The Quarterly: We’re here today with Bob Sutton from the Stanford Graduate School of Engineering, noted author and specialist on management and organizations. You did an article recently for the Harvard Business Review, “How to be a good boss in a bad economy.” Frame the challenge for us.
Robert Sutton: First of all, the article started because it seemed like every executive I know at almost every level was involved in layoffs, pay cuts, the threat of it. So, I was hearing from people everywhere. But the reason it matters and why it’s hard to be a good boss in tough times starts with a [principle] I call the “toxic tandem,” which I’ve stolen from a lot of good social psychologists who do experiments.

And it’s a combination of two things about power that are very well documented. One is that when people are in positions of power, for better or worse, they often become sort of oblivious to the needs and actions of the people who have less power than them. You can produce this in all sorts of ways-it’s very easy to produce in the laboratory. And the other part of the toxic tandem is sometimes called hyper vigilance.

The Quarterly: So the spotlight raises on you if you’re the boss in tough times.
Robert Sutton: The spotlight raises on you. They’re looking at you really closely. So if you think about the toxic tandem, you’ve got the boss, oblivious, and then the subordinates, even more and more worried. People tend to devote a lot more energy to their boss-or to their board, even, if they’re CEOs-to figure out what is going on. And they don’t engage as much with the people who are under threat.

And then the other thing about the toxic tandem that bosses really have to keep in mind is that there is a lot of research that shows that when people are looking at the boss and worried about what the boss is doing, they tend to assume the worst. So little, tiny signals get magnified.

I don’t think this made it in the article-it’s on my blog because it came afterwards. I presented the ideas to a group of executives. And this guy walks up to me and he starts describing his executive vice president and how one of the secretaries walked up to him and said, “When are the layoffs going be?” And he says, “What?” And then she went to explain. She said, “Well, it’s an ‘interesting shoes’ day for you.”  What this guy has a reputation of doing is he can’t look people in the eye when he’s upset about stuff, so he would always be looking at his shoes. They were saying, “The boss is having ‘interesting shoes’ day.” So from just the fact the guy walked around not looking anybody in the eye, she went straight up to him. So that to me is a pretty good sign he was oblivious to that, right?

The Quarterly: So the point here is that when times are tough, that has its own dynamic. But the thing you have to understand as a boss is that they are looking at you. They may have ignored you in good times, they may have paid attention when they needed to, but you’re suddenly under the spotlight in a way you haven’t been. So what do you do? What do you do to do it right?
Robert Sutton: Well, first of all, one thing I always like to emphasize is that I’m a management theorist. And it’s a lot easier to talk about management than to actually do it. So, you know, for readers of the McKinsey Quarterly and other-

The Quarterly: That’s your disclaimer, right?
Robert Sutton: But it’s not just a disclaimer. It’s one of the reasons I talk about management rather than actually do it. I see how hard this is on my various friends who are CEOs and how it just rips their guts out and how much they worry about it. But there is sort of a little recipe that actually goes back to some research I started with my now, I think, 92-year-old mentor, Robert Kahn, in graduate school. The recipe is prediction, understanding, control, and compassion.

The idea of prediction is that if some sort of stress is coming through, it does much less damage to people when they know when they are safe versus when they are threatened. Martin Seligman is the psychologist most heavily associated with this. But a good example of this, and this comes from one of the CEOs I know-the head of a nonprofit. He was describing to me that they knew donations were falling, grants were falling, and their stock portfolio was falling. Things did not look good. And all those things were sort of intertwined and part of the economy.

But his people were very nervous. So what he said to them was, “I promise you there will be no layoffs or pay cuts for 90 days; nothing is going to happen, so you’re safe until then,” so people wouldn’t come to work every day waiting for the other shoe to fall. So that is the kind of thing that gives people some bit of psychological safety. And also they know when to mobilize to worry about their lives.

