Straight Talk on Leadership

Solving Canada's Business Crisis

R. Douglas Williamson

• Publisher: Jossey-Bass
• Year: 2013
• Print ISBN: 9781118581681
• eBook ISBN: 9781118583012
• Edition: 1
• Topic: Business
• Subtopic: Leadership
• Index: Business

An urgent wake-up call—and radical action plan—for business leaders everywhere While it focuses primarily on Canadian business, this important book shares valuable insights of benefit to transformational business leaders everywhere. Without sugar coating his message, author R. Douglas Williamson, head of the prestigious consultancy, The Beacon Group, points to complacency, lack of leadership sophistication, and an inward focus as the chief reasons why Canadian companies are at risk of falling behind the rest of the world. Issuing an urgent call to action, Williamson helps leaders understand the four principle challenges facing the modern leader and describes the eight essential leadership competencies required to navigate the future. He provides powerful strategies, tools and techniques for how to reframe thinking about leadership and reform leadership strategies.

• Case Studies from The Beacon Group's wide and diversified client base include The Four Seasons, Scotiabank, Nortel Networks, Research in Motion, The Hudson's Bay Company, Export Development Canada, Holt Renfrew, and many others.
• An impassioned call to action for leaders everywhere combined with practical advice and tools to help leaders take up the responsibility of transformational leadership during a period of unprecedented change and monumental global challenges.
• One of the rare books to focus on Canadian business and business leadership, it explains why that country's competitiveness is in serious jeopardy and what can be done about it.

Part I

Leveraging Our National Brand through Bold Leadership

Business leaders and politicians have notoriously short and convenient memories. Each time we hit yet another predictable cyclical economic downturn, we endlessly debate the reasons, are quick to point the finger of blame and then we conveniently use the excuse of external market forces as a means to justify our short-sighted overreaction. This recurring pattern of behaviour does no more than reveal the inherent weaknesses of our leadership acumen, and yet we allow the pattern to continue rather than learn, adjust and compensate accordingly.

In Part I, we suggest this recidivist pattern of misguided leadership behaviour has had an even worse impact on Canada than it has had on other countries whose leaders act in the same way. It has caused us to lose valuable competitive ground at the very time we should have been accelerating out of the global downturn with confidence. Canadians need to take a new stand, and our business leaders and politicians cannot be allowed to squander the tremendous hidden value of our national brand.

As Canadians, we need to find the courage and conviction to transform our economy through the restructuring of our historical business models and the rapid development of a new generation of leaders equipped to compete with a modern set of leadership competencies. These competencies of the future and the mindset of global competitiveness will allow us to remain relevant in the long term rather than shelter behind the short-sighted naïveté and complacency that have lured us into believing we are doing better than we really are.

1

Crimes of Leadership Malfeasance

Leadership is never easy, even in the best of times. So when you add the extra stresses associated with the deep economic downturn we have experienced since the fall of 2007, the competence of business leaders has been pressure tested like never before. Rising financial uncertainty, market instability and the enormous destruction of wealth we have witnessed across the global economy mean that every sector, household and organization has been touched in some negative way.

The loss of financial value in the stock markets, the depressed employment markets and reduced levels of industrial performance and productivity are the issues that most often make the headlines. They are the most visible of the consequences because they are the most easily measured. Harder to measure is the human toll, also a tragic consequence of a system gone wrong.

The global financial crisis has put the world into the worst economic and social tailspin since the Great Depression. The lingering effects of this inconvenient reality will be felt for years to come and, unfortunately, there are not likely to be any quick turnarounds. While there were a number of converging factors fuelling the crisis—many of them cloaked by complex financial market chicanery—the real underlying causes were behavioural in nature.

Whether it was greed on the part of financial institutions, speculators and market traders, or whether it was simple self-serving human behaviour on a more basic level, the fact of the matter is that too many people in the United States accumulated too high a level of personal debt to maintain a lifestyle they could not afford. It is like they were cheating and chasing the American dream on the backs of their credit cards or mortgage debt with the belief that rising property values in the long term would forgive the sins of overextending themselves in the short term.

In an environment of steadily decreasing interest rates and large inflows of foreign capital, which began as we entered the new millennium, the easy availability of credit fuelled a housing construction boom in the United States. As banks began to provide more credit, housing prices began to rise and wealth accumulation looked like an effortless, guaranteed ride for all Americans, many of whom were looking for a shortcut to prosperity.

With the tacit encouragement of both the government and the banks, Americans who could not afford to purchase a house willingly jumped on the bandwagon for fear of being left behind. Between 1997 and 2006, the price of the average American house increased by 124%. However, we now know it was not real value appreciation underpinned by sound fundamentals, but more like a sophisticated Ponzi scheme.

