The Global Leadership Challenge

By Matthew Blagg, CEO, Criticaleye

Leaders and their boards are facing one of the toughest and most challenging periods of economic uncertainty in history. Although the overwhelming majority of CEOs and chairmen have lived and worked through previous downturns, this is possibly the fastest and most global recession that our current heads of commerce, industry and government have ever had to rectify.

The sheer pace of the downturn has been a shock to many. New technologies and communications tools, which projected businesses to overwhelming levels of success in the boom years, have now been instrumental in the speed of their decline. However, despite the difficulties of the current market, the new world in which leaders find themselves presents a whole host of opportunities for growth and success.

The new world

In many ways, the downturn has emphasised how far globalisation has come. It’s increasingly clear that businesses now operate in a world economy and can’t act in isolation.

This globalisation is not only obvious to business leaders feeling the effects of the recession through global supply chains and the movement of business to emerging markets like India and China, but also those individuals losing their jobs and feeling the pinch of reduced spending power due to what’s playing out on a global stage. We need only look at the issues discussed at this year’s G20 summit in London to understand that governments, businesses and financial systems are interconnected and now have to take a synchronised approach to what could be the first truly global recession we have ever seen.

www.criticaleye.net 01

So what have been the most significant changes to business both as a result of operating in an increasingly global environment and the downturn? Clearly the lack of access to funding and credit is having a major impact. Banks are not lending and so it is very difficult for even solid companies to get the credit lines they need. Companies have had to prioritise cash and capital over long-term growth and profitability because, rightly or wrongly, investors are more concerned with an organisation’s capital position and whether the business has sufficient liquidity to cope with the downturn. The old adage ‘cash is king’ has never been so true.

Indeed, the way that organisations finance themselves, both now and in the future, has been severely disrupted by the economic downturn. More traditional means of financing, especially debt financing, are now far less attractive. Companies are going to need to recapitalise with higher quality, longer-term sources of finance to be successful and raise investor perception. Equity finance will be particularly sought after provided that organisations can raise it through markets that are well regulated, very liquid and transparent. What’s clear is that in the world emerging from instances like the collapse of Lehman Brothers, sources of finance are going to be much more readily scrutinised and will play a part on how companies are perceived. The lack of investment and access to funding is forcing many organisations to

take another look at their core competencies and decide exactly what their specialisms or key capabilities are. Companies are asking themselves if there are better homes for assets which no longer fit within their strategy and this unbundling process has created great opportunity on the M&A market. Indeed, for those with money to spend, there has never been a better time to shop for assets, and even companies, which would previously have been out of reach.

New strategies and acquisitions clearly require new management skills. Although the role of a leader in setting the vision and driving high performance will remain largely the same, the recession has created the need for experienced management and companies will be looking to bring specific skills onto the board. There is an obvious need for executives and NEDs with global understanding as boards should have knowledge of business in many different regions in order to readily face the challenges of globalisation and the interconnectivity of national economies.

Turning ThreaTs inTo opporTuniTies

The media have been keen to accentuate the negative throughout this economic decline. In the period following Lehman’s failure, it was impossible to pick up a paper or turn on the television without reading or hearing

that the world was crumbling before our very eyes. Indeed, you could be forgiven for not getting out of bed in the morning at all if you believed the exaggerated hyperbole that was fed through the media machine on a daily basis and which, some might say, had a role to play in the downward spiralling of consumer confidence and panic which accentuated the speed and scale of the problem. It would, of course, be wrong to deny that it was, and still is, a very difficult time, but this sensationalist approach from journalists chooses not to acknowledge that the downturn also presented executives with significant opportunities for growth, change and innovation.

It is clear that success in the current climate will depend heavily on the strength of a company’s balance sheet and their ability to adapt quickly to change. But if organisations are in this position, and can align their business models with customer behaviour swiftly and flexibly, they are more likely to prosper and put themselves in excellent stead for the upturn.

