Watching executives from British Petroleum, Transocean and Halliburton testify before Congress about the Gulf oil spill on Tuesday reminded me of the cardinal rules of leading through a crisis. Unfortunately, it looks like the BP-TO-HB trio never got the memo.

There are two rules to follow in a crisis. Rule number one is this: Protect other people first – customers, employees and citizens. Not your shareholders or yourself. Protect the public and your customers, and the shareholders will follow. Why? Because the long-term reputation and goodwill of your organization are more important than any short-term risk to shareholder value or your own job security.

Rule number two is a corollary to the first: Be prepared to reframe and expand your level of responsibility. In other words, accept responsibility even if you’re not at fault. This may feel counter-intuitive, especially when someone else is clearly culpable. But reframing and expanding your level of responsibility will help lead you out of the crisis.

Consider the Exxon Valdez disaster. When it went aground in Alaska’s Prince William Sound in 1989, eleven million of oils spilled onto pristine shoreline. In the immediate aftermath, Exxon’s CEO Lawrence Rawl was slow to accept responsibility. Instead he issued a flurry of press releases stating that the company was investigating the accident. The opportunity to quickly contain the spill was squandered. Hundreds of miles of coastline were fouled.

Public furor built and the company’s reputation plunged. Several weeks passed before Rawl grudgingly announced that the company would take responsibility for the clean up. Eventually, thousands of workers and volunteers were mobilized to mop up the oil, save the wildlife, and minimize the damage to the extent possible. But Exxon’s public image was left in tatters because its immediate response was too slow. William Reilly, then head of the Environmental Protection Agency, said Rawl’s response was “a casebook example of how not to communicate to the public when your company messes up.” Rawl’s reputation never recovered.

In contrast, when a container of Odwalla apple juice contaminated by the bacteria e coli resulted in the death of a child in 1996, CEO Greg Stepensall stepped in right away and assumed personal responsibility. He recalled every Odwalla product. He paid out huge sums to the families affected by the tainted products. He held regular press conferences to ensure the public knew what was going on and how the company was responding. For more than a year, Odwalla retooled its production lines, adding flash pasteurization to ensure no future incidents could occur. Sales fell 90 percent but Odwalla survived with its reputation intact.

As the Exxon Valdez and Odwalla examples show, leaders have a clear choice in how they frame their response to a crisis. On the one hand, they can respond out of a “protect ourselves” mentality. Or leaders can think and act out of a larger ethical context, as Odwalla did.

The Tylenol scare in 1986 is another case in point. It was clear when cyanide-laced containers of Tylenol were found on supermarket shelves that a pathological killer was responsible. Johnson & Johnson’s executives could have focused on the criminal aspects and exhorted police to take responsibility for catching the perpetrator. (Indeed, he was caught within a matter of days.)

But Johnson & Johnson’s executives understood the need to immediately take responsibility for the safety of their consumers. This led the company to recall every Tylenol product, design strong anti-tampering packaging, and conduct a massive awareness-building campaign. It is estimated to have cost the company $2 billion, but Johnson & Johnson emerged the stronger for it.

The bottom line is this: When a crisis hits, two dynamics take over: Trust and Empathy. These dynamics are illustrated in the figure below.

The Trust/Empathy Matrix

The empathy scale is governed largely by facts outside your control. In the case of the Exxon Valdez tanker spill, there was little question that the captain was drunk and that Exxon, as his employer, was at fault. Exxon’s leaders had little control over the empathy scale. But they did have control over the trust scale, which they messed up. In the Tylenol case, Johnson & Johnson was clearly not at fault. Yet it chose to assume full responsibility. As a consequence, the company was rewarded.

In Japanese corporate cultures, managers are trained to accept personal responsibility for anything that goes wrong on their watch. To Western eyes, this seems odd. We’re amazed when a Japanese CEO resigns because of the incorrect action of a freighter captain or an accounting irregularity. Yet as the Trust/Empathy Matrix shows, it’s also smart business. When a crisis hits, assuming responsibility and taking immediate, corrective action is more important than safeguarding your job.

Too bad the folks at British Petroleum, Transocean and Halliburton haven’t learned that lesson.

There’s a good piece in the New Yorker this week called “Board Stiff.” The writer, James Surowiecki, makes the case that corporate boards still aren’t doing a very good job minding the store for shareholders. Despite “reforms” like increasing the number of outside directors and increasing the ethnic diversity of corporate boards, he argues, the boards of publicly traded companies still aren’t effective in anticipating problems or preventing business meltdowns. The main reason, he cites, is that board members still rely on their CEOs for information. There’s no clear autonomy or ability to challenge the CEO’s thinking.

One reason is that the CEOs of publicly traded companies still play the largest role in selecting directors, which results in a loyalty system that makes it difficult to rock the boat. Directors don’t have enough power or time to really direct; instead, they typically see their most important job as selecting the CEO. It’s not until there’s a crisis of confidence in the CEO that the Board steps in, and by then it’s too late.

I’ve worked extensively with corporate boards. I’ve also worked extensively with the boards of many other types of organizations: non-profits, public agencies, universities, and cooperatives. One thing stands out: the CEO typically doesn’t serve on those boards.

That confers some clear advantages:

• First, it’s a lot easier to clarify the roles of the Board and the CEO when there’s clear separation of powers.
• Second, it enables the Board to structure its work so that it truly understands the issues of the company and can set overall direction and policy.
• Third, it forces the Board to be held accountable. It can’t fall back on the excuse that “we relied on the CEO.”

That’s a powerful case. But implementing a CEO-less board of directors runs up against a counter-veiling force: the ability of CEOs, under the current system, to control their boards and not be governed by them. That, fundamentally, is what stands in the way of fixing corporate boards.