The Quarterly: So don’t overpromise, but at least if you can give a certain window of stability, give it to them-right?
Robert Sutton: Yeah, and I’ve heard a number of CEOs in other places say that sort of thing. So the next thing is understanding. It’s very well documented that, independently of how stressful things are, human beings need to know why things happen. They need some sort of explanation. And there is sort of a challenge there, because if you give them too complicated an explanation, then they just get befuddled and freak out. There is an art to be able to give an explanation that’s complicated but not too complicated, so they can follow it. Part of getting rid of the fear is having people understand it.

So that’s understanding. The next one is control-if you can give people some control over the way it happens. A good example of this, which I talk about in the article, is some years back-this was when A. G. Lafley came on in about 2000 as CEO of Procter & Gamble, but they still had John Pepper as the chair-and John Pepper described how they learned a lot about closing plants. Procter & Gamble used to sort of sneak out in the middle of the night. But they learned that when they announce it in advance, tell them why, give people all sorts of exit options and places they can have control, and show compassion that-and Procter & Gamble has very good metrics-they would keep more good employees, they would get better press in the community. And the other thing, which was quite important to them, is that sales of the product in the local community would not go down so much.

And to me, the even simpler idea-as one of my friends, Michael Dearing, who used to be an eBay executive, always says-is that there is a difference between what you do and how you do it. It’s really quite clear that the worst situation, even if they are announced in advance, is when people go through multiple rounds of layoffs. The best people start leaving. The people who stay work less hard, they have mental health problems.

So to the extent that you can-and of course, in this current environment, predicting what’s going to happen is very difficult-but to the extent that you can not put people through multiple rounds of layoffs, you are going to be better off as a boss and also as an employee in all sorts of ways.

The Quarterly: Let me ask you about the “don’t”s. Don’t, you know, look at your shoes if you are normally an avoider of people when there are bad things coming. But what are some broader don’ts?
Robert Sutton: I think there is a really important subtlety that one of the managers I’ve talked to-who has worked at probably six or seven firms where she’s been involved in layoffs-has really emphasized, which is the rhythms and time span of emotion. And there are two parts of this. The first part is that when you, as a boss or decision maker, are going through this process of trying to decide whether or not to do layoffs, you go through all sorts of emotion. First you get angry, then depressed. But by the time you present it to your employees, it is old news to you and it is new to them. So you sort of have to back off.

There is another thing I was going to emphasize-and this is about taking a longer-term time perspective. The story in the article actually comes from Randy Komisar, and it’s about when he worked for a guy named Bill Campbell, who is famous in Silicon Valley for being a coach. Actually, it has been profiled in the McKinsey Quarterly before. Bill was famous for being this real warm, supportive guy. But [Campbell and Komisar] were involved in a startup that was once high flying and eventually sort of wound down. Bill treated everybody so well in the process-both emotionally and then he also went out on quite a limb to try to get people jobs and to sell the company in such a way to save them jobs-that even though the company was just basically winding down, none of the top management team left. And they are all very loyal to him.

That is sort of an extreme case, but I think it is important to remember that it’s a long life, and there are some times when companies aren’t going to make it. There are some times when you, yourself as a boss, are going to lose your job. People will look back and remember how you dealt with it. And you’ve also got to deal with your own conscience in the process. I think that’s a very important thing [to remember] because everybody sort of focuses on the short-term productivity.

The Quarterly: One last question: how do you deal with the folks that don’t get laid off?
Robert Sutton: When they see that it’s fair, they are more likely to stay loyal, suffer less psychological damage, and also feel more guilty and work even harder to help you. There is actually this sort of weird, sneaky part of it, which is that if the survivors are treated well, they kind of feel guilty because of that “for grace of God go I” sort of phenomenon. In fact, most of all the stuff I said about prediction, understanding, control, and compassion-whether people lose their jobs or not-has an effect on the whole system.

Nancy Cruickshank, Executive Director of Digital Development for Telegraph Media Group writes in the May edition of Revolution Magazine.

Great ideas can come from anyone and anywhere in a business (see our film at http://marketingstatements.com/about) which is why we form a task-force, made up of a cross section of people involved in an organisation, who lead and drive the transformation effort.

