BL 32: Before the Crash

 

Warning: Only Bold Leaders address the problems to prevent a crash...Trust me!  The investigation typically reveals known organizational problems that were never addressed.  Today we will be discussing the top 3 challenges and how to prevent the crash:  Communication Failure, Process Failure, and a Failing Organizational Culture

Everyone needs to understand their role in preventing failure.  They must be willing to say what no one else wants to here.  They must address and fix process failures and leaders must develop a culture that allows for these actions.

 If you cannot effectively listen to opposing views and identify your organization’s weaknesses, you are destined to fail!  Just look at congress….

Everyone in the organization knew that he broke the rules, but nobody was willing to tell the boss because he was so experienced and respected.

I honestly don’t know how many times I heard this phrase over a 10 year period as a crash investigator, as a commander and as a consultant for numerous companies I don’t know how many times I have walked into the President or CEO’s office and heard the same words uttered about challenges the organization faced.

I think it’s important that we put this into context.  In 2001, I received a call that forever changed how I thought of organizational leadership and the unwillingness to address known challenges.  A helicopter had just crashed in a river with 4 souls on board.  Fortunately, they all survived.  The crash was preventable.  I quickly packed my bags and headed to the crash site.  We assembled the investigation team and began our work.  In every crash investigation we first eliminate all potential mechanical issues to ensure there is not system problem that will endanger others flying similar aircraft.  Part of this process is to interview everyone associated with the flight.  The interviews revealed 3 very specific organizational problems which contributed to the crash.  Problems with the crew were communicated, but not addressed.  Known processes were not followed by the organization and the organizational culture allowed for the problems to exist.

The challenge for leaders is to understand that their organization may have similar problems.  In many cases the leaders themselves are the problem.  I think the most epic failure of all times is Enron.  Leaders lied, cooked the books and violated the law.  The failure of Enron drove numerous changes in the way companies account and operate.  It was preventable.  

NPR best tells the story of ENRON’s epic collapse.  Throughout the late 1990s, Enron was almost universally considered one of the country's most innovative companies -- a new-economy maverick that forsook musty, old industries with their cumbersome hard assets in favor of the freewheeling world of e-commerce. The company continued to build power plants and operate gas lines, but it became better known for its unique trading businesses. Besides buying and selling gas and electricity futures, it created whole new markets for such oddball "commodities" as broadcast time for advertisers, weather futures, and Internet bandwidth.

The Enron story was perfect for the dotcom-driven stock market boom of the '90s. With its roots in the utility business, the company enjoyed a solid reputation for old-economy stability. But unlike other energy companies that didn't "get it," Enron thrust itself headlong onto the Internet. The business press ate it up; so did Wall Street, sending the stock into the stratosphere. At its peak, Enron was worth about $70 billion, its shares trading for about $90 each.

All that came crashing down starting last October, when the company admitted that it had misstated its income and that its equity value was a couple of billion dollars less than its balance sheet said.

The company, it was revealed, had made about a dozen "partnerships" with companies it had created, and it used those partnerships to hide huge debts and heavy losses on its trading businesses. At the same time, Arthur Andersen, the company that audited Enron's books, at best neglected to recognize the company's problems. At worst, investigators now say, the auditor was complicit in perpetrating one of the biggest frauds in corporate history.

On Dec. 2, 2001, Enron declared bankruptcy. Thousands of people were thrown out of work, and thousands of investors -- including most of the company's employees -- lost billions of dollars as Enron's shares shrank to penny-stock levels.

Throughout January, revelations poured forth from Enron: tales of shredded documents, stories of Enron execs seeking help from top administration officials, allegations that company officials willfully ignored internal warnings about the accounting irregularities even as they pocketed millions of dollars in stock-market gains. It quickly became clear that the sudden collapse of the country's seventh-largest company was going to have implications not only for business, but for politics and policy as well: Enron and its officers were among the biggest donors to U.S. political campaigns over the past decade.

So the ultimate question, how do you prevent the crash?  First, encourage open channels of communication from the bottom to the top.  Every organization creates filters at every level.  These filters work in both directions.  In Enron’s case, leaders were deceiving employees and stockholders with false information.   Second, follow known processes and procedures.  In the case of aircraft mishaps processes and procedures are typically written in blood.  Someone has died or destroyed an asset which resulted in a new process or procedure to protect others.  Enron was no different.  They did not follow proper accounting procedures and their failure resulted in new laws to prevent future collapses.  Finally, does the organizational culture allow for the free flow of communication?  Do leaders listen to bad news and are employees aware of challenges facing the company?  Does the company strictly adhere to the law, process or procedure?  Many young startups do not have processes in place to prevent failure and established companies become arrogant, allow the culture to decay and accept shortcuts to improve the bottom line.

The scariest part of the crash is learning that it was preventable.  The decay of organizational culture happens slowly over time.  It affects communication and standards diminish.  Mid-level managers become isolated and fearful of telling the boss the truth.  

The good news is that these challenges are easily addressed.  Encourage your team to identify all challenges their division faces.  Allow the team to develop solutions and find ways to implement the solutions provided.  This alone will improve communication.  When managers and employees are not fearful about losing their jobs it’s amazing what you can learn about the organization and how many failures can be prevented.  Your willingness to listen, empower and encourage the team will drive your future success or failure...The ball is in your court.

I'm Dave Evans and this has been Bold Leadership.

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