For the most part, there are two kinds of CFOs: those who have managed through a crisis, and those who will. And whether a finance leader can successfully overcome a crisis may dictate the future of his or her company or career.
The topic was the focus of the keynote address at the annual MIT Sloan CFO Summit, held last week outside Boston. Presenter Tom Kolditz — a retired Army Brigadier General, a behavioral psychologist, and the director of the Doerr Institute for New Leaders at Rice University — offered some advice for leadership in crises that was at once counterintuitive and thought-provoking.
The basis for Kolditz’s insights, aside from long experience leading in crises himself, was a 7-year research project he led during 11 years as head of behavioral science and leadership at the U.S. Military Academy from 2001 to 2012. And what he learned, he suggested, is clearly applicable to corporate leadership.
When faced with a crisis, leaders who are in positions of significant responsibility tend to focus on the crisis and the company, noted Kolditz. “You probably assume that the people who work for you, and others in the company, are the same way — they’re trying to fix the problem,” he said. But they’re likely thinking more about whether they can make their mortgage payments or provide for their family, he added.
“The lower you go in the organization, the more people are focused, in crisis, on personal outcomes,” Kolditz said. “You’re distracted by the fact that it’s your job to fix the problem, but you have to understand their perspective, or you’ll say the wrong things to them.”
Not that they don’t care at all about overcoming the crisis. In fact, they do. “But when people feel really threatened, they will set aside all kinds of compliance requirements and managerial policy,” he said. “The basis for a lot of ethical lapses is just that kind of pressure. And the only way you fix it is by talking to them.”
Some leaders respond to such situations by trying to take the pressure off employees, such as by lightening the workload or holding social events. That’s exactly the wrong strategy, according to Kolditz.
“When you’re in a crisis is the wrong time to let up on your people,” he said. “When you slow down in a crisis, people have a tendency to turn inward and start thinking about how they feel about the crisis. And how they feel is going to be fear or anger. You can’t give them a break, can’t give them time off. You need to pour on the gas, and that’s when they’re going to find the breakthrough solutions.”
Leaders also should make it clear that they are in a shared-risk situation with employees, who often assume that if things go south it’s going to be a disaster for them while the leaders will be taken care of. “It’s very important to let people know you have skin in the game,” Kolditz said. “If they sense that, it will be easier to build trust.”
Corporate attorneys almost uniformly tell leaders not to say anything at all to employees during crises. “That’s great legal advice most of the time, but it’s not necessarily great organizational leadership advice,” he noted.
In fact, he added, leaders should avoid the understandable temptation to work behind closed doors in a crisis: “The more you open those doors and let people see you work, the more they’re going to trust you and the easier it will be to lead them.”
Kolditz said that when he started the research at West Point, he assumed the findings would be strictly applicable to military situations. But one day, a few years into the effort, he was speaking to a group of managing directors from a large bank. He told them he was involved in exciting research but it probably wouldn’t apply to the bankers, who merely “move money from here to there and take some as it goes by.”
After listening for a few minutes, one of the attendees raised his hand and said, according to Kolditz, “I don’t think you know what we do with money. You’ve never looked in the eyes of someone who cost their firm $500 million in a deal. That person is not going to work in the firm anymore, is probably not going to work in finance, probably will lose their home, and may lose their family.”
That, said Kolditz, is when he started to get interested in more broadly applying the research. Today, as director of the leadership institute at Rice, he’s focused on creating a new generation of leaders, most of whom will work in corporate roles.
The norm at universities today, says Kolditz, who was a professor at Yale University from 2012 to 2015, is that instruction in leadership, and especially leadership development processes, is “far behind what good companies require,” in terms of rigor and also in terms of outcome metrics: Did the leadership development actually improve a person’s capacity to lead?
He stressed that most of his advice for leading during crises provides a good guide for leading generally. “The only way to be ready for a financial crisis is to lead that way all the time,” he said.