CEOs starting to run out of answers

2009

Senior-level managers might be at pains to present a bullish confidence to their workers but, deep down, they are deeply concerned about the ability of their chief executives to steer them safely through the current economic carnage.

Even more worrying, their fears may not be misplaced. For many of the chief executives who are actually at the helm fear they have run out of answers and are now effectively sailing blind and hoping for the best, such is the depth and gravity of the global economic crisis.

A poll of more than 800 senior managers by New York management consultancy Booz & Company has found that most feel they are struggling to make the right moves in the current economic environment, with many wavering in their confidence of leadership's ability to navigate the crisis.

Four out of 10 doubted that their leadership had a credible plan to address the economic crisis, while an even greater number, 46 per cent, were unsure whether their leadership could carry out the plan, credible or not.

Perhaps the most worrying finding was that a third of those at chief executive level also did not have confidence in the plans, even though, presumably, they had written them themselves, said Booz & Company.

Astonishingly, nearly two thirds of hard hit companies were still not doing enough to ensure their own survival, such as accelerating efforts to dispose of assets or secure external funding, argued the consultancy.

Among those companies that stated they were financially strong, a quarter was not taking advantage of opportunities to improve their position in the crisis, it added.

And, while more than half of the managers polled did expect their companies to emerge from the crisis stronger, this optimism did not square with their balance sheets.

Moreover, often there was a disconnect between a company's financial or competitive position and its strategic response, argued the research.

"Companies have focused on the near term, some at the expense of the long-term opportunities. The strong need to go long. They need to create a view of new industry structure," stressed Bill Jackson, Booz & Company senior partner.

"Many strong and stable companies are playing things too short-term oriented for the moment. The really struggling and failing companies have reacted dramatically and some have already moved into bankruptcy," he added.

The research, which questioned managers in 65 countries, also explored how well senior executives ranging from CEO to two layers below CEO were handling the global economic crisis, the actions they were taking and what impact this was having on the their social responsibility agendas.

It graded firms into four categories: "strong", characterised by both financial and competitive strength, "stable", or strong financially but weak competitively, "struggling", in other words weak financially but strong competitively, and "failing", or weak in both areas.

In many cases companies were failing to follow the course best suited for them, it found.

While struggling and failing companies would be expected to accelerate efforts to improve working capital positions, slash overhead, drive process improvements and renegotiate deals with suppliers, surprisingly many were not.

Between a quarter and a third of managers in firms in this position said their companies were pursuing such strategies no more aggressively than they had been before the crisis.

Stable and strong companies should be more focused on cutting costs across the board and conserving cash than on opportunities to strengthen their competitive positions, Booz & Company advised.

While stable companies would be expected to capitalise on the crisis by buying companies with compelling products or brands but weak finances, or pursuing other growth initiatives, more than a fifth was pulling back on mergers and acquisitions, as was the same percentage of strong companies, it added.

A similar proportion of stable companies was also investing less in new products or slowing moves into emerging markets.

"A real issue is with the 'tweeners' – companies holding on by their finger nails. They have reacted to the near term cash issues, they are working on renegotiating their bank covenants, but one wrong move and they are done," said Jackson.

"Their boards are worried, since this crisis is new and different to most executives' experiences," he added.

The survey also found clear evidence that green issues were now being firmly shoved on to the back-burner now that it was simply a question of day-to-day survival.

Four out of 10 of those polled expected "green" and other corporate social responsibility initiatives significantly to slow because of the downturn.

This "pullback" was especially pronounced in the transportation and energy industries, with around half of managers polled in those industries saying CSR agendas would now be delayed, the research said.

There was also an issue of whether managers, despite everything, remained overly optimistic about their long-term chances of survival.

More than half of those polled – 54 per cent –believed the crisis would ultimately have a positive impact on their companies' competitive position.

This sense of optimism was highest, at nearly six out of 10, among managers in emerging markets.

By comparison, 53 per cent of managers in North America and 52 per cent in Western Europe felt this way.

Perhaps it is human nature, but three quarters of managers polled also appeared to have a distinctly optimistic view of their companies' financial strength. In fact, just 13 per cent admitted to working for companies that were financially weak.

Among managers below the CEO level, more than half felt their senior leadership lacked the capabilities to carry out their crisis plans, a point that seemed strangely at odds with the optimism expressed by many respondents, argued Jackson.

"Many top executives are still reacting and are not ahead of the curve yet. They are still operating with their cumbersome processes and lines of communications," he pointed out.

"This is slowing them down. They are do not getting the right homework fast enough, nor are they able to enact decisions quick enough or to the extent they expect. This crisis calls for a new, more direct leadership approach," he added.

Senior leadership need to take three key steps if they wanted even a hope of coming through the crisis intact, Booz & Company recommended.

The first of these was, simply, to get an accurate measure of the environment and the company's position in it.

"An accurate self-diagnosis is critical to end the cycle of inappropriate strategic actions," it advised.

Then it was important to design a good plan that did enough, but not too much, when time was short and resources were likely to be diminished.

"Identify a limited set of straightforward initiatives that have the potential to make a difference quickly," it recommended.

Finally – and possibly hardest – it was a question of communicating and executing successfully so that confidence could be regained, from sceptical managers to risk-averse shareholders, it argued.

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