Posts Tagged ‘early warning signs’

I am in a big believer in being prepared for reputational damage or crisis. My book on Corporate Reputation: 12 StepsTo Safeguarding and Recovering Reputation is all about learning from crisis and being ready for the next one.  As Weber Shandwick’s most admired stumble rate declares, every company should plan on some reputational mishap or misstep in the future. Nearly four in 10 companies have lost reputational status in the past year. I just read an article sent to me about the National Preparedness Leadership Initiative at Harvard. The initiative’s goal was to learn lessons from leaders who have faced crisis situations such as terrorist attackes (Israel, Madrid, London), natural disasters (Hurricane Katrina), health scares (pandemics), oil spills (Deepwater Horizon), etc. 

One of the first lessons they uncovered applies to companies and institutions and is:

“…that bad leadership – much like smoking – is a public health risk factor. Whether in the aftermath of a terror attack or a natural disaster, we have seen that when leaders don’t perform well lives are lost and people abandoned.”

And the second lesson is getting everyone on the same page so everyone can work quickly, effectively and efficiently on behalf of a common and shared goal. 

“Working together after a disaster requires forging bonds before a disaster.” 

Third, and a powerful lesson for companies, is to “expect every citizen to participate.”  Leaders have to listen no matter how soft or weak the signals are. And these early warning signs need to get to those who can act and whose job it is to protect reputation. Empowering employees is critical to averting reputational disaster. As the National Preparedness Leadership Initiative found, “citizen bystanders” can make all the difference as we saw with the shoe bomber and underwear bomber airline incidents of the past few years.

“We should regard these heroes as leaders in their own right.”

  Interesting leadership tactic surfaced when I was reading the New Yorker article on James Dyson of Dyson fame. Dyson forbids the writing of memos at his administrative headquarters so that people have to talk to each other. Since it is an open office, sounds alot easier than the usual dispersed office infrastructure. But I thought that he might just have a good idea. Years ago I recall reading how IBM’s former CEO Lou Gerstner forbade internal memos when he found out early on how much time people spent on them instead of dealing with customers. He wisely regarded this as an early warning sign.  It was just a small part of the things he changed early on in the giant’s turnaround. This practice resonated with me because earlier in my career I worked for a company where the internal memos and internal toasts made or broke careers. It was an art form unto itself and I learned to take it very seriously. When I went to another company, I was surprised how little it mattered as long as the message was clear and the writing grammatical. This also brings to mind a company where they took out all the elevators and made people walk the stairs so they would run into each other and interact. Not the best idea for skyscrapers but a good idea nevertheless. The fundamentals are always the bottom line in leadership.

  Harvard Business School’s recent Working Knowledge newsletter has a terrific Q&A with HBS history of business professor Richard Tedlow. It is about the big D word…Denial. The focus of the interview is how CEOs deal with reality and what happens when they do not see the writing on the wall. HOw did they miss shifts in their industry? Did someone forewarn them? How could they have missed the tell-tale signs of impending disaster if the company had been so successful? Rightfully so, Tedlow says that the problem with denial today is that the costs are so much higher. And that they are. Reputation stumbles and performance blow outs set your best people running for the exits, customers to jump ship and investors to flee.

There were two quotes that I particularly enjoyed reading in the interview. When asked how companies like A&P and Webvan could have fallen on such hard times, Tedlow paraphrased Tolstoy saying “every company in denial denies in its own way.”  That is certainly true and rings loud when you think about Lehman Bros. and its CEO Richard Fuld.  Then  second quote came when Tedlow was asked how leaders can not see the early warning signs that provide hints that something is not right. Tedlow responds: “It is often middle managers who are best acquainted with new realities. As Andy Grove has noted, these are the people who are out on the front lines while top management is ensconced at the home office, cushioned from the daily reality of the rough-and-tumble of the marketplace. ‘Snow,” he [Grove] wrote in Only the Paranoid Survive, ‘melts first at the periphery.’ Problems, in other words, appear initially at the borders.”  I have got to remember that the next time I get asked why it is important to monitor reputation online.

Tedlow has a new book coming out which proves to be very good. It is titled Denial: Why Business Leaders Fail to Look Facts in the Face–And What to Do About It.  The book cover has a pair of rose-colored glasses. What else!

Very cool research study I just learned about in a WSJ blog. FIT researchers’ Ronaldo Menezes and Ben Collingsworth tracked emails between employees during Enron’s shakedown. They examined  nearly 517,000 emails sent by 150 senior managers during the last year and a half of Enron. They found that there was a spike in email exchange one month prior to the Fortune 500 company’s collapse. They learned that “the number of  active email ‘cliques’ — defined as a group in which every member has direct email contact with each other — surged to 800 from about 100.” Due to privacy laws, they could not dig deeper but this research demonstrates that companies may have a built-in early warning system that might be worth noting. The research is covered in New Scientist.

Early warning systems are very important to detecting clear and present danger that can impact reputations. It would be interesting to determine whether customer service teams have spikes in their emails before a problem unfolds publicly or whether some other company functions (compliance, safety) are chatting more than usual.

Reputations are so vulnerable today that any chance of capturing a problem is worth investigating and testing further. I imagine that Enron top managers had alot to talk about prior to its demise. As we all know, it is often too late by then.