To arrange a meeting with Marketing Statements, please contact Jenny Patterson on 07957 473 270/020 8983 3984 or jenny.patterson@marketingstatements.com

The CEO of the former Banco Itaú-and now of Itaú Unibanco-describes the problems of changing a company that is set in its successful habits.

It’s unusual for a CEO who has led a company through more than ten years of strong growth and financial performance to stop and consider whether the business should be run differently to meet future challenges. It’s even more unusual for such a chief executive to initiate a major transformation introducing a new way of managing this highly successful company-a transformation involving its culture, organizational structure, decision-making processes, and leadership style.

Yet this is precisely what Roberto Setubal, the CEO of Brazil’s Itaú Unibanco, launched in 2005. By then, decades of steady organic growth and well-chosen acquisitions had made the company, founded in 1945 and controlled by the Villela and Setubal families, Brazil’s second-largest private-sector bank and one of Latin America’s most profitable institutions.

In November 2008, midway into the change effort, Banco Itaú and a domestic competitor, Unibanco Holdings, agreed to a merger forming one of the world’s top 20 banks by market capitalization. Setubal, named CEO of Itaú Unibanco Holdings, here speaks to McKinsey director Frederico Oliveira about Itaú Unibanco’s journey from a command-and-control management model to an open and creative dialogue, and what the merger will mean for this journey.

The Quarterly: Let’s go back to the beginnings of Banco Itaú’s transformation program. The bank was performing very well. Why did it need to change?

Roberto Setubal: The bank had been growing by up to 25 percent a year for more than ten years, and its performance was still very good in 2005. Yet I began to realize that it had become such a large and complex organization that we could not continue managing it in the same centralized way as before. Competitors were closing the gap somewhat, and while we’ve always been very good at implementation, innovation and the flow of ideas within the company were not quite as good as I thought they needed to be if we were to maintain our competitive edge. The conclusion was that we needed a higher-quality decision process in order to prepare ourselves for a demanding future.

The Quarterly: What was wrong with the decision process?

Roberto Setubal: I had always been a very hands-on CEO and the bank was much too centralized in my own person. Because the management model hadn’t changed as the company grew bigger and bigger, I ended up having more than 20 direct reports, creating an impossible situation. At the same meeting, we could discuss big issues, like a large investment for expanding our operations, and small ones, such as very basic product problems. What we really needed was to delegate decisions and create forums for different types of issues-forums with the right people present and with enough time for everybody to bring their own ideas to the table and engage in open and creative discussion. If you went to school in the 1960s, you learned a lot of things that were very modern for that time. But if you go to the same school today, they teach you other things. The world is moving and the company has to move with it.

The Quarterly: What are the main elements of the transformation program?

Roberto Setubal: We are creating a new management model, which involves the organization’s structure as well as processes. But to get this done, we need to change the way people think and act. So the first part of the transformation was to work on culture, particularly how our people voice their ideas and concerns. I believe it is very important to have all the information and ideas on the table before we make a decision, and I was looking for a more open environment for discussion. We started with top management and quickly worked our way down to create bottom-up “pull” for change. As this took off, I made it very clear that the change was for the sake of performance, not for fun-that it was for keeping our competitive edge.

So as a new culture began to take root, we started to implement the foundations-the hard stuff-in terms of processes linked to the new culture. This involved a redesign of the decision-making and risk-management processes in order to foster innovation, speed, and accountability. It also included a revision of performance-management systems-a revision involving very concrete individual and group targets, compensation programs, and in-depth leadership reviews. In a word, the way the bank actually works has been redesigned to support the new culture that is under development.

Here we were, proposing an environment where executives could no longer hide in their big offices but had to engage in open debate with their teams.

The Quarterly: How did this start-what was the very first step?

Roberto Setubal: The initiative was mine, and the first step was to get the board on board. First, we had to agree where we were and where we wanted to go. This took a few months, and some people were very skeptical to begin with. Then we started to involve other levels of the organization, and we had the big announcements and ceremonies that play an important role.

The Quarterly: What role have you played as CEO?

