Leadership is solving problems. The day soldiers stop bringing you their problems is the day you have stopped leading them. They have either lost confidence that you can help or concluded that you do not care. Either case is a failure of leadership.
—Colin Powell
Leaders will always be challenged by problems. It’s a natural part of their job. Exactly how they tackle the problems they face will determine how others perceive their leadership skills. And whether we like it or not, perception is important. Sometimes it’s not what we accomplish that resonates with others; it’s what we do and how we act in the heat of battle. This is what builds a leader’s reputation, good or bad.
While business problems and challenges don’t happen only during difficult or uncertain times, they are more common then—and often worse. It’s up to leaders to step up and take visible action when serious issues face their organization. Ignoring them is not an option. And there are benefits to taking action: organizational healing can begin immediately, and whatever the problems may be, they will be resolved more quickly.
From the beginning of time, leaders have been tested in how they will deal with serious issues facing their company. Others are always watching to see if they will really face up to the difficulties and take action or shrink from their responsibilities and do nothing. It’s a test, and some of these tests make leaders stronger; others, handled poorly, can gradually chip away at self-confidence and destroy leadership skills. In many ways, strong leadership is fragile. Although this sounds like an oxymoron, leadership can be diminished by failing to lead, and action can be taken away by failing to act.
One basic fundamental of leadership is the ability to face the problems, difficulties, and issues that every business confronts daily. You can’t walk away from problems and truly believe that somehow that issue will magically disappear. It just doesn’t happen. And if you think it will, I’m willing to wager that the problem you think went away will be back again, and even stronger.
Too often when people face a problem in their personal or business life, they’re tempted to put off taking the very actions that could resolve the problem. They end up dragging it out instead of doing the most expeditious thing: solving it and moving on. When a problem drags out, it can put things at risk in a company or in our personal lives. Ignoring these problems puts relationships at risk as resentments can, and most often do, build up and damage relationships.
For some leaders, delay can seem to be a reasonable strategy for success. If you don’t make a decision, then how can you fail? Interestingly enough, the word decision has its root in two Latin words: de (down from) and cado (fall), and the various forms of the combined word (decido) can mean anything from “to fall down,” “to collapse,” “to sink,” “to perish,” and even “to fall dead.” These meanings all point to the dilemma that some leaders find themselves in when making a decision. If they make the wrong decision, they may very well go through the organizational equivalent of falling down or falling dead. The solution? Don’t make any decisions, or put them off until they’re overtaken by events.
At Umpqua we expect people to make decisions. I would rather our associates make an honest mistake that they have the opportunity to learn a lesson from than delay or entirely put off making a decision because they’re afraid that they might fail. I don’t want our associates to be afraid to make a decision, and I do everything I can to reinforce that in our unique corporate culture.
We also have a standard that we’re reminded of frequently at Umpqua Bank, and it’s related to solving problems: We should never complain down or sideways in the organization. If our associates face a problem that they can’t solve or an issue that’s troubling them, we want them to complain “up.” The reason is simple: your peers and the people below you likely can’t fix your problem. When we do complain sideways or down, and we’ve all done it from time to time, we’re reinforcing the old saying that misery loves company. You just made somebody else feel lousy or made them worry. What’s the point? That’s counterproductive and inconsiderate. You need to complain up to those people who, if you let them know what’s going on, are most likely to have the ability to help you fix the issue. It’s common sense.
When uncertainty reigns in the world, when the economy has gone south, when your company is having problems, it’s easy to avoid facing the reality of the situation. When the housing market tanked in 2008, a lot of banks faced significant loan losses. Some bankers at the time were saying things like, “Well, I don’t think this situation is going to last very long. It’s just a small bump in the road and soon we’ll be back on track. Let’s not worry about it.”
As it turned out, these people were figuratively placing their heads in the sand and entering a deep state of denial about the tough problems that existed. They were not preparing for the distinct possibility that the economy could get worse. As we now know, the economy did get far worse, eventually triggering the Great Recession that continues to haunt us today. The financial industry suffered greatly during this time, and it has yet to fully recover.
Over the past five years, hundreds of banks have failed, and business in general in the United States was in crisis. The American public also suffered terribly as home foreclosures climbed to all-time highs and the government-reported unemployment rate tied with or exceeded the 10 percent milestone during the last few months of 2009. Many Americans dealt successfully with this economic crisis, and many, due to no fault of their own, ultimately could not survive the storm financially. Others had the resources but failed to use them to position themselves for better days and are now feeling the effects of not taking action. In some ways, they were not being as truthful with themselves as they could have been. By not facing up and dealing with the situation as it truly existed, their problems festered, and, more times than not, they ended up with a more difficult and longer-lasting problem.