Observing what was going on, large foreign and domestic investors wanted a piece of the action, and so a series of financial agreements called mortgage-backed securities (MBS) and collateralized debt obligations (CDO) were created to allow those investors to indirectly invest in the housing boom. Between the intense competition for market share and a limited supply of creditworthy borrowers, mortgage lenders began to significantly relax their underwriting standards. They took on riskier and riskier loans, the so-called subprime mortgages, which grew rapidly to become 20% of all mortgages written by 2004 and remained at that high level for the next three years.

As we know, this all came to a head when average U.S. housing prices quickly declined by over 20%. Those people with adjustable-rate mortgages simply could not refinance their debt or afford to pay higher monthly payments. Instead, they began to default. The American attitude, which some would see as a sense of entitlement, allowed people to think they could just walk away from these contractual obligations regardless of societal morality, personal pride or basic financial responsibility. As a result, during 2007, lenders foreclosed on 1.3 million properties, and the number increased to 2.3 million by 2008. In August 2008, 9.2% of all U.S. mortgages were delinquent or in foreclosure, and a year later, the bad debt portfolio had risen to 14.4%.

There was a corresponding negative response in the stock market. It had peaked in October 2007 with the Dow Jones Industrial Average exceeding 14,000 points, but by March 2009, it had reached a low of 6,600, falling more than 50% over just 17 months.

In August 2007, a large French bank, BNP Paribas, became concerned and blocked withdrawals from three large hedge funds due to what it saw as an evaporation of market liquidity. This led to panic as investors tried to liquidate assets held in the more highly leveraged financial institutions. Companies dealing in mortgages could no longer obtain financing, ultimately resulting in more than 100 mortgage lenders going bankrupt between 2007 and 2008. During one week in September 2008, $144.5 billion was withdrawn from the money markets compared to $7.1 billion the week prior.

The personal price paid and pain experienced by Americans between June 2007 and November 2008 was astonishing. They lost an average of 25% of their net worth between declines in home equity, retirement assets, savings, investment assets and pensions. Americans lost $8.3 trillion in total, the result of what turned out to be no more than a false belief in a strange form of financial black magic.

Most definitions of exemplary leadership would include something about how, in moments of crisis, leaders are expected to rise to the occasion, offer incisive insight and take bold, courageous action. We saw just the opposite. The hesitation, distortion, evasion and blame were almost too much to bear. Politicians and business leaders, especially those in the United States, did nothing to distinguish themselves as leaders deserving of our admiration. In Canada, we performed marginally better on the leadership ledger, but we failed to seize the day and use our comparative strength, candour and realism to good advantage. In that regard, Canadian leaders also failed, just in a different way than those south of the border or in Italy, Greece, Ireland and Portugal.

2

Lessons from the Recent Past

In the bleak economic crisis of the 1930s, the economist Joseph Schumpeter coined the phrase “creative destruction” to explain the natural cycle of economic cleansing that is necessary to ensure long-term sustainable growth and economic health. In recent times there have been several of these cleansings, or recessions, particularly in the United States. Almost all were triggered by some type of financial market event far removed from the day-to-day lives of those on Main Street and their ability to understand either the substance or the nuance of what it all meant behind the scenes. We in Canada have not been as strongly impacted as those south of the border. However, while our financial system and practices are healthier and we did not hit the same low lows, we still need to think long and hard about the dark side of short-term, lustful, get-rich-quick capitalism. In Canada, we have long known both the advantages and disadvantages of our close relationship with the United States. It has always been the case that “when the United States sneezes, we catch a cold.”

Free markets are undoubtedly the best way to create economic prosperity; there is no question about that. However, when things are taken to wild extremes of speculation, poor judgment and bad behaviour, the trickle-down pain caused to innocent families and small businesses can be devastating. Defined as a general slowdown in economic activity, a recession occurs when there is a sudden widespread drop in spending, triggered by any number of events. The first to feel it are the middle class and businesses that depend on their spending.

The 1981 to 1982 recession was caused by ill-considered monetary policy, specifically actions taken by the U.S. Federal Reserve to reduce the size of the monetary supply in an attempt to control high inflation in the wake of the 1973 oil crisis and the 1979 energy crisis. Interest rates rose and, as a result, industries such as housing, steel manufacturing and automobile production were hit hard. Consequently, high levels of unemployment followed and wallets dried up.

The 1987 decline was attributable to the collapse of the U.S. Savings and Loan industry, which created widespread panic due to rising financial uncertainty for millions of Americans.

The seeds of the 1990 to 1991 recession were sown on the infamous Black Monday of October 1987, when the Dow Jones fell by 22.6% in one day. The drop was bigger than the one in 1929, which triggered the Great Depression. The 1990 Gulf War added fuel to the fire and resulted in a spike in oil prices, making matters even worse.

The 2001 recession was the inevitable downside of the dot-com boom of the mid to late 1990s in which an extraordinarily large number of Internet and technology companies emerged from nowhere. Those companies, which were speculative in nature, were able to raise rather large amounts of short-term capital with relative ease to cover start-up costs intended to get them to a point of long-term sustainability.

