They were just five small words, but they resounded around the world - and nearly crippled one of the world’s biggest companies.
The Deepwater Horizon catastrophe was the biggest marine oil spill in history, devastating the Gulf of Mexico and resulting in the death of 11 workers. In an unguarded moment, BP’s CEO Tony Hayward commented on the company’s clean-up efforts with the infamous words: “I’d like my life back.”
Hayward’s crass response didn’t cause the fateful blowout, but for most observers it summarised the deep failures within BP’s leadership team that led to a disaster which left the company’s reputation as tarnished as Louisiana’s oil-soaked beaches.
History is littered with examples of businesses that have folded following a major reputational crisis; yet there are many organisations that have survived major scandals and recovered or even enhanced their reputation thanks to their effective response.
Not every business challenge is caused by senior leadership: often it is the result of external events outside leaders’ control. Yet wherever the blame for the original crisis lies, the leadership is responsible for acknowledging past mistakes, restoring confidence in the business, and navigating it out of its predicament. This is impossible if leaders have lost credibility, either through causing the strategic errors that led to disaster in the first place, or through their ineffective response to the crisis.
Why do leaders fail?
Whether it is through causing the original strategic error, or in their response to a crisis, leaders usually fail because they have lost focus - either on their core business or on the external market.
‘New Coke’ provides a great example of the former: Coca-Cola’s doctoring of its famous formula in the 1980s alienated loyal customers worldwide, and is still used in management textbooks of the dangers of corporate pride and short-sightedness. Often, these errors are caused by institutional arrogance and overconfidence, but even when they are merely well-meant mistakes, the result is the same: a crisis of confidence in the organisation’s leadership.
Similar results can happen when leaders take their eye off the ball and focus exclusively on what’s going on inside their business. There are countless examples of this in the modern world: as technology has enabled new players to disrupt long-established business models - think Amazon, AirBnB and Spotify - it has forced traditional businesses to react rapidly or face irrelevance.
How do they lose credibility?
Loss of credibility comes when stakeholders and customers ask management why they didn’t spot internal or external threats such as the examples given above. The results of this ‘credibility deficit’ are both quick and profound, affecting everything from brand reputation to employee morale, investor confidence to strategic partnerships. Engagement and productivity plummets, staff turnover rises, innovation evaporates, and large contracts are lost as customers seek to distance themselves from the newly-toxic brand.
What is even more damaging is that once confidence is lost in the leadership, the crisis becomes self-reinforcing. In response to criticism, leadership teams often become extremely insular, scrambling to shore up their defences and, in short, doing everything but address the root causes of the problem. Instead, they fall back on decision-making by committee, with strategy influenced by the climate of fear that hangs over the business, and the chain of command becoming taut with indecision. The result is business stagnation, which can get worse with the damaged reputation that follows.
Leaders or losers?
When faced with a severe loss of credibility, the easiest thing for a company to do is to get rid of the people at the top who are seen as contributing to the organisation’s predicament. Although it may well be appropriate to remove one or more senior employees, doing so in an unstrategic, unplanned and reactive way can compound the problem by contributing to the perceived sense of panic that surrounds the organisation.
Difficult as it may be, it’s crucial that organisations in crisis remain calm and resist the urge to overreact with drastic decisions. Even in the face of daily pressure from investors, media, customers and other stakeholders, organisations must take the time to investigate the causes of their crisis and determine who is responsible. As football fans know better than most, it is the easiest thing in the world to fire the manager and appoint a new ‘saviour’, and while this may be an appropriate response, with a positive short term reaction, the organisation may also be losing the only people who have the required knowledge and experience to dig the business out of the mud.
Good leaders with a proven track record do not become incompetent overnight; and even if they have been guilty of strategic oversight, they may well be the best people to provide the necessary analysis of what has gone wrong and to frame the organisation’s response to internal or external challenges.
Restoring credibility in leadership
Having identified the causes of the current crisis, a business must develop a clear and aggressive communications strategy for all stakeholders, from customers to employees, investors to suppliers and partners. The organisation must demonstrate not only that it has identified what’s gone wrong and their plans to rectify the situation, but also that they have the right leadership in place to effect the necessary changes.
These decisions must be informed. By looking at what went wrong and where, the organisation can give credence and credibility to the strategic plan that will carry the business forward. Above all, seeing them through this requires leaders who can command confidence and can effectively communicate the strategy.
But where is this new leadership to be found? The answer is for businesses to invest in a development programme that identifies potential leaders and grooms them for future responsibilities - including potential crises. The benefits of investing in strategic leadership talent should be obvious, but many businesses fail to take the necessary steps such as appointing strategic talent directors with an external view of leaders, and taking responsibility for executive coaching and professional development.
This will make sure that the organisation fosters its own internal cadre of leaders: people who not only have the necessary skills to pilot the company through its period of crisis, but instilling a cultureof good leadership and best practice at the very highest levels of the organisation. This will go a long way in helping the business avoid strategic mistakes in the first place, while developing people who can effectively handle any crisis or controversy that should arise in the future.
Businesses must therefore develop their own internal team of leaders, brought up from within the organisation. By doing so, they can create a truly invaluable resource of potential leaders who have not only the skills and the knowledge necessary to restore credibility, but an emotional stake in the business’ success - a key requirement in restoring confidence.