We have come to realize that the economic crisis was less a matter of subprime mortgages than subprime leadership. – Bill George, Harvard Business School

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Our recent economic travails set me to thinking about the learnings from this difficult period that will prepare better leaders for the future. Times of crisis can be deadly, but there’s nothing like navigating through adversity to forge the skills of leadership.

There is certainly plenty of room for improvement. According to the National Leadership Index at Harvard, while confidence in all leaders dropped in 2008, confidence in business leaders fell 13.5%, more than everybody including politicians. The marketplace of public opinion, which includes shareholders, employees and customers, distrusts leadership as in no other time in our memory. While CEOs are top of mind, C-level leaders like chief marketing officers and heads of customer delivery play pivotal roles in the direction and success of an enterprise.

Nothing addles the mind like easy money, and we have lived through a period defined by easy money. Capital was abundant, rates were low, government money flowed like water, incentives were generous and the market strong. Organic growth was no walk in the park, but synthetic growth (trading, mergers and acquisitions, exotic products, and artificially low rates) produced a river of faux success. Leaders in all facets of the business now live with the aftermath.

That was then and this is now. What now? How will living through this difficult time prepare leaders for the future? Let me posit three lessons:

First: Running with the herd will likely get you run over in a stampede. When others are having outlandish success, regardless of how risky or outrageous their approach, it creates almost unbearable pressure to emulate and match them. We only have to look at sports and the wide-spread use of steroids to see how difficult it is to compete in the short-term with people who are cheating or taking inordinate risk to generate short-term results. The ability to substantively differentiate on strategy, markets and execution requires the ability to see things differently. But it also requires convincing shareholders, employees and customers of the merits of the road less taken. We might call these leadership skills “herd management” – the ability to avoid the vagaries of the herd and corral your stakeholders when the market in running pell mell in one direction.

Second: Commitment to being long-term right must exceed the temptation to be short-term rich. Short and simple, whether you are a CEO, CMO or head of line of business, the goal is to develop a market strategy you believe in strongly enough to bet your job and your money on. That is the test – if you are not willing to walk the plank for it, no one else will either.

As a former CEO, it has been my experience that every strategic commitment is accompanied, sooner or later by a rigorous test. The test always becomes very personal – how strong is your belief in the direction. It doesn’t mean that you can’t alter your direction, but you cannot cave in for short-term gain that hollows out what you stand for. For right now, investors, employees and customers are looking for stability and commitment to a longer-term, sustainable direction. Decisions and actions in tough times often magnify reputations and brands. Your strong commitment is elemental to developing theirs.

Third: You and your success are defined by the trust stakeholders have in you. As a leader, what you are and what you can get done is a function of shareholders, employees and customers trust in you. That trust exists on three levels. First do they trust your intentions? It really boils down to two things: do you mean what you say and is what you say sufficiently purposeful. Stampedes have a way of testing both of those. If you fail this test, the other two do not matter. Next, is do they trust your actions? This test is not about talk, it is about walk. Do the actions support and align with what is said – even when it is difficult or inconvenient? So often executive speak or marketing claims are quickly undermined by incongruent actions or inaction. Finally, do they trust that the intentions plus the actions will yield the right outcomes – the results? There are few forces more powerful than stakeholders who believe the intentions and actions will deliver the desired results.

Differentiation, commitment and trust: Those are not new words and they are often considered soft attributes, but they are the key to delivering long-term hard results. They are not the terms of mere management, or financial engineering but the requirements of leadership.

For most organizations and especially public companies these leadership skills can only succeed when accompanied by an attendant requirement: boards and shareholders who are not just traders but investors who are in it for the strategic longer term. When we look back over this past tumultuous period, one thing is clear: Nothing enables subprime leadership like subprime owners.

(Column appeared originally in ABA Bank Marketing magazine – December 2009)

By ROBERT E. HALL

Not to be reproduced without written permission. All rights reserved. © Copyright Robert E. Hall 2009