Leadership Revealed in Times of Crisis

Friday, February 26, 2010 9:24AM

by Russ Warner, SageCreek Partners, Feb. 25, 2010

Leaders seem to be scarce in society and in business.  A leader takes immediate responsibility for problems, makes restitution, and takes decisive action to avoid repeated mistakes.  Leaders have and show integrity.

When things are going well, leaders are not truly tested.  However, when things go awry, leaders are not miraculously made, they emerge.  More importantly, a leader admits mistakes, in spite of potential personal consequences or ramifications to the organization.  A leader will not consider a cover-up or a delay in response.

Toyota has recently faced a most embarrassing and serious crisis in the company history.  Sadly, after spending years building a strong brand and reputation for a high quality product, things are not going well.

During this current crisis, the CEO of Toyota has failed the leadership litmus test.  The company has much to lose by negative news about its products.  Hiding a problem, deflecting fault, or delegating communication to others is a lack of leadership.

Consider the Toyota safety recall – specifically the problem with faulty accelerator pedals.  There have been various accidents and 37 related deaths.  The more alarming fact is that Toyota was very irresponsible in discussing and communicating its problems with customers and with the public in the weeks immediately following the discovery of the problem.  As such, the current situation has gone from bad to worse.  Over 9.9 million vehicles have now been recalled.

Mr. Akio Toyoda, President and CEO of Toyota, spoke for the first time about the accelerator pedal recall in a press conference in mid-February.  In the press conference that lasted almost sixty minutes, Mr. Toyoda was not clear regarding the problem or the remedy for it.

The more telling indication of his lack of leadership was revealed when Mr. Toyoda delayed speaking with the press, with customers, and with the public for weeks after the accelerator pedal problem was discovered. He even delegated communication during the initial crisis to others in his organization.

Transportation Secretary Ray LaHood has said the government is considering civil penalties for Toyota over its delay in handling the recalls.  The Senate Commerce, Science and Transportation Committee has scheduled a March 2 hearing.

When a crisis of magnitude hits, only the CEO in a global corporation has the duty to speak on behalf of the company.  Asking subordinates to represent the company shows a lack of integrity.  It implies that the problem isn’t important enough to merit the CEO’s attention.  But remember, in this case, 37 people have been killed.

Contrast the Toyota story with the Tylenol Chicago murders in September of 1982.  Johnson & Johnson, makers of Tylenol, took immediate and corrective action and conducted a massive product recall when it was discovered that seven people had died in Chicago after taking tainted Tylenol capsules.  The deaths involved capsules in which Tylenol had been replaced with a deadly poison, potassium cyanide.

The press congratulated Johnson & Johnson for the way in which the crisis was managed. The Washington Post said, “Johnson & Johnson has effectively demonstrated how a major business ought to handle a disaster.” The article further applauded the company for being honest with the public.

In addition to recalling 31 million bottles of Tylenol, Johnson & Johnson established relations with local police, the FBI, and the FDA. The company even participated in searching for the person who committed the crime.  At the time of the Tylenol scare, the company’s market share fell from 35 percent to 8 percent.

However, in less than a year, the stock price rebounded – a change credited to Johnson & Johnson’s prompt and aggressive management of the crisis.  Two months after the recall, Tylenol capsules were reintroduced in a new, triple-sealed package.  Within several years, Tylenol had became the most popular over-the-counter analgesic in the U.S.

Can Toyota completely remedy the situation at this point?  No, unfortunately.  The damage is done and ramifications continue. The CEO’s lack of leadership is fully exposed.

The moral of this story: when things go terribly wrong, a leader will admit fault, make restitution, and take corrective action to remediate the risk of the problem occurring again.  A leader will take responsibility.  In many cases, that level of integrity will be inherently rewarded.