5 Foolish Faux Pas of CEOs in Crisis

While preparing for my speech on “How Not to Hire a Guy Like Me: Lessons from Past CEOs’ Mistakes,” I realized that it was worth sharing a few of the biggest faux pas CEOs make along with a few of my more colorful anecdotes.

What follows are the 5 things CEOs in crisis do that you want to avoid as the leader of your company or organization.

1. They Act Like Deer in the Headlights

In crisis situations, it’s amazing how many CEOs and company leaders act like deer in the headlights. They just freeze up and wait for the impending SMACK!

I was working with a guy whose company had entered a crisis. In the midst of this crisis, his very time-sensitive catalog that directly generates 80% of his 65 million dollar annual revenue within 90 days had to go out. It was hours before the catalogs had to be postmarked and mailed, but in order for this to happen we had to have $10,000 – immediately. In a cash crisis, this guy, worth a few million, wouldn’t take $10,000 out of his own pocket to pay the postage. If anything went wrong, he was personally guaranteed on 40 million dollars. He would have been totally wiped out had he defaulted, and all he had to do was personally put up $10,000.

I was brought in within hours of the deadline and convinced him to put up the cash. This was the first of many critical decisions amongst endemic problems, but thankfully, this incident established trust and a working relationship that led to a successful restructuring plan.

2. They’re Only as Smart as the Last person They Talked to

Many CEOs (and people for that matter) are only as smart as the last person they talked to – especially in a crisis. They cease being able to think for themselves, whether out of the hope of being able to pass the buck or because anything and everything sounds better than what they’re doing.

At a non-profit educational institution, the president was kicked out of office for various well-deserved reasons, resulting in a crisis of leadership, and the interim president kept changing the restructuring plan with every person to whom he spoke. He’d announce firings and closings almost daily, and then backtrack when someone objected, subsequently calling those he’d fired to tell them to disregard the two week notice they’d received. Back and forth he’d go like this, only spouting the last thing someone else said to him.

The only smart thing he did without changing his mind was hire me – and I fired him six weeks later. In restructuring, you generally get one plan to move forward with – it’s a house of cards and you don’t want it to fall from a lot of movement. Keep your plan conservative and reasonable, and don’t be as smart as the last guy you talked to.

3. They Can’t Check Their Egos at the Door to Admit Mistakes

The president at an electronics parts manufacturer found some cost accounting discrepancies that meant he was selling products under cost. Though he didn’t tell the bank, perhaps thinking that his Ivy League Ph.D.s would save him, the truth emerged a year later when his cash flow continued to deteriorate until the bank noticed. If he’d set his ego aside, spoken to the bank and brought in a professional early, he’d still be president, but the bank gave him the boot and brought me in. He lost everything because his ego got in the way.

Queue the Dragon Lady of El Paso: his wife and executive VP. Upon arrival, my first goal was to build loyalty and get buy in, and an opportunity dropped into my lap. The assistant immediately asked for twenty bucks to buy coffee and toilet paper. “Huh?” I asked. Apparently, in the interest of the budget, the company was rationing coffee and toilet paper. The Dragon Lady was losing millions on her left side while hoping to limit enough toilet paper and coffee for 60 people on her right side to balance out the equation. I gave the assistant $100 and told her to buy the biggest can of coffee and pack of toilet paper she could find, telling the other employees, “compliments of Lee.” From then on, they loved me. I had full buy-in, no one lost his job and we sold the company in full six months later.

4. They Don’t Depend on Their Key Subordinates

I hire people who are smarter than I am. I have no problem with people making more money than I do or being smarter. I view myself as a catalyst for positive change. However, I was brought into a company at which the CEO did not share this sentiment.

The CEO had created a generous sales commission structure, and the Sales Manager did a great job  for the company, meeting and exceeding goals. Resultantly, he made twice as much as the CEO in his first year on the job. When the board refused to give the CEO a raise to exceed the Sales Manager’s salary, the CEO attempted to lower the sales team’s commission structure, thereby dis-incentivizing them, even though they had been very successful on behalf of the company.

After the CEO forced a changed pay structure, the Sales Manager quit and went to work for a competitor. The board of directors found out and fired the CEO. While this echoes the sentiment of the ego problem, it also highlights the issue that CEOs fail to utilize good talent and rely on key subordinates.