Related Blog: “Executive Corporate Board and the Disruptive Member”

What makes good people be bad partners? Over the past month I’ve witnessed the dissolution of a law firm’s 15-year partnership. It began when one of the senior partners filed for divorce. The timing was unfortunate. It came just weeks before two high-powered associates were scheduled to buy shares. A buy-in signals the value of the stock. Fearing the repercussions, the senior partner (the one with the looming divorce) announced he wanted to put the deal on hold. “We have to wait,” he told his colleagues. Secretly, he was holding out for more money.

Fast forward two months. Five partners split away, forming a new firm, taking several associates with them, including the two who were scheduled for the buy-in. The senior partner became one of four shareholders in the firm. Three months later, the firm filed for bankruptcy, citing an excess of debt and an inability to draw in new investors.

Could this have been prevented? Of course. With the appropriate governance mechanisms, the firm could have put in place systems to deal with conflicts such as these. It requires trust to build those types of systems – and a desire to make those decisions long before trouble occurs. Most important, everyone needs to assume responsibility. In this case, they hadn’t. And that made all the difference.

Next blog post: Our Change Management Model

I facilitated the work of a Board of a major medical center on Monday. It was their second day-long offsite. The purpose of the first offsite was to clarify that the Board no longer governed the institution, but rather was an advisory, fund-raising board. This was a hard conversation, because three of the six founders of the institution still served on the Board – and they still saw themselves as “owners” and thus governors, even though the center was now governed by a much larger university. It took some powerful facilitation – and at times heated conversation – to iron that issue out.

This time, we focused on the need to expand the medical center campus. The Board needed to take the lead in raising $50 million. My goal was to get them to commit to raising the money as their top priority. Everything hinged on the preparation. I worked with the CEO, helping him polish his argument. I also worked with the fund development director, helping her hone her case for change. Their presentations came together nicely. By noon, I called the question. “Are you ready to commit to this as the Board’s top priority?” I went around the room, asking each person to declare his or her position.

It worked beautifully. Every single Board member agreed the top priority was raising the $50 million. We then spent the afternoon defining who would be responsible for what. Who  was responsible for introducing new prospects (Board members), who was responsible for qualifying prospects (staff), and who was responsible for making the ask (senior staff).

Lewis, one of the founding fathers, joined the meeting in the late afternoon. He raised his hand, and when I called on him, he said he didn’t see the need for the expansion. I explained that we were now discussing how to implement the Board’s goal. He asked the CEO to explain the need. I cut him off. “We’ve already covered that,” I said. “We’re moving on.” I felt badly. But it was my job to keep the Board on track.

After the meeting adjourned, many people came up and told me I’d done a superb job. I took the Board chair aside. “What did you think of how I handled it?”

“You did exactly the right thing,” he said. “Even though he is capable of making a gift of $5 million, we can’t let him disrupt our meetings. You handled it just right.”

Related blog: “CEO Coaching Lesson: Board Development“

At the heart of high performing organizations is clarity of decision-making roles. I have one client that illustrates this problem to a T. It is a partnership. Its mission is to educate people about important policy issues. There is no CEO. No one is clearly in charge. No one can define exactly what each person should do — and, more importantly, not do. Adding to the confusion is the fact that the goals have changed over time, which naturally affects the work done by each partner.

For example, one partner wants to review and give feedback on the publications produced by another partner. But should it? Is that appropriate? No one can say. Given the lack of role clarity, each partner struggles to assert their particular agenda and to carve out a greater role in decision making. This ongoing tug of war consumes huge amounts of time and energy, sapping the resources of the organization.

 What can I do? First, I can name the problem and put the conversation about roles squarely on the table. I can facilitate agreements about ground rules and role definition. Second, I can help them evolve a clearer decision-making structure, naming the particular processes that get engaged for major decisions. Third, I can look at the gaps in capacity where these power struggles tend to occur, and motivate people to put more capacity in place to close the gaps.

 Will that make this a high performing organization? No, because role clarity is only one of the nine habits of high performing organizations. But with decision-making roles clarified, we can focus on defining outcomes, strategies and operating rules with the right group of people at the table.

 And that will be a big accomplishment!

Next blog post: “CEO Coaching Lesson: The Conference Room“

Today, I met with the head of a large public agency (10,000 employees) and we talked about managing his Board of Directors so that they are supportive of his vision.

“You need to engage them early in the process,” I said. “Ask them questions. Enable them to own the direction.”

He gave me a quizzical look. “They don’t see eye-to-eye,” he said. “How can I do that?”

“It’s all about leverage,” I replied. “You have two Board members who want to be seen as driving the direction. Leverage their desire to be perceived as leaders.”

We talked about a strategy for doing that, for giving them a platform to articulate their visions for the organization.

Bill said: “Can you help facilitate this discussion?”

“I can, but I would prefer that you do it.” I looked at him. “You’ve led a fighter squadron into battle. Surely you can manage this Board.”

He hemmed and hawed.

“Can you envision how much more quickly you could implement your changes if the Board was fully behind them?”

Yes, he nodded.

“Can you envision these two Board members buying into your vision, once you buy into theirs?”

Yes.

“Do you think your visions are incompatible, or is it only in the details of execution you disagree?”

We’re aligned overall, it’s just in the details that we have some differences.

“That’s pretty common,” I said. “So what’s the worse that could happen?”

Bill pushed back his chair from the table. “Certain Board members are loyal to certain groups,” he said. “If I’m not careful, those groups could become too powerful.”

“In my experience, power changes hands when there’s a vacuum of leadership.”

Bill nodded his head. “I see what you’re driving at. I need to do this in order to get the organization aligned.”

“Taking responsibility invariably means making a choice,” I said. “If you’ve made the choice, then we can talk about the details of how to engage them.”

Next blog article: “Board Development Training“