LEADERSHIP IN THE ERA OF ECONOMIC UNCERTAINTY
The New Rules for Getting the Right Things Done in Difficult Times

by Ram Charan

INTRODUCTION
Corporate Crisis

The first clear sign that the economic crisis was spreading globally and moving beyond the financial industry came to DuPont CEO Chad Holliday while he was visiting a major customer in Japan. The CEO of the Japanese company, among the largest and most highly regarded in its global industry, told Holliday he was worried about his company’s cash position and had ordered his executives to conserve cash in case the financial contagion spread.

Talk about a wake-up call!

When Holliday’s plane landed in the United States on Monday night, he immediately summoned the six top leaders in his company to a meeting at 7 a.m. the next day. He asked them the following questions: How bad is it now? How bad could it get?

The answers that came back over the next few days were grim. The financial industry’s problems were pervading many aspects of DuPont’s business both at home and abroad. What had seemed to be a crisis of confidence in Wall Street had the potential to become a global crisis as Western Europe, Russia, and most of Asia were swept by the panic. Credit was disappearing, leaving companies struggling to finance their operations.

The evidence of how serious the problems were becoming appeared in different places. Wilmington, where DuPont has its headquarters, is usually a hotbed of legal activity because so many companies are chartered in the state of Delaware and corporate lawsuits are filed in the Delaware Chancery Court in Wilmington. Bookings at the hotel DuPont owns in downtown Wilmington plunged more than 30 percent in 10 days as lawyers representing companies engaged in litigation canceled their reservations when their clients decided to settle their disputes and stop incurring legal fees. More telling was the rate at which production at many companies was slowing. DuPont paint covers over 30 percent of American automobiles, and the company generally manufactures the paint less than 48 hours before it is sprayed on new cars. To maintain that short lead time, the automobile companies share their production schedules with DuPont. Suddenly there weren’t any production schedules. The automakers didn’t know what they were going to produce in the face of collapsing sales.

Clearly it was time to take action.

DuPont has long been in the forefront of contingency planning. It has a plan dubbed the Corporate Crisis plan that, if invoked, instantly brings together DuPont’s senior managers to appraise the cause of the crisis and put appropriate disaster-control procedures in place. The plan seldom is called up. It was used in the wake of the 9/11 attacks and in the aftermath of major hurricanes. Holliday had to weigh whether the gathering financial storm was serious enough to warrant implementing it or whether declaring a crisis might frighten the company’s 60,000 employees needlessly. As the evidence for a deepening economic downturn quickly mounted, he decided that “Corporate Crisis” was right.

The plan immediately brought together the 17 standing teams that always assemble when a crisis is declared. Over the course of four days it became clear that the nature of the crisis was only financial, and eight teams were stood down. At the end of the four days the remaining nine had determined what needed to be done to ensure DuPont’s viability. It was time to let the troops around the world know what was going on.

Communications with employees took several forms. Holliday enlisted the company’s chief economist and the head of its pension fund, both of whom are highly regarded in the company, to explain in nontechnical language the roots of the crisis and the way it was affecting the company. The pension fund manager also took time to develop some instructional material advising employees about investment options for the $18 billion in retirement funds. Within 10 days of the formulation of plans to deal with the crisis, every employee in DuPont had had a face-to-face meeting with a manager who explained what the company needed to do. Each employee was asked to identify three things he or she could do immediately to help conserve cash and reduce costs. Within a few days after the communications program was rolled out, the company conducted polling to see how well employees understood the nature of the crisis, determine their psychological reaction—were they scared or were they energized and ready to confront the crisis?—and see whether they actually were doing what they needed to be doing.

Overall, the employees seemed to get it. It helped that the news media were full of stories about the developing financial crisis. The actions aimed at conserving cash were taking hold quickly. Travel was curtailed sharply, internal meetings were canceled, and consultants and contractors were eliminated where possible.

Nevertheless, Holliday had a feeling that people still didn’t grasp the urgency with which they needed to be acting.

“In hindsight, maybe we were too good at giving them the reassurance and confidence that we could come through this,” Holliday said. “We gave them so much confidence that they just weren’t responding as fast as the slowdown demanded.”
 

Together with his CEO and CFO, Holliday took the time to spend an hour and a half with each of the company’s top 14 leaders. They were asked to explain what they were doing to cope with the crisis. They all brought long lists and seemed to feel confident that they were doing a lot. But the problem was how fast it was getting done.

“They were talking about things that would be implemented by January or February, but they were things we needed implemented in October,” Holliday said.

Even as the immediate crisis measures were being put in place, DuPont had a three-person team of top executives looking at longer-term actions the company needed to take. It would take a while to figure out which production facilities could be closed permanently or shuttered temporarily to reduce costs. But the fastest way to save the most cash was to cut back as much as possible on the over 20,000 outside contractor the company had hired. In most cases a contractor could be released with one week’s notice and without any severance costs. Where possible, internal employees whose operations were slowing or would be closed were shifted into what was formerly contract work.

DuPont’s initial reaction to the spreading economic crisis took place in less than six weeks. There will be much more to do, depending on how the global economy fares over the next year or two. Even when the slowdown ends and things return to normal, Holliday is predicting that the inflationary trends that preceded the financial meltdown will reassert themselves. But DuPont will be ready for that too if and when it happens.

Chad Holliday answered the call for leadership. He stared into the face of uncertainty and accepted the change he saw coming. Neither fear nor uncertainty paralyzed him. He took charge, pulled people together, and took decisive action. This is what every leader must do now.

Published by McGraw-Hill
December 22, 2008
hardcover / 160 pages
ISBN: 0071626166