5. They Don’t Get Buy-In

Buy-in is so important, and the CEO who isn’t getting it is looking for trouble because nothing goes forward for long without buy-in. At WYNCOM the CEO didn’t want any bad news, and he never wanted to hear what anybody had to say. He therefore didn’t have 100% of his team’s focus to make his wishes a reality. Subsequently, he lost 8 million dollars in 2 years.

As a CEO it’s important to know which way you want to go, and though a business is no voting democracy, you shouldn’t be handing down dictates from on high either. Have a conversation with your people, and let them tell you what they think. Even if they disagree and you still go the way you want to go, you can incorporate their feedback and by doing so, get their buy-in and support.

All I did when I became CEO of WYNCOM was act as a catalyst and seek others’ input, Thus, we went from an EBITDA of negative four million to positive four million in 12 months. In fact, we saved a half million dollars in postage just because I listened to someone.

Testimonial Magic: Know All the What You Want, But Don’t Neglect the Who

When being retained as an expert witness, generally the other side tries to undermine your credentials or experience in order to either discredit your answers or, in extremes, not allow your testimony at all. The opposing side also tries to undermine one’s credibility by investigating whether you’re always a plaintiff or defendant side witness – or if you only represent creditors and not debtors. It’s a game that we’ve all seen on Law and Order or Perry Mason.

The Pledge

For my first case as an expert witness, I was hired to testify to the feasibility of a cash collateral order in a bankruptcy case. As I took the stand my lawyer introduced me and gave my background.

Now, I knew what I was talking about, but we were all still confident that the other side was going to absolutely skewer me. It’s not that I had a shady past, but because 25 years ago I’d only done a few turnarounds. The question was, Was I really an expert at this point?

Now I’m The Turnaround Authority and I have the experience to prove it, but back then, well, there just wasn’t enough gray hair on my head yet.

The Turn

The opposing counsel introduced herself to me as she prepared to elaborate on my experience, or supposed lack thereof. However, as soon as she called me “Mr. Katz,” the federal judge took notice, looked down at me from the bench over the rim of his glasses and said, “Katz? Are you related to Israel Katz?”

I replied, “Yes, your honor. He’s my father.”

At which point the old judge bellowed jovially, “How’s old Israel doing? Did you know that in 1967 your father was head of the Democratic Party in Dekalb County, and in the late 40s he filed the first Chapter 11 case in this district? I know him well but haven’t seen him in a long time. Please give ol’ Israel my regards.” Then turning to the opposing counsel, who had reared back on her haunches, ready to pounce, said, “Oh, sorry, counsel. It’s your witness – please proceed.”

The Prestige

Having been totally flustered but regaining her composure and straightening up, she answered, “No questions, your honor. Mr. Katz is an acceptable witness.”

And that’s how I got through my first case as an expert witness without any trouble. Sometimes it’s not just what you know but who you know that counts.

Now, with my history of workouts I don’t ever worry what the opposing counsel will say – indeed, in a recent case the lawyer already knew me and asked why my side would “bring out the big guns when a pea-shooter would do” – but back then this was a lucky break.

I’m even proud to say that after this case I became friendly with the opposing counsel who has since retained me for a number of client cases over the past twenty or so years.

Have you ever been to court over business issues? What were your experiences?

“I Would Like to Say That Your Jobs Are Safe”

To a lot of people out there, this is no laughing matter (though thank you for the chuckle, Working Daze). Their jobs are on the line or long gone. They’re out of work, looking for work or at least brushing up their resumes.

If you’re one of these people, it’s hard to give you concrete advice that’s going to yield employment soon. Yes, we’re hearing that the economy is improving and that unemployment is creeping down (however slowly), but in my opinion, these numbers are a bit doctored. Not in any particularly malicious way, but at the end of the day, I believe that unemployment is flat and will hold where it is for a while (if it doesn’t get worse…).

So what can you do?

As someone who has – and I’m sorry this is so – had to lay off a lot of people in his day, I know how horrible it is to see people put out of work. But for every job I have to end, five are saved along with a company that would otherwise have collapsed under the weight of divisions and personnel that it didn’t need. Not many laid-off people take solace in this knowledge, but there’s no manager, CEO, president or leader who wishes to lose good people.

