should scrap obsolete assets to rid themselves of stifling legacies.
Major upheavals open a window for unconventional helmsmen to shape environments in other ways, too. Leveraging newly gained invisible capital, a corporate strongman can work with the government to design rules that harmonize the interests of all stakeholders. He thus may produce game-changing outcomes that are sustainable in the long run. Politicians will be more inclined to push for significant legislative changes when a crisis aggravates.
Going against the mainstream, showing unfailing kindness in an increasingly brutal world and investing when others retrench, requires mettle. But those who fail to accumulate invisible and visible capital in bad times will not be able to take advantage of new opportunities when the sun rises again. In moments of doubt, contrarian leaders should simply imagine how glad they will be at the end of their career, when they can proudly conclude: "I did it my way."
"Prof. Kai on Strategic Leadership" Column Number 15. Kai-Alexander Schlevogt (D.Phil. Oxford) is a professor of strategy and leadership at the National University of Singapore (NUS) Business School and author of The Art of Chinese Management (Oxford University Press). Email: schlevogt@schlevogt.com; website: www.schlevogt.com.
