Why 'management leverage' is replacing financial might
Since the fire sale of Bear Stearns, the fall of Lehman Brothers and the credit crisis that strangled businesses and consumers, we have heard time and time again about the need for leadership. The tired sayings are that a good leader "needs to listen" and "have the courage not to waiver on their decisions, even in the face of doubt." Yawn.
Being a leader is much more than that. In a society where rhetoric surpasses truth and passing the buck of blame is commonplace, the leaders in the new economy need to rise above the emotional noise of the markets and focus on how to create long-term value for their shareholders.
Some of the "leaders" at the helm during the go-go, gluttonous credit feast were once praised as heroes. But were they really leaders? No. They never had the qualities. Greed and arrogance were what those individuals possessed.
The true face of leadership emerged in CEOs who were able to recognize they had a problem, dissect the challenge and then set out on a game plan. The leaders in this "new normal" refuse to get caught up in a moment and be consumed by fear and helplessness. Real leaders are visionaries, if you will, taking chances on what they consider to be opportunities, even when the naysayers insist they are crazy. A great opportunity can stare a CEO in the face, but if they don't see it, it is lost.
While many leaders are natural orators, they also need to be trailblazers in the honesty game. People who may use rhetoric effectively may not necessarily have the ability to deliver the action they need to truly lead. Painting a bullish picture may be easier than delivering bad news your clients or employees may not want to hear. Yet the truth must be told.
Larry Lindsey, president and CEO of The Lindsey Group, has had his share of experience both in government and in the public world. He told me while he may be a conservative Republican, he does not let his personal political views cloud his judgment when it comes to his political forecasting. He says he would not be serving his clients right if he did. When he delivered the news to these clients that he thought Obama would win the election, he knew his Republican clients would not be happy. But he had to give them his outlook: that was his job.
Donald Powell, former FDIC Chair, was right when he said a leader "has ice in his veins" and does not buckle under a challenge. But that doesn't mean leaders should forget about their organization's human capital. Treating people with respect is key. Leaders do not bully or scare employees in order to achieve their goals. Honesty and acceptance of what you can and can not control are also a must.
Peter Cohen, CEO of Ramius, sat down with his younger associates and told them that during the height of the financial crisis that in the "new normal" they would not be making the money that they once did and they had to accept it and adjust their lifestyles. Steve Sadove of Saks videotaped a twice-a-month video message called "Ask Steve," in which he shared his own thoughts and invited questions.
Even in the face of a challenge, real leaders embrace it and see the positive side of it. Legendary buy-and-hold investor Ron Baron calls the new economy the best opportunity in his lifetime. "This business is about betting on people, about betting on people who have the long-term vision and are willing to sacrifice short-term profits to make their businesses impregnable over the long-term," he says. And it's that type of thinking that has the leadership of today thriving in the new economy.
Success or failure indeed rides on the shoulders of the CEOs leading their companies. Don Marron says in this new economy, "Management leverage will replace financial leverage." There is no magic formula to thrive in this new economy. While cutting expenses may help, it's not a solution. "You can't save your way to profitability," says Jim Lentz, president of Toyota U.S.A. Innovating and pushing the proverbial envelope is what the free-market system is all about. A true leader should be able to guide their companies to profit in any business cycle.
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Posted by: artg | January 31, 2010 4:41 PM
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