Leading in Hard Times

BY LISA CHADDERDON

Seldom has being an effective leader been so important -- and so difficult. An economic downturn that began earlier this year has been compounded by the attacks of September 11th and the ensuing war against terrorism. Layoffs and cost-cutting are the order of the day. Morale and productivity are suffering. So how can company leaders improve employee morale in uncertain times? How do you keep employees feeling relatively secure when you can't guarantee that business will get better soon or that there won't be more layoffs? To find some answers, we spoke with 10 CEOs across the country about how they are leading their companies. All of them offered the same two pieces of advice: Be a straight shooter and be visible. Their opinions on other issues varied. We culled their best advice to come up with these 10 suggestions for how to be a leader today. 1. Practice open book management. If you don't practice open book management at your company, now may be the time to start. Many of the CEOs we talked to espoused the value of open book management during uncertain times or downturns. The theory: if employees understand the business and its finances, they better understand their impact on the company's bottom line. Lanny Goodman, a business consultant and president of Management Technologies, Inc, has worked with CEOs nationwide for over 20 years. He's seen time and time again that "the best antidote to fear is communication, openness, and information," he says. That means opening up the books and giving people the lowdown on the company's financials. "If you have to have a layoff, people will understand better if they understand why it had to happen. Show them the fixed costs, the profit numbers, how when volume falls below a certain point, the company starts hemorrhaging cash. Give them the hard numbers in the form of simple charts and graphs - and make it simple to understand. If there's no mystery, people won't sense that they are victims," he says. Deborah Clifton, CEO of The Integrity Group, a content development company based in Houston, shares her company's numbers with employees in an internal newsletter. She often charts the numbers in a graph, and explains what employees are looking at. "I make myself accountable to them by sharing the numbers," she says. "I show them what's going on, what the numbers mean. If the numbers aren't good news, I explain what I'm going to do to fix things - whether it's cut costs, increase sales efforts, whatever it is. And then I give a status report a few months later to share the steps I've taken and what has improved or changed as a result." To make sure that all her employees understand what the numbers mean, she keeps the graphs and explanations simple, and ensures that group managers understand the figures well enough to answer questions from their staff.

2. Focus on one or two key metrics. Alex Mann, CEO of Mann Consulting, an IT consulting firm in San Francisco, has seen his share of tough times in 2001. The Bay Area has been hard hit all year, especially in the IT sector. After a round of layoffs, this summer, he and his business partner (and brother), Harold, looked for a key metric that, if hit, would ensure that everything else fell into place. The Manns discovered that their essential metric was billable hours. As a result, Mann now publicizes weekly billable hours goals for the entire staff. And it's working. "The staff was fighting against uncertainty after the downsizing this summer. They were wondering, 'am I going to be next?" Mann recalls. "It's when you're in the dark that you assume the worst. Now they're not in the dark - they know if they make the numbers, they are contributing to making sure the business is doing OK. Consistent, predictable results are the best antidote to tough economic times." Since focusing on billable hours, employees are less worried about the economy and downsizing. And there's been a bonus benefit, too: "We're a far more efficient firm now then we were six months ago," Mann says. 3. Be a straight shooter. All of the CEOs we spoke with said that it's essential to explain the rationale for changes (e.g. layoffs), to convey the facts simply and clearly, and not to gloss over things or make them sound less serious than they are. "Employees have extraordinarily good 'crap detectors," laughs Goodman. "You've got to cut though the crap and tell them exactly what's happening, why, and what you're doing about it. Then genuinely ask for suggestions from them." Mann agrees, and cites info found on the Web site F***edCompany.com as a prime example of how not to communicate. "You know how F***edCompany prints all of those CEO emails about layoffs -- and they all sound like jokes?" Mann asks. "You have to avoid sounding 'CEO-like.' Instead, you must convey sincerity, and avoid communication that creates divisiveness and insecurity." Mark Shane, CEO of Lastar, a networking services provider in Dayton, Ohio, has laid off more than half of his staff in the past year, taking the company from 235 employees to 93. Lastar then cut all remaining employees' wages to try to avoid further layoffs. Shane says that being direct was the only way to go. "We communicated to people the direness of the situation, reiterated the challenges ahead, and told them straight-up what was going on. No false promises, no assurances." Les Trachtman agrees, based on his experience as CEO at Transcentive, a Shelton, Connecticut-based provider of equity compensation management plans. He initiated two rounds of layoffs in the past year, the first one comprising 18% of the company. Still, he says, morale isn't down. "We've been working very hard at keeping morale up," he explains. "I've found that as long as we dealt with employees fairly and were up-front about what was happening, people are pretty understanding. We made sure they understood why it was necessary. We honestly explained the rationale and the facts." He also involved managers in the downsizing decisions. "We made sure managers clearly communicated to their employees