Stand Up and Stand Out

If you’re in a division or business that’s getting downsized or eliminated, you need to do your best to stand out as someone who is indispensable. You may have heard in the past that if you are so good at your job that no one else could do it then you can never move up because you can’t be done without where you are. True as that may be in great times, these aren’t those, and you’re going to need to stand out as exemplary and someone without whom things will not run well.

You can do this by bringing ideas to management, both right above you, and if it’s called for, higher up the ladder. When I go into a business to restructure it, I often promote from within, seeking the best talent and those who understand the inner-workings of the business, those who have seen what works and what doesn’t and have ideas for improvement in efficiency and quality. I ask current managers for recommendations, and I leave my door open to all – often including letting people know where I’m staying so that they can come to me with greater anonymity if need be.

In a bad economy with high unemployment, don’t squander an opportunity by laying low. Put in the extra time, make yourself and your good ideas known and heard. Consider getting additional education to bolster your current perceived value. Leverage your network to create business for your business – those who bring in business are rarely let go. Even if I have to lay off someone who seems valuable because my hands are tied, I look for where else I can use him. But if I have no idea who you are or why you’re useful, I have to let you go and not worry too much about it.

Are you out of work? How are you seeking employment? Have you saved your job recently? How did you stand out to do so?

Lions, Tigers and Creditors – Oh, my!

I’ve written before about optimism, but I think this cartoon catches a different element of the word.

Note the suited man (or man-like figure) buried up to his waist in the midst of a barren desert. Another soul is not in sight, yet he declares, “Someone will come.”

Not likely, my friend, not likely.

As I’ve mentioned, optimism is important, but it requires a dose of realism. This guy needs help. He needs a bailout. He needs a rescuer.

But he’s not going to get any of that in the form of a handout.

It’s people in this situation who are my specialty: people who are, in a word, screwed.

This guy has an emergency situation. The only thing that’s different about him and the people I deal with is that those I’m dealing with are generally missing a proverbial arm, buried up to their chins, and there are lions, tigers and creditors – oh my! – coming from all directions.

Have you ever been in an awful situation like this? Was it worse or better than this guy’s situation?

Read the Suggestions in the Suggestion Box

This cartoon makes me chuckle because it makes me think about all those companies that I go into where the CEO or President isn’t listening to anyone in the entire organization – and that’s to his detriment.

You have to have good communication up and down the line or you won’t know about the myriad ways that you could be improving your organization.

One of the first things I do when I go into a distressed company is reassure the employees that everything will be handled and that I will do my best to make sure they’re informed and taken care of as they deserve. It’s safe to say that many CEOs are not operating with this mentality.

The other thing I do is scour the organization for overlooked talent. I always need a new management team, and there are often great people on the inside with a profound understanding of the organization. If you are in upper management, utilize the talent beneath you. Listen to  people. Don’t overlook their suggestions.

One of the key markers of a successful company is that it’s a place that all employees are heard about their issues and thoughts. It is very demotivating to be an employee and to know that you aren’t being heard.

Today, listen to someone’s thoughts who you haven’t heard before and see what they can do for you.

What ideas have you gotten from people lower down in your organization?

The Incentive Plan? Don’t Screw up or You’re Fired

I love this cartoon. This is another one of those that’s been hanging in my office for a decade and a half.

This is NOT my mindset – that if you screw up you’re fired. I think it’s a shame when things are that way.

However, as someone who’s been a part of hundreds of businesses, often trying to figure out how to keep morale up and motivate employees, ensuring that they’re on board for whatever big changes and overhauls I have to implement to keep sinking ships afloat, I certainly understand the sentiment.

What’s your favorite business cartoon?

Never Ask about Severance Pay

Never ask about severance pay

This is a hilarious Farcus cartoon that I cut out of the paper 17 years ago and have stuck up in my office.

Every time I look at it I laugh.

Sometimes, and I hate to be the one doing it, I have to give people – and entire divisions – the ax. That’s never my preference, but if I have to cut off a limb to save a body I’m going to do it.

Farcus just puts the harsh reality of those moments in cartoon form.

What do you think? Do you have a favorite business joke or cartoon? Share it with us in the comments.