Leadership Tangles Blog

Executive Leadership Strategies When Volatility is the New Normal

Posted by Marcia Ruben, PhD, PCC on Thu, Jul 22, 2010

VolatilityConsider this. Economic pundits have declared that volatility is the New Normal. Markets are fluctuating wildly day to day. Executive officers, guiding their companies, are afloat in a sea of uncertainty. Investors generally take fewer risks during volatile times. It takes guts to invest when the downside may be greater than the upside. It also takes courage to make major business decisions.

Negative Emotions Make Things Worse

My research suggests that negative emotions like fear lead to actions that further complicate human dynamics. For instance, a leader paralyzed by fear decides not to make any decisions, for fear of making the wrong one. Others take this cue and also discuss but don’t settle on a direction. Analysis paralysis sets in. Decisions not made at one level are escalated upwards. Soon, the senior team is being asked to decide about minor expenditures. Business grinds to a halt.

My research also suggests that effective leadership in volatile times requires that leaders be adept at sensemaking, that is, making sense of what is important and not, and monitoring risks along the way, are more successful during volatile times. Those with emotional stamina, or the ability to recognize that they are afraid, and act anyway, are also most successful.

Some of us are more adept than others when things are going well, or are routine. It is when we are living in a constant state of non-routine that we are tested.

We can learn a lot from jazz musicians. Jazz musicians are typically classically trained. They can read and play music flawlessly. A good jazz musician learns how to sense changes in the routine score, and by careful listening can adapt, and improvise, to make beautiful music. The skill of being attuned, or making sense of changes, is critical to producing good jazz music.

This skill of being attuned to one’s own emotions, the emotions of others, and changes and fluctuations in business conditions is also critical. Many years ago, I managed the implementation of a risk and empowerment training program at a major high technology corporation. We taught executive leaders that one should never bet more than they were willing to lose. When volatility is the new normal, it is important to hone your risk taking skills.

How prepared are you to thrive in this New Normal?

Are you a good risk taker? How adept are you at making sense of a volatile and uncertain environment? Can you improvise and make course corrections? These are just some of the skills required to thrive.

describe the imageExplore how prepared you and your team are to succeed in this current business environment. Contact me for complimentary 15 minute telephone consultation. 

Topics: Executive leadership, Fear, volatility, risk, complexity

Merrill Lynch's Culture of Fear Led to Strangling Tangle

Posted by Marcia Ruben, PhD, PCC on Sun, Nov 09, 2008

In today's New York's Times, Gretchen Morgenson recounts the rise and fall of Merrill Lynch. I read the article and said to myself, eureka, this is a Hush-Hush Tangle! According to my definition, a Hush Hush Tangle occurs when critical information is not shared, and lines of communication are cut off. Everyone knows that there is a problem but no one talks about it. It becomes a tangle because human dynamics are further complicated by a very complex business challenge. Complexity doesn't do justice to the complicated nature of collateralized debt obligations (CDO's). CDO's are a financial product group comprised of derivatives. Merrill Lynch became enchanted with this product and it led to the company's precipitous fall.

According to Morgenson, E. Stanley O'Neal, Merrill's CEO, is described as an autocratic leader. Two of his lieutenants discouraged open communication between the risk management arm and the sales arm. One of the lieutenants was Osman Semerci. Semerci she wrote, "often played the role of tough guy . . . silencing critics who warned about the risks the firm was taking." He also "would chastise traders and other moneymakers who told risk management officials exactly what they were doing." We can only infer that important lines of communication and necessary discussions to determine true risk were cut off. Most likely, not talking about the obvious, unexpected, or anything out of the ordinary became the norm. Some employees described Semerci as intimidating. Like the frog who gets comfortable as the temperature of the lukewarm water rises, Merrill employees no doubt became used to the culture of fear and didn't speak up.

A second key figured appears to have contributed to the culture of fear. Mr. O'Neal's second lieutienant was Ahmass Fakahany. According to Morgenson, who spoke to ex-employees, "Fakahaney had weakened Merrill's risk management unit by removing long-standing employees who ‘walked the floor' talking with traders and other workers to figure out what kinds of risks the firm was taking on." Key lines of communication were cut off, concentrating power in the hands of those whose sole concern was increasing revenue and profit, no matter what the risk. There were no checks and balances.

So what's the lesson here? The more complex your product and business, the more you need diverse views, a culture of openness, and a pragmatic risk strategy. Merrill Lynch's Hush Hush Tangle turned into a Strangling Tangle. What if the company had been led by a more collaborative and open leader? What if the risk management people had gathered together, studied the CDO's, and realized much earlier that it was far too risky? And what if leadership had acted responsibly and listened? Bank of America now owns Merrill Lynch.

To read Gretchen Morgenson's account, click here.

Topics: Fear, risk, culture, Hush Hush Tangle

Marcia Ruben, RCG

Marcia Ruben Ph.D, PCC, CMC

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