No company is immune from crisis, as Enron, WorldCom, Ford, Firestone, and United Airlines demonstrate. While a small business may not have as much to lose as a corporate giant, its employees and management team take a company crisis just as seriously and personally.
How should CEOs and other top executives react to a crisis? If they're like most managers, they tend to work harder, hide the bad news, and circle the wagons to protect the company from outsiders. Not a good strategy, according to the experts.
"People think when they're going through a crisis they need to batten down the hatches and put up walls, and that everybody is the enemy," says Kaleil Isaza Tuzman, the Colombian-born CEO of Recognition Group, a New York firm that helps small and mid-size companies reorganize. The problem with that strategy, Mr. Tuzman says, is that it insulates you from sources of help and erodes the confidence of insiders who know there's a problem and need to know the plan for solving it.
"The most important thing to do when you're in trouble is to get very candid very quickly," says Mr. Tuzman. "You're acknowledging what everyone already knows – that you are in trouble. If you aren't honest, it undermines your credibility."
VOICE OF EXPERIENCE
Mr. Tuzman knows first-hand about crisis management. Before starting his turnaround firm, he owned GovWorks, a dot-com company that went into bankruptcy. He eventually sold it to First Data Corp. at a rock-bottom price. Mr. Tuzman says he learned a lot from the experience because he made plenty of mistakes – errors that he now helps clients avoid.
Since then, he and others at Recognition Group have acted as interim CEO or CFO for companies in need of reorganization or, in some cases, liquidation. One of the first pieces of advice Mr. Tuzman gives a CEO facing a crisis is to maintain balance in his life. CEOs often respond to a crisis by working harder, thereby neglecting exercise, sleep, and their families. They don't share their troubles with their spouses, he says, and forget to turn to faith and to their friends for support.
Instead, he believes, CEOs should disclose as much about the problem as possible and advises clients to "say it first, say it truthfully, and say it completely." People under pressure tend to clam up and put a rosy face on everything rather than reveal the depth of the bad situation. Leaders are particularly reluctant to admit they're in trouble and often suffer from denial, which Mr. Tuzman describes as the primary cause of restructuring failures. He even advises clients to tell employees that the company will have to close unless it meets certain goals. "Then if you do work it out [employees will] stick with you because you were straight with them," he says. "I think you will be surprised by the resilience of people if you're straight with them."
OUTSIDERS LOOKING IN
The exhortation for honest communication goes for supplier relationships, too, says Sam Chavez, CEO of Professional Business Systems (PBS) in Albuquerque. PBS is an audio-visual system integrator that sells and installs systems, mostly in New Mexico.
Like many other companies, PBS suffered from after-effects of the September 11, 2001, terrorist attacks as well as problems with an e-commerce initiative and a Dallas-area company that was notoriously late in making payments. PBS had formed a purchasing consortium with the company to qualify for supplier discounts, but suffered when its partner took three to five months to pay. That made PBS late in paying its suppliers and added to the company's accounting, personnel, and shipping and handling costs.
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