Again, the recession has offered some dream M&A opportunities. Buying distressed assets has allowed some organisations to expand and strengthen their expertise, product range and human capital capabilities. In terms of the people, it is offering the chance for leaders to re-engage with key staff, those individuals who are core to the strategic goals and direction of the company. Now is a great time to remind

“ Multinational businesses in the US have completely American boards whereas in Europe and the UK, boards have become more globalised. You’ve got to start at the top. Members must be multicultural whose careers include periods living in other countries. The challenges of running or being on a board have got to encompass that.” - Alison Carnwath, Chairman, Land Securities

“ Chairmen will need broader experience as a purely domestic chair will struggle in a truly global environment. The chairman will have to spend more time thinking about culture and set a tone around corruption. The need for tougher, clearer governance is also going to grow quite significantly.” - Donald Brydon, Chairman, Royal Mail

www.criticaleye.net 02

Companies that had become lazy from continued success in a market which has failed to stretch their intuition and drive. The formidable array of companies coming out of emerging markets is proving a significant threat to business in the Western world due to their ability to learn and adapt to the changing face of the market. Now is the time for organisations in older, more established economies to learn from these new companies so that the threat they pose can be turned into opportunity.

These ‘new’ organisations are taking the lessons learned over decades by business in the developed world and are applying them extremely rapidly, and flexibly, to their own business models. Most have a number of advantages including highly motivated workforces made up of individuals who really believe in the vision of the company and the confidence to challenge and innovate the way things are done. These organisations are not burdened by a ‘this is the way it’s always been done’ mentality and, as a result, can adapt and innovate more effectively.

The fuTure

The downturn has shown that we must prepare organisations for the realities of globalisation more effectively. Competing in a world market and keeping up with the innovations that new and emerging organisations are deploying will be the key to survival. Companies will need a global capability, a presence and understanding of how different cultures work, how to sell to these cultures and, ultimately, how to partner with them. Now more than ever, organisations in the Western world should be looking to build partnerships in other countries which will allow them to assimilate the local culture.

The leadership role will be crucial to success in the new world. There will need to be a greater focus on strategy than ever before

and leaders will have to decide how best to leverage that strategy on a global scale. When we look back on the current recession, we will certainly remember how tough it was but we also need to capture the lessons that we are taking from it. This economic crisis is like no other in history. We have never experienced how the interlocking interests of banks, financial institutions, governments and businesses could be so damaging in such a short space of time. But the interconnections of these industries and institutions could now serve to rebuild the global economy as quickly as it crashed. Instant communications and technology will allow us to take action in a way that would not have been possible even 10 years ago.

By taking advantage of this, the new leadership challenge is to rebuild a stronger, more effective and mutually beneficial economic environment than ever before.

© Criticaleye 2009

“ Those countries that devote long-term investment to research, development, technology and building intellectual capability will be most successful. The trend of investing in the future and building core capabilities, which we have seen in the West but not so much in Asian countries, is going to become much more important so that countries can differentiate themselves in the same way that companies do.” - Graham Love, CEO, QinetiQ

Key TaKe-aways: QuesTions for a global leader

• Yes, it’s a tough new world for both commercial and non-commercial organisations but, have you really looked into where there are opportunities for growth and success?

• The downturn has emphasised how far globalisation has come – not least through global supply chains and the rise of emerging markets – what does this mean for your organisation in terms of new competitors and your supply chain?

• The way that companies finance themselves will have to be reassessed, have you thought about your existing and future sources? They will need to be much more readily scrutinised

• The need for a global board has never been greater. Do your executives and non-executives have a deep understanding of the challenges of globalisation?

• We have a lot to learn from the ethos and cultures of emerging market organisations. How can your organisation replicate their flexibility and ability to change?

• Leaders need to leverage their global capability to be successful – what can you do to learn more and better position yourself as a global leader?

your people what business their company is in, the role and purpose of that company and the difference it can make in the world. When times are good, it’s easy to forget that winning business depends almost entirely on getting people excited and believing in the vision and strategy of the company they are working for.

Some might say that the downturn has been an important wake up call for organisations that needed to make cuts and innovate.

A true entrepreneur, Matthew’s experiences setting up businesses, advising firms on strategy and corporate development and sourcing senior executives for boards have shaped his role as CEO. Previously, Matthew founded a strategic consulting firm where he advised firms across a diverse range of sectors, from venture capital to telecommunications, and took responsibility for the international operations of a UK listed business services company, establishing and maintaining its relationships across Europe, the Middle-East, Central Asia, North and Latin America. In 1990, he founded a successful mail order business which he sold in 1995. He is also a Member of the London Chamber Orchestra Advisory Board.

Contact Matthew through www.criticaleye.net

Matthew BlaggCEO, Criticaleye

www.criticaleye.net 03