Unfortunately, far too many never made enough or even any profit, and were either acquired at bargain basement prices or simply liquidated. The crash between 2000 and 2002 caused the loss of almost $5 trillion in the market value of traded companies. The terrorist attacks of September 11, 2001, compounded the large financial losses with the even more tragic loss of human life. While al Qaeda did not bring the U.S. economy to its knees, as it hoped, the Dow Jones did suffer its worst one-day point loss and the biggest one-week loss in history up to that point.

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Lessons from Canadian Business

While history may not be a very good, or accurate, predictor of the future, it is still instructive to look back at some of the bigger and more dramatic business failures in Canada. Not only can they help us gain perspective, but they may also help us to avoid such disasters in the future.

Campeau Corporation (1953–1990)

Campeau was a major real estate development and investment company founded by Robert Campeau to exploit the growth in the Ottawa area commercial and residential property market, which had been fuelled by the expanding civil service industry. In the 1980s, emboldened by its success in Ottawa, Campeau began purchasing larger businesses outside of Canada and outside of its real estate development expertise. The acquisitions included high-risk retail property propositions, such as Allied Stores and Federated Department Stores, the owner of Bloomingdale's. At the end of the day, Campeau's debt obligations were too high and both acquisitions ended in bankruptcy, bringing the Campeau Corporation to an inglorious end.

CanWest (1974–2009)

CanWest was a diversified media company founded by Israel Asper in Winnipeg. In 1997, it bought the privately owned CBC affiliate in Quebec City. It eventually rebranded to become the Global Television Network, and over time it expanded its coverage in the West. In 2007, it partnered with Goldman Sachs to acquire Alliance Atlantis Communications and, in the process, assumed large amounts of debt, which had grown to $4 billion by 2009. The company eventually had no choice but to separate its empire into parts and sell those parts off. In February 2010, Shaw Communications bought significant parts of CanWest's assets, excluding the newspaper holdings, which were sold to the Postmedia Network.

Olympia and York (1952–1993)

O&Y, as it was best known, was an international property development firm that built a series of major office complexes, including Canary Wharf in London, the World Financial Center in New York and First Canadian Place in Toronto. Founded by brothers Paul, Albert and Ralph Reichmann in the 1950s, it would become the largest property development firm in the world by the 1980s. Along the way, the brothers expanded their sights and purchased a number of different businesses, including Gulf Canada Resources, Brinco Inc., Abitibi-Price, Royal Trust Company and English Property Corporation. After the collapse of Olympia and York, which resulted from a combination of too much debt and an addiction to growth for the sake of growth, the brothers began to rebuild again and eventually sold their new company to Brookfield Properties in 2005 for $2.1 billion.

These three examples of failed leadership and failed business are worth remembering, both because of their size and impact, as well as the fact that when the final chapter was written, the verdict was the same.

• They stretched themselves too far, too fast and allowed themselves to wander away from their roots and their core competencies.
• They allowed greed, ego and bravado to replace common sense and good business practice and, in the process, saw themselves as immune from bad judgment.
• With the support and encouragement of the big banks in Canada and overseas, they assumed levels of debt that were not sustainable, and they believed they could “rent” other people's money in order to grow quickly.

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3

Hidden Costs of the Current Crisis

While we all tend to focus on the conventional data sets that tell us we are in the midst of a perfect economic storm, things like GDP growth, debt levels, bankruptcies, stock market trends and trade flows, those metrics only reveal the symptoms of something much deeper. No one seems to want to talk about the important root causes and the other less obvious ways in which value has been eroded, even though the impact, both financial and otherwise, has arguably been just as great.

Specifically, I am referring to the loss of value, on many different levels, as a result of bad leadership. It is something that simply does not get enough press. It is almost as though we don't want to address the fault lines in our business leadership foundation, and would rather expend our energy griping about the symptoms, rather than focusing on the disease. The things we should be looking at include the cost of

• poor strategic foresight, which can cause a business to underestimate or inadequately anticipate a competitive threat and get hammered as a result;
• an acquisition gone wrong, due to a failure to fully integrate cultures or harmonize production capacity in order to ensure economic synergies;
• habitual, shortsighted underinvestment in research and development, which results in products and/or services that fail to keep pace with co...

Table of contents

• Cover
• Praise for Straight Talk on Leadership
• Title Page
• Copyright
• Dedication
• A Note to the Reader
• Foreword
• Introduction: Moving Backward at the Speed of Light
• Part I: Leveraging Our National Brand through Bold Leadership
• Part II: Meeting the Future Today
• Part III: Preparing for Transformational Leadership
• Part IV: The Basis of a High-Performance Culture
• Part V: Strategic Thinking vs. Strategic Planning
• Part VI: The Importance of Human Capital Management
• Part VII: The Critical Role of Talent Management
• Part VIII: Building the Collaborative Organization of the Future
• Part IX: Unleashing Innovation and Driving Creativity
• Part X: The Art and Science of Effective Decision Making
• Part XI: Straight Talk Conclusion
• Acknowledgements
• About the Author
• Bibliography
• Index