that they (the managers) had been involved in the layoff decisions, and were on board with it. Employees then understood that decisions were being made with full knowledge, because the manager who knows them and their work was helping to make the decisions." 4. Find your company's communication "sweet spot." Not only is the way you communicate important - but how much you communicate is important, too. "Finding the sweet spot means figuring out what's too much communication, and what's too little," Clifton says. "Find out what combination of reassurance and facts is best for you. Each company is different. You have to find where that sweet spot is for your own company." What's the sweet spot for Clifton? She sends a monthly newsletter to all her employees giving an update on what the company's doing, and on which goals set out in past newsletters have been achieved. "I've found that the newsletter needs to be no more than one page in length, even a little shorter than a page," she says. "And it can't be full of warm and fuzzy stuff. People want the facts." She also periodically sends e-mails with updates. Mann, too, has a philosophy on how best to communicate with his company. He says, "I've found that the best method is to use the greatest brevity in writing, and the greatest comprehensiveness in oral communication." 5. If you make changes, you need to show improvement ? quickly. If you're making changes to try to improve business -- especially if those changes involve sacrifices like layoffs or reduced wages -- you need to quickly show positive results. Clifton makes sure that her employees are aware of positive results as soon as possible. "When I make a change that I know is going to help the company in the long run, I often tell employees - either in person or in one of our newsletters - that the changes being made are 'making us stronger as a company," she explains. "And when the proof that we're getting stronger is evident, we really celebrate it. Maybe it's a new, big client; maybe it's a dramatic improvement in productivity numbers. Whatever the case, if you make that kind of claim that the changes are going to help your company - then you'd better show radical improvement, and quickly. For us, anything longer than 3-4 months is too long." Lastar CEO Shane agrees: "It's a 'show-me' situation." 6. Re-focus on your customers. When times are tough, company leaders and employees should reconnect and keep in touch with customers more than ever. "When things starting getting bad in the economy, we created a whole new team called 'Customer First' that proactively contacts our customers and sets up a sort of customer concierge in an attempt to increase the bandwidth of our communication and the richness of our customer relationships," says Trachtman. "No selling, just seeing how we are doing." Trachtman's been hitting the road, too. "Most of my plane trips have been to see existing customers, and just shaking their hands, asking how we are doing, and thanking them for doing business with us," he says. " We have 3000 of the finest companies in the world as our

customers and figured that if the economy was going south we ought to protect the gold vein of our business, our existing base." This focus on customers has set employees' minds at ease because it demonstrates that the company's priorities are in order - that the company isn't spending so much time on capturing new business that the existing customer base gets short shrift. And he lets employees know that it's working. "We try hard to publish success stories internally from these efforts," he says. "Everyone (especially me) loves to hear clients say nice things about us." 7. Be visible. Trachtman has been spending a lot more time walking around the office. Mann now has many more one-on-one meetings, and fewer all-company or group meetings. Other CEOs we spoke with said they've done the same. They keep their doors open, walk around the office, and talk with employees. If you're not visible, you give the impression that you're hiding -and employees will wonder what you're hiding from them. "Walking around the office more reinforces the message that we're all in this together," says Trachtman. "We talk about what's going on in the world, and what's going on with them and in their lives." Clifton, too, has made a conscious effort to be visible - despite the fact that her office is separated from the area where many of the company's employees work. "It's important that people know they have a leader, and feel that leadership close to home," she says. 8. Fear of flying? Give it time. After September 11th, many people are afraid to fly. This can create problems for those companies whose employees tend to travel a lot. If you can't implement solutions like videoconferencing to reduce travel requirements, then you need to address the fear head-on. If you have employees who do not wish to get on planes, the first thing to keep in mind, says Trachtman, is to give it time. "We're not forcing anybody," he says. "If you can, find a substitute to go. Or delay the trip if you can." If it solves some of the problems, increase the acceptable drivable-window: if anything over a 2-hour drive used to mean flying, increase it to five or six hours of driving. If taking the train is an option, then suggest it to those employees who don't want to get on planes. Trachtman also recommends setting an example. ""I took the lead by getting right on planes after it happened," he says of the September 11th attacks. "In those first few weeks, travel was actually pretty quick and easy, because the airports were pretty empty. And I communicated directly back to everyone about how easy all those trips have been." 9. Show employees they are still valued. If you have to reduce your workforce, or reduce wages, then it's important to demonstrate that your company still values employees. For example, Mann implemented a new incentive plan this past summer. The system provides additional compensation for employees when weekly

billable hour goals are reached. It keeps employees focused on the company's performance, and how they each can contribute. Shane implemented a variable compensation program this summer as well, after Lastar had a round of layoffs and cut wages across-the-board. He says the incentive program helped maintain morale. "Most employees intellectually understood that the wage cuts were intended to prevent further layoffs. But when it comes time to sit down and pay the bills, well, understanding it doesn't help get those bills paid," he says. "People understandably were wondering, 'Am I still valued by my company?" To show them that they were indeed valued, Lastar set up a variable comp plan for everyone at the company whose work has an indirect impact on the bottom line. "We wanted to give people a way to make those lost wages back," he says. "So we set up this program to provide financial rewards to employees if the company's performance improves." At Calence, a Tempe, Arizona-based company that specializes in building and managing networks, CEO Mike Fong recently faced a tough decision. Although Calence, a threetimeInc 500 company, had avoided layoffs through what Fong calls "creative cost-cutting," times were getting tighter. So Fong told employees the company would be instituting a voluntary leave program that might be followed by layoffs. In the following days, several employees asked, "We don't want to have voluntary leave and layoffs -- why don't you cut my base pay instead?" Enough employees expressed this sentiment that Fong proposed a voluntary program in which employees could, for the fourth quarter of 2001, take up to a 10% pay cut in exchange for an equivalent amount of stock options in the company. Twothirds of the company elected to participate. "Everyone was willing to pitch in," says Fong. "The company bought us time, and it was yet another employee-driven way that we got creative in order to save money without losing people. In fact, the majority of the cost-cutting we've done in the last year has all been a result of cost-cutting ideas that came directly from our employees. It's a part of the culture here, which is behind the fact that we have less than 2% annual turnover in an industry where the average is 30% a year." 10. Take note of the little victories. It's the little things that make a big difference when times are tough: New business, new clients, improvements in sales numbers. At Mann Consulting, reaching the weekly billablehours goals is reason to celebrate. "Setting short-term goals makes achieving them surprisingly attainable," Mann says. "People enjoy the little victories - it's a weekly satisfaction, it's tangible proof that the work they're doing is creating positive results. And that's a reason to celebrate." Mann adds, "You have to find the things that will give the survivors of layoffs a sense of security. Because you can't enjoy victories unless they're set against a backdrop of security."