Is there any way to stabilize the current financial disaster?
—Roberta Lenhart, California
The US government may have answered your question for us this week with its shock-and-awe turnaround plan, the deployment of $250 billion (Rs12.18 trillion) in funding into large and small banks and loan guarantees. Of course, it’s too soon to tell whether this aggressive new programme will unfreeze credit and get the financial system on track, but it’s hard to imagine it won’t go a long way towards putting things right.
But let’s not forget why such a radical move was necessary in the first place: Washington was at the centre of a perfect storm in terms of trust. President Bush, a lame duck in any regard, has an approval rating near 25%, and some of his recent speeches made an art form of “mailing it in”.
Meanwhile, congressional leaders, with their even lower approval ratings, can’t make a move without being suspected of harbouring ulterior motives. Some are, in fact, acting in an alarmingly reckless and partisan manner. House speaker Nancy Pelosi’s rant before the first vote on the $700 billion restructuring bill (the troubled asset relief program, known by the acronym TARP) was essentially a democratic stump speech, and senate majority leader Harry Reid’s ruminations about an unnamed insurance company being close to failure sent the entire industry into a stock market tailspin.
For all intents and purposes, the only people generating any measure of confidence in the capitol are two appointed officials, treasury secretary Hank Paulson and US Federal Reserve chairman Ben Bernanke, who both have a low degree of public awareness. Despite their tireless efforts, their poor communication skills left many sceptics cold.
This is not to suggest that leaders can’t build trust once a crisis hits. They can via strong actions, provided those actions are characterized by speed, transparency and simplicity (by that last term, we don’t mean basic. We mean that you don’t need a PhD to understand what a leader is talking about). Together, speed, transparency and simplicity form a kind of “trust screen”—the more of them a leadership action meets, the more trust it will create.
Indeed, several measures that were already being implemented in Washington before Tuesday’s announcement passed the trust screen easily. Take the recent increase in the Federal Deposit Insurance Corp.’s guarantee on bank deposits, from $100,000 to $250,000. It happened virtually overnight, and people clearly understood its impact on their lives. The move was the essence of transparency and simplicity.
But other parts of TARP didn’t pass the trust screen; in particular, two of its most publicized programmes: the plan to reduce foreclosure rates by buying up mortgages and the plan to auction off toxic securities from bank balance sheets. Both of these programmes practically shouted “Slow rollout!” and even at first glance seemed rife with complexity and potential for conflict in their implementation. It’s easy, for instance, to imagine homeowners demanding to know why the government is retooling their neighbours’ mortgages and not theirs. And so, with the government’s piecemeal approach not working, the credit markets remained paralyzed. So a Howitzer response was necessary.
Amid all this turmoil, there’s a vital lesson for business people. When crisis strikes, it’s awfully late to start thinking about how much trust you’ve managed to stockpile over the years. Trust is the very foundation of effective leadership—it’s the “grease” of change. Leaders at every level need to build trust every day. In every communication, they must be positively fanatical about avoiding unnecessary complexity and gobbledygook. There can be no pabulum and no mindless cheerleading. Just the plain truth, repeated the same way to every audience.
Business leaders have an additional tool for building trust in good times: connecting with their people.
We’re not talking about walking the hallways saying “hi.” We’re talking about building visceral relationships by hanging out where the work gets done, talking and listening, eye-to-eye.
Leaders should conduct spirited, no-holds-barred town meetings—the more the better. They should talk about who they are and what they feel, their motives and dreams. The more authentic a leader shows himself to be, the more authentic his people will be in return. Authenticity leads to trust.
Let’s hope that with the $250 billion TARP plan and the election of a new president and Congress on 4 November, trust will soon return to Washington. For business leaders, the fact that it took such an extreme response to fix the financial crisis should have the bells tolling. Build trust while you can; build trust today.
©2008/BY NYT SYNDICATE
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