Facing up to the reality of your situation, no matter how good or how bad it may be, is the right thing to do. What other choice do you have? How else do you resolve issues and get through tough times if you won’t honestly deal with your issues? There are many positive attributes that can result from people facing the truth. Others have respect for the person who is willing to do the right things in tough times. People are naturally resilient, and they will give the benefit of the doubt to others if they believe that actions are being taken to improve the issue. They will understand. Communicating often with your people and telling them the truth is one of the best ways to gain their respect and admiration.
In early 2007, Umpqua Bank was the largest independent community bank in Northern California. When the first cracks in the housing market were starting to appear, I clearly remember driving north out of Sacramento, California, which was to become the epicenter of the housing crash in the state. As I drove north on the interstate, I remember looking out the window and seeing hundreds, if not thousands, of brand-new roofs on each side of the highway. There were no trees, just new homes going up at an incredibly fast rate. Acre after acre of former pastureland was being converted into neighborhoods. It didn’t take a rocket scientist to see a potential problem.
I remember wondering as I drove through this massive construction project, How can the Sacramento infrastructure sustain this type of growth without experiencing difficulties? (It couldn’t.) Even scarier was the thought, What would be the impact to housing here if supply and demand for housing was to become seriously unbalanced? (It would not be good.) I suspected that the impact could be devastating for home owners and home builders alike, along with the banks that were serving as their lenders.
When I got back to my office in Portland, Oregon, I asked my lending executives to brief me on the company’s total exposure in the real estate market throughout our geographic footprint. I was most interested in loans for home construction and loans associated with developing neighborhoods from raw land. The report I received was not encouraging. At the time, Umpqua had more than $700 million of loans within these broad categories. We had a problem.
Now that we had identified the problem, the question was what we were going to do about it. We had two main choices. One, we could hunker down and do nothing, hoping the housing market wouldn’t contract further. This was certainly a possible—and attractive—outcome, but there was no indication at the time that the economy was suddenly going to get better. Or, two, we could deal with the situation as honestly and as transparently as we possibly could. If all this economic roiling continued, we needed to take action to protect our company from this potentially dangerous financial exposure.
We took the latter course of action.
Shortly after identifying the risk to Umpqua if the market got worse, we made the decision to go public with the possibilities. During an investor conference in New York, I informed investors what Umpqua’s exposure was in this market and let them know that at that time, the loans in question were in good shape. However, I also let them know that should the housing market worsen and should home prices fall significantly, making it difficult to sell homes, then these loans could be at risk.
Investor response to these statements at the time wasn’t positive. Our stock price was clobbered, and it’s safe to say that at that moment, Wall Street did not think highly of us. However, as I look back at that decision to put our issue of potential loan losses on the table for all to see, I believe it was one of the best business decisions I have ever made. Why? Because once the problem was exposed, we had to deal with it. That meant that the healing process could begin.
Over the next few years, we did just that. And because of our quick action, Umpqua Bank came through the Great Recession with a stronger balance sheet than when we entered it. Yes, we suffered losses, as did many other financial institutions, but we also navigated the company through the crisis faster than most of our peers and gained respect from both Wall Street and Main Street by being honest and transparent with our financials during a time when banks were viewed by many as the Evil Empire, and too many tried to ignore their own troubled loans.
Avoiding the state of denial is not difficult, but it does take no small amount of fortitude. Accept the facts, try to corral the potential damages, and then get busy doing what you know you are supposed to do. Acknowledging the problem is probably 50 percent of the resolution process, since once you’ve acknowledged the problem, you have to act on it. There are many examples where people have demonstrated their willingness to accept responsibility and then do something about it.
Consider Jamie Dimon, CEO and chairman of JPMorgan Chase. He was in charge when his company experienced a multibillion-dollar trading loss. Dimon, one of the most respected bank executives in the world, is deservedly well known and well regarded for his leadership skills. Once this crisis was identified by people within JPMorgan Chase, Jamie was quick to acknowledge it. He didn’t try to make it appear anything other than what it was—in his own words, “a terrible, egregious mistake.” He clearly indicated that this issue was the result of “flawed, complex, poorly reviewed, poorly executed, and poorly monitored” activities within JPMorgan Chase.1
Yes, the problem created a black eye for his firm, and it created more issues for the financial industry as a whole once Congress got involved. But he stood up and took responsibility for the mess. If he hadn’t taken this approach and hadn’t done the right thing, that crisis could have been an ongoing problem for JPMorgan Chase as I write this today.
There are numerous examples where problems were ignored or deliberately hidden, prolonging the pain and keeping the individuals and organizations in the glare of the spotlight for longer than if they had just faced their problems and addressed them as they arose.
Consider the sorry saga of Lance Armstrong. The authorities caught some members of his cycling team taking performance-enhancing drugs during the Tour de France. After dragging the sport through the mud, some of Armstrong’s teammates admitted to the doping and suffered the consequences. But here’s the question: Can you think of their names? I bet you can’t.
