MD Genesis Corporate Solutions
Implementing a business rescue or a business turnaround is a stressful undertaking. You have to deal with the emotions around failure and the feelings of board members that they have let something that was once profitable deteriorate into a company that may be facing liquidation.
While addressing the root cause of the company’s financial distress is the main role of the business rescue practitioner, they also have to guide the existing leadership or new leadership through this process. This is the other side of business rescue/turnaround that many people don’t see, the management of emotions.
I recently read an article on the McKinsey website which points out how the best intentions can often damage a company more than help it.
The dilemma
The McKinsey article points out that the CEO of a large US-based fashion retailer was surprised to get the resignation email of a colleague and even more perplexed about the reasons why his colleague was leaving. The senior vice president (VP) of sales was supposed to be his successor. Seven years of client visits, planning meetings, project briefs, and rotations in procurement, marketing, and now sales had prepared her well for the highest leadership role, he thought. Others in the C-suite believed the same. But in those seven years, the senior VP had watched several male colleagues with similar experience get promoted after only four years. Only two other women had been elevated to senior roles at the company in the past decade—and that was in human resources, not in a business unit with its own profit-and-loss statement. “The promotion process seems unclear, at best, and biased, at worst,” the senior VP wrote.
The CEO felt blindsided. He and his team had long prided themselves on creating an inclusive work environment that would give them an edge over competitors, one where top talent could innovate and grow—and stay. How had they missed the signs to the contrary?
The research
The McKinsey article adds that the CEO must acknowledge his bias toward motivated reasoning. A cousin to the more well-known confirmation bias, motivated reasoning takes hold when people lend more credence to conclusions they really want to be true (say, an emotional belief) rather than to those proved by evidence.1 This bias is particularly likely when the belief is related to the believer’s own capabilities or priorities.
To confirm his perceptions of himself as an advocate of diversity, equity, and inclusion (DEI) and of the fashion retailer’s working culture as inclusive, the CEO pointed to selected facts—like the large number of women in line management roles, awards the company had won previously for being a best place for working parents, and his own sponsorship of the senior VP of sales. And, in a classic example of confirmation bias, he sidestepped or discounted other facts, like the high rate of women versus men leaving the company since the onset of Covid-19, as well as feedback, over the years, that the promotions process looked different for different people.
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The remedy
The McKinsey article points out that the CEO and other senior leaders at the fashion retailer must replace emotions and perceptions with facts. They should systematically assess the company’s DEI objectives: Is the company making progress against those goals, and how do the DEI objectives inform the company’s promotions process? To understand the dearth of women in leadership roles, for instance, the CEO and executives might ask themselves if they were reviewing the most diverse slates of candidates possible and using anonymized data to source and evaluate candidates. During succession-planning discussions, they could ask if they were bringing enough high-potential women into the conversation—as either ready now, ready soon, or candidates for further development.
The McKinsey article adds that, to clear up confusion about the paths to promotion, the executives could work with the chief human resources officer (CHRO), business unit leaders, and others in the company to map skill sets, capabilities, educational requirements, and so on to the company’s critical roles. They could revisit those metrics at least annually to acknowledge that business and societal conditions inevitably change. They could also define the “round-trip ticket” for high-potential employees leaving line roles for functional ones and coming back again. In this case, the CEO could have shared with the senior VP the objectives for each of her rotations, the specific leadership skills she could expect to gain in a role, and so on, rather than allowing her to feel left in the dark about whether all those rotations were giving her the required experience.
Strong emotional beliefs will inevitably seep into just about any business decision, but executives don’t have to let them obscure realities in the workplace.
Why does this matter? Look at how Transnet needs skills
Without going into the Transnet debacle in detail, one of the reasons why the company is facing its current operational challenges is because of its inability to retain skills.
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It must also be pointed out that we are not drawing any parallels between the situation discussed above and why skilled employees left Transnet. We are merely showing how losing talent can damage a company.
An article by Turnaround Talk points out that a total of 459 head-office staff took voluntary severance packages (VSPs) offered in 2021, and several more longstanding senior staff have left in the past 12 months. News24 interviewed numerous Transnet insiders who have lost faith in the turnaround and who believe the organisation is at a crisis point.
Someone who worked at Transnet for decades told News24…when the new board came in there was a view that they needed to come in and stamp out corruption, and that was all-pervasive and existed everywhere. It wasn’t. It was quite isolated. But that view led to an insensitive approach to the staff, and a lot of people got disillusioned and took the VSP. This led to the loss of people who knew how to run the system, which is why they cannot turn this around.
The News24 article adds that during and after 2020, the entire executive committee but for one person (Head of Transnet Pipelines, Michelle Philips) left the organisation. Four out of six CFOs of the divisions took VSPs. The heads of five of the six divisions left the company. Critical operational people were lost, including the COO of the coal line and the Chief of Planning, as well as engineers and logistics professionals who had worked at Transnet for a lifetime.
You cannot simply press a button to replace skills. This takes time and considerable investment. A CEO must never be blind as to why a person leaves, nor should they take it personally. They should sit down, analyse the issue and be honest about why the issue came about. Only then can the company take the appropriate steps to addressing the situation.
