Some of the CEO’s Hardest Decisions

Updated: Feb 21

Every CEO knows the importance of communicating as clearly as possible the kind of issues that should be brought to him or her for decision. In general, it is those decisions that will have a major impact on the company or nonprofit. That impact may be strategic, financial, reputational, regulatory or the like. The decisions are almost never simple.


Many of them involve so-called “complicated” issues, in which there are many considerations but the outcomes of competing courses of action can be predicted with reasonable confidence if the right data and other information is available and all the relevant factors are analyzed. That predictability puts these decisions in the less hard bucket of CEO decisions. Whether an aircraft manufacturer should introduce a new model is a good example. Of course, the risk of being wrong about a major assumption is one of the inputs that must be carefully weighed, and there is sometimes considerable risk of being wrong precisely because it is so complicated. As Boeing’s experience with the Boeing 737 MAX illustrates, no prediction is perfect. Nevertheless, most bet-the-company decisions should fall in this category.


Others involve so-called “complex” issues. These are similar to complicated issues but have so many moving parts and are subject to so much change at high speed that prediction with any confidence is impossible and high uncertainty attends each alternative. Complex issues are characterized by what the U.S. Army calls VUCA – the critical elements are Volatile, Uncertain, Complex and Ambiguous. The Covid-19 pandemic has presented many of these issues, such as whether and when to require that employees move back to physical offices, whether to mandate vaccination and masks, whether to open the K-12 schools or stay with remote learning, etc. Most acquisitions of troubled companies fall in this category – which is the reason that so many of them fail or produce unforeseen consequences.


The conduct of foreign policy is rife with complex issues. In an interview of Professor Joseph Nye of Harvard reported in Gideon Roses book “How I Got Here: Lives in Public Service,”[1] Nye recounts a conversation with Secretary of State Cyrus Vance. as Nye was ending a stint at State. “[Vance] said, “I want you to write me a personal note, on personal stationary, no classification. Should we or should we not use force to stop Pakistan’s nuclear program?” Nye wrote the note, saying “probably not, because there were too many moving parts and too many unforeseeable consequences to the attempt. But [he] kept wondering, ‘What if I had answered that the other way?’” The current stand-off between NATO and Russia over Ukraine is a monument to VUCA.


Whenever possible it is wise to approach complex issues by way of limited experiments to learn more about the changing environment, to see what unforeseen problems emerge without sinking the ship, and to see what seems likely to work successfully. Bet-the-company initiatives in a complex VUCA environment are either the leadership equivalent of Hail Mary passes or are limited to situations where the CEO and Board have convinced themselves that they will be able to make mid-course corrections if things are going badly. Often that is not possible.


The March of Dimes was founded and built into a nationwide nonprofit to focus on the devastating effects of polio on children and adults. The discovery of effective vaccines made the organization’s mission irrelevant. Rather than close, the board chose a new mission – studying and preventing birth defects, which evolved to encompass a focus on healthy pregnancies and premature births. I have not researched that decision, but I would venture that it was impossible to know with any reasonable certainty whether the organization would be able to convince their huge public donor base to support their new mission.


While the March of Dimes was successful in shifting its mission, Sears Roebuck & Co. was not. In the late 1980’s Sears was the largest retailer in America. By 2018, it had slipped to the 31st largest after detours into a variety of sectors, including financial services, all of which led to a Chapter 11 bankruptcy reorganization and a drastic downsizing. During that 20-year period, large retailers had changed dramatically, first with the dominance of big box stores and then with Amazon and the astonishing growth of digital marketing and e-commerce.


There is a third class of not uncommon but very difficult and agonizing CEO decisions that sometimes involve complexity but often do not. These decisions involve a conflict between the clear interests of the company or nonprofit and the CEO’s values or the announced values of the company or nonprofit. Instances of this conflict occur constantly. The challenge is created by two choices each of which seems to have a strong claim to the CEO’s blessing or avoidance.


It had been the announced mandate of the Mayor of New York City that those older than 12 years old should have access to indoor dining, fitness, entertainment and performance venues if they have had at least one vaccination shot. That was increased to two shots on December 27, 2021 (after all the Christmas gatherings). Omicron already accounted for almost all of the surge of new cases in New York and it is wildly transmissible. Even those who are fully vaccinated and boosted are liable to infection. before Omicron, the CDC, Anthony Fauci, the Director of the National Institute of Allergy and Infectious Diseases, and virtually every epidemiologist I have seen express an opinion, said that everyone eligible should have the full basic vaccination of one or two shots and, more recently, a booster shot. Most restaurants and public places were following the Mayor’s standard of requiring only one shot and then two. If you were CEO of a chain of restaurants in NYC or a theatre and you cared deeply about the health of your customers (and the reputation of your venue), you would like to see them fully protected. But requiring more than “everyone else is doing” may well drive many of your customers away at a time when you are trying desperately to rebuild. Require a booster or not?


Suppose you are the CEO of a nonprofit supporting the homeless for which the proceeds of their annual fundraising gala provide a critical part of their operating funds. The gala is a dinner at which everyone takes off their masks to eat. The CEO cares about the health of their supporters and the reputation of the organization would suffer if it became a super-spreader event. Without the proceeds from the gala, there would be major layoffs and the organization’s ability to perform its mission would be seriously damaged. Cancel the gala or not?


Some years ago, a large, publicly held financial institution had developed a new, complex financial instrument that was enormously popular and which the company sold in huge quantities. Because of unanticipated shifts in the market, the instrument turned out to be toxic – for the financial institution. It was draining cash at a great rate. Unless the company solved that problem, they would be in serious trouble. The company was advised that it was not required by the then state of the securities laws to publicly disclose the drain on cash before it became more serious. In fact, disclosure would make banks reluctant to provide additional loans, which would exacerbate the cash shortage. While not then legally required, anyone purchasing shares of the company at that point would have wanted to know about the state of the company’s cash flow. Disclose or not?


Sometimes an officer of a marquee company is publicly accused of misconduct, financial or personal, and the company starts to lose advertisers before there is time for an investigation. Suspend or terminate the officer, or opt for due process?


These are just a few examples of the range of situations in which the interests or values on all sides are both valid and conflicting. There are no easy answers to these issues. Most CEOs always prefer the interests of the company or nonprofit above the individual officer or individual supporters when things go badly, even when it seems unfair. While it protects the organization, that approach is quickly understood by those affected and sends a message that the CEO does not have their back. In the case of employees, it also tends to create a culture of unwillingness to take reasonable risks, which is not in the interests of the company or nonprofit. Almost every decision of this kind leaves the CEO feeling uncertain and unhappy. It comes with the territory.


In situations like this helps a CEO to be able to talk to a neutral outsider who does not have an established position to test his or her ideas and assumptions in a safe environment before going to the Board. That is an important role of an executive coach – not to tell the CEO what to do, but to help him or her see a broader range of possibilities. For example, these decisions are often presented as “either/or” decisions, but they are not necessarily binary and a coach can help the CEO find a middle ground, e.g., cancel the gala or make it digital, but have a major campaign that explains the importance of financial support for the mission of the nonprofit in very challenging times, or open the schools but have a remote option for the students whose parents think Omicron is still too threatening. At the C-Suite level, being a testing ground for creative approaches to intractable problems and helping to expand the range of options is often the most valuable contribution an executive coach can make.



 

[1] Published in digital form by Foreign Policy.

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