FORTUNE MAGAZINE Value Driven by Geoff Colvin

Leading during a downturn

Leadership problems come up again and again in a downturn. Solving them doesn't take fancy technology - just character and courage.

By Geoff Colvin, senior editor at large

(Fortune Magazine) -- Businesspeople love to tell me their problems, and in the waning days of this recession they keep describing three of them more than any others. They have to do with vanishing leadership, changing corporate culture, and talent.

They're problems that grow particularly acute in a downturn -- which means every company needs to worry about them. Here's what they are and how to fix them.

My leader won't lead.

This is a classic recession problem: employees frustrated that just when they're most afraid, their leader seems to be disappearing rather than stepping forward.

Have pity on such leaders before condemning them. In times of crisis leaders have to spend more hours on the phone and closeted in meetings, reducing their visibility, and they're particularly starved for the information they need to make high-stakes decisions. Every force is pushing them to "hunker in the bunker," as American Express CEO Ken Chenault expressed it to me.

Morgan Stanley's (MS, Fortune 500) John Mack is one leader who fought that temptation in this crisis. When the meltdown struck, his firm wasn't strongly dominant like Goldman Sachs (GS, Fortune 500), nor was it a basket case like Lehman Brothers. It was in the middle, and everyone looked anxiously to Mack.

He didn't have all the answers -- even the best leaders never do -- but he spoke often to customers, employees, and the public about what he knew and was thinking. He also answered critics by announcing a redesigned bonus plan before any other major Wall Street firm. That's textbook leadership.

If your leader won't lead, try telling him or her not what you want but what you hear from the employees that they want; that's the tactic one executive at a Midwestern manufacturer uses.

Our culture won't let me adapt.

The economic recovery may be faint at the moment, but the best companies adapt to a changing world before the change is obvious.

It isn't always easy. An HR manager at a metals company recently told me she was going nuts trying to change the criteria for promotion at her company to emphasize growth over cutting costs. The culture valued skinflint managers, and seemingly nothing could budge it.

That manager was right to realize that a culture of adaptability is crucial. Look at Thomson, formerly one of the world's greatest newspaper publishers, which decided in 2000 -- the all-time best year for newspaper ad revenues -- to get out of papers entirely.

The move looked insane, but Thomson (now Thomson Reuters (TRI)) was adapting to the world it saw coming. Its culture encouraged such radical thinking; in previous decades the company moved into and out of oil, airlines, and other businesses.

Unfortunately, battling a calcified culture may be futile unless you're the boss. I told that HR manager that as soon as the economy turned up it might be time to move.

We can't get rid of C-players.

You'd think a recession would be an easy time to get rid of underperformers -- you can see clearly who they are, and you may have to cut headcount anyway.

The problem is that some managers seem to think problems are caused by everything but people. When James Kilts took over at Gillette, sales and profits had been flat for years. Yet when he analyzed performance reviews, he found 74% of managers had been given the highest rating and only 3% had received the lowest.

It's tough to eject poor performers when almost everyone's a genius. The solution? Honesty in evaluations: Encourage a culture where anyone at any level can tell the truth. It may not be popular, but explain you're facing reality.

These problems are deep-seated. The good news: Solving them doesn't require new technology or complex analysis, just character and courage, which are available to us all -- and which a historic recession might help bring out.

Recession checklist

1. Stand up and be seen. It's a simple yet powerful way for leaders to be effective. Warren Buffett raised his profile in this recession, reassuring investors and even helping to calm markets.

2. Steer the culture with stories. Southwest Airlines (LUV, Fortune 500) has always understood this, celebrating stories of employees who perform heroically for customers. Make sure the stories you repeat embody the culture you're aiming for as the economy recovers.

3. Upgrade your people standards. With high unemployment, you have an opportunity to raise the bar on whom you hire and promote, as McKinsey and other top leader factories are doing. To top of page

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