These guys confessed to their cheating, paid the price, and the problem quickly disappeared from the public eye for these individuals. But Lance Armstrong chose to deny any involvement in the doping scandal and refused to admit that he participated even when teammates reported differently. He attacked those who reported that he’d taken illegal drugs, beating them down in the press and even taking some to court. What he did was perpetuate the problem, ruin his reputation, and give the sport a black eye that will likely take many years for it to recover from. If he had confessed by saying “Yes, I also took the same drugs,” when this was becoming an issue ten years ago, I’m convinced it wouldn’t be in the news today. Sure, it would have been bad for Lance and the sport for a while, but it would have disappeared more quickly.
Timing is important, but I would caution leaders in any business or industry that you’re better off admitting to and dealing with problems earlier rather than later. That said, I don’t think anybody should be in a rush to say, “Oh, let me tell you all my problems,” when five minutes later those problems get resolved. There are issues that come up that you can resolve yourself, and there’s no need to go out and tell the world about it. But if it’s something that’s going to have a significant impact on your business or personal life, it’s not going to get fixed until you start addressing it. By taking action, it’s like going public with yourself so the healing process can begin. The most important thing is not to deny the existence of problems when they are at hand.
What would you do if you were getting ready to go on vacation, and your roof had a small leak? Would you ignore it and say, “I’ll get it fixed when we get back,” or would you address the problem and get the leak fixed immediately? If you ignored the problem, it’s quite possible that when you returned from your vacation, the water damage to your home while you were gone could be significant. What might have been a quick one- or two-hour fix when you discovered the problem has now turned into a five-week-long redo of the entire top floor of your house because you denied that there was a problem that needed to be addressed.
I believe that like those leaders who drag out or avoid making decisions, there can be an element of fear of failure and financial harm that sometimes prevents people from dealing with the problems in their organizations. Fear of failure can cloud a person’s perspective on what is right or wrong and what is critical to a company’s future. While the ineffective leader will remain stuck—paralyzed in a state of inaction by this fear of failure—the strong leader can shake this off and get back on the healing road by addressing the problem.
Another point of view is that people wait too long to address issues, and when they wait too long, it’s normally too late to recover. So as soon as you see a problem that needs to be addressed with your people, you’ll know if there’s a timing issue and when the right time is to deal with the problem. Deciding when to let people know what’s going on needs to be thought through intelligently with management. Just keep in mind that the longer you wait, the longer the fear of the unknown continues to grow and can create a more significant problem.
People have a tremendous amount of respect for individuals who are brave enough to stand up and face the music. I’m not talking about people who face the music after ten years of denying it (see my comments on Lance Armstrong above), but people who face the music when the problem first occurs. That’s a big deal.
We’re all afraid of our own personal failures, of losing face, losing our jobs, and of the hit to our egos for having a problem or making a mistake. But in my experience, most observers aren’t focused on that: they just want to know what you’re doing to fix the problems you face. If people would simply focus on saying, “Look, this is the problem, and yes it’s unfortunate we have to deal with it, but the fact is that it happened, there’s nothing anybody can do about it, so let’s move on and solve it,” their organizations would benefit greatly. Instead of worrying about how it will look to others that they made a mistake, what everyone in your organization should be interested in now is asking, “What the hell are we doing to solve this problem, and how quickly can we get this straightened out?”
Like all other businesses, Umpqua Bank has gone through significant uncertainty and difficulties from time to time. When the recession hit and uncertainty was the topic of the day, we made many decisions to help navigate the company to a better place. In late 2007, we decided to delay all salary increases for six months for those making over a certain wage level, including me and everyone else on the management team. This was going to be a tough pill to swallow for some of my people; however, to me, it felt like the right thing to do. I wanted my associates to understand that we all might be asked to make sacrifices to get through this mess together. Some of our executives felt this decision was too extreme and not needed at the time, that things weren’t bad enough yet. They worried about the impact this decision would have on morale and our associates’ reaction.
I disagreed. I felt that taking action ahead of the growing problem was the right step to take. However, I did believe that the communication of my decision could not be delegated to others. I had to handle it: my people needed to hear from me. I needed to face the music and put a face on the decision we had made.
In a live call to our associates, I shared with them what I had decided. I went through in great detail why it was necessary to delay salary increases and explained the implications to everyone. I also made myself available after that call to answer any questions or concerns they might have had after thinking about my decision. I was confident that our associates would give me the benefit of the doubt even while making a decision that had a negative impact on their pocketbooks.
Even I was surprised by the reaction from our people. After the call was over, I received more than a hundred e-mails from associates throughout the company letting me know they understood. One comment was, “It’s great to see you’re doing the right thing for our company,” and another simply said, “Thank you.” It was truly heartwarming. Dealing with problems in an organization isn’t always a pleasant thing to do, but it’s always the right thing to do.
Note
1. Pallavi Gogoi, “No Sign of Shareholder Revolt against Dimon,” AP, May 14, 2012, http://bigstory.ap.org/content/no-sign-shareholder-revolt-against-dimon.