The trouble with bosses today

This is not a jibe at the banks, which are a special case, but at all the other troubled business sectors, too many of whom seem to believe it is government's responsibility, rather than their own, to ensure they survive. What, one wonders, has happened to self-help?

Such management paralysis will certainly make the recession more painful, and it appears to be widespread. At a recent private lunch, the speaker, an industrialist, said one lesson from the current mess was that we have produced a generation of non-executive directors not equipped to deal with adversity. Hence their inability either to rein in over-mighty chief executives on the way up, or promptly to put in place someone with more appropriate skills to manage the downturn. Too many non-executives were behaving like rabbits trapped in the headlights.

However, the problem goes much deeper. It is increasingly obvious that the slowdown has not only caught many mainstream corporate executives by surprise, but now that it is upon them they don't have a clue what to do.
Damning evidence of this comes in a survey published this week. Management consultants Booz & Co talked to 800 senior managers across the world and found that 40%, or two in five, of those senior managers doubt their company's leadership has a credible plan to address the economic crisis.

And in a telling comment on the ability of management to deliver, just under half are sceptical about their leadership's abilities to carry out the plan, credible or not.

It is not unusual for middle management to be quietly scathing about the abilities of its leaders, but rarely to this extent. They also seem this time to have a point because the Booz survey also uncovered the still more unnerving fact that one-third of chief executives and main board members were also sceptical about the plans, even though they had drafted and approved them.

The situation is even worse among hard-hit companies, where two-thirds of executives said their boards were not doing enough to ensure their survival — such as stepping up efforts to secure outside funding and to dispose of assets. In total, a third of all companies seem to be performing inappropriate actions. Even among the financially strong, there is a sense of paralysis and inertia, which means they are not moving to take advantage of opportunities to improve their position thrown up by the crisis.

Nor can comfort to be drawn from the fact that this is a global survey, and therefore may treat the UK unfairly. In this country, according to respondents, a total of 40% of companies — whether financially weak or strong — appear to be doing the wrong things, compared with just one-third of the sample as a whole.

Four immediate thoughts spring to mind as to why this performance is so poor. The first is simply the passage of time. The last slowdown was 15 years ago, which means in practical terms that no one under 40 has had any experience of a downturn, and those who know what to do have long since retired or been ousted. There is no corporate memory of what countermeasures to take in hard times.

Second, the last two decades have seen a huge emphasis on the science rather than the art of management, fuelled by ever more powerful information technology. Even in good times, this leads to "analysis paralysis". The occurrence of a problem generates huge amounts of data and reports that look at the issue in a dozen different ways but conspire to encourage inertia rather than action. The data obscures the key issues, and no one will make up their minds about what should be done and get on with it.

The third culprit is the cult of shareholder value. In public companies in particular, we have encouraged a breed of chief executive incentivised to measure success in terms of getting the share price up, not in terms of building a sustainable business. Highly leveraged private equity was the epitome of this, but for the past 20 years across swathes of quoted companies executives have learned that they are better rewarded for financial engineering than real management, so they steeped themselves in the former and never really mastered the latter.

This has brought the additional downside that much of what they had relied upon to boost the share price in good times has turned out to be toxic for the business as a whole now the cycle has turned.

The fourth and associated issue is that few chief executives come up through the ranks any more, so there are not many who actually understand the nuts and bolts of the businesses they run. They may be good managers, but they don't know where the short cuts are, and where they could really save money if they had to. So too much of what they suggest strikes their underlings — who do know these answers — as misplaced and inappropriate.

They, and much of the business community, urgently need to raise their game.