Roberto Setubal: The role of CEO is key. If you want change to happen, you have to change your own ways. I realized that the decision-making process was a reflection of how I used to manage the company. So if you want the company to be more democratic, you have to allow yourself to be challenged by others. You have to commit yourself totally and really believe that this is the right way to go. This is very difficult in the beginning because sometimes I knew that I could make the decision much faster on my own.

But once we created an environment of discussing and listening to what others were saying and implemented a good process for making decisions, I could delegate more and rely on five or ten smart people with different backgrounds to make better decisions than one person.

The Quarterly: Changing an organization that is doing well is usually very difficult. What has your experience been?

Roberto Setubal: There was some resistance. Some old-style people were saying, “We are doing well; why should we change when we don’t need to change?” It was very interesting that while the top team agreed that we needed to improve the way we made decisions, the moment of truth was when we really started to bring the changes into the day-to-day environment. It’s a very complex endeavour to change a winning company. In such a company, everybody is very proud, and they feel that the way they have done things for years is the right way. Some people were not able to go through this process of change, although in some cases they tried very hard, and eventually left the company. Others were mentally prepared and they wanted these changes to happen.

It was hard for many midlevel executives who were used to being powerful and not having their decisions questioned. Here we were, proposing an environment where people should offer their frank opinions and where executives could no longer hide in their big offices but had to engage in open debate with their teams. There are still many people in the company who are struggling to adapt to these changes.

The Quarterly: When did people really understand that the change was for real?

Roberto Setubal: When very important people who reported to me and who could not adapt started to leave the company, others began to believe that change would actually take place. In the past, we used to accommodate high executives whose performance was not fully satisfactory. Never before had anybody at the top level left the company. Those who had reached that level went on and on until they retired. Now colleagues with 10 or 20 years tenure left because they decided that they couldn’t adapt to the new culture. This was very hard for them and the people around them, but as we move forward on the path of change this becomes more of a natural process. People understand that you simply have to perform, and you not only have to deliver results but you have to deliver them in the right way.

The Quarterly: There are also people requirements for a successful transformation. How are you handling demand for the kind of talent that would help make the new management model a success?

Roberto Setubal: By hiring them. Indeed, one of the objectives of changing the company culture was to be able to attract the best talent. Itaú used to be a closed career. It was only 10 to 15 years ago that we started recruiting people from the outside to the higher ranks of the company. We always had good talent internally, and this is probably more true today than ever before, but when the bank is growing by up to 25 percent a year there are a lot of new positions to fill in order to continue growing at that rate. Today, unlike in the past, I think potential hires perceive Itaú as a rather attractive place to work-as a winner in the marketplace, with good remuneration and career prospects. That’s what they see when looking in from the outside.

You have to meet these expectations so that when people are here they want to stay. This has not always been the case. Sometimes we brought in good people who left the company after a while because they felt they did not get a chance to contribute in the way they could. The new generation coming into the labor market has different expectations than the generation of 20 years ago. Talented people don’t come here just to perform tasks. They want to offer their ideas, discuss freely, grow professionally, and contribute to the future of the company. We have to create this kind of environment or we’ll end up with the yes-man type, which is not what we’re looking for.

The Quarterly: Was it easier or harder to make change happen in a family-controlled business?

Roberto Setubal: I don’t think the ownership structure is a crucial element. What is critical is that the CEO should really get involved, lead by example, and basically walk the talk. In our case, being a family-controlled company made it easier in many ways, as I was the CEO and also part of the family, which made my mandate stronger. But I believe that the CEO is always the CEO, and what counts is that this individual should have the support of the board, which of course represents the owners, family or not.

The Quarterly: How far along is Itaú Unibanco today in its transformation efforts?

Roberto Setubal: We started three years ago, and I would say that we’ve come halfway on a long journey. Our people realize today that change is not just a concept-it’s not a question of, “OK, let’s be nice and democratic and listen to what everybody has to say.” They understand that the new, open culture is about arriving at the best decisions.

The Quarterly: What’s your advice to other CEOs contemplating a business transformation?

Roberto Setubal: You have to be patient, persistent, and brave at the same time. Your actions as CEO will be absolutely crucial, so first of all you have to be very committed to what you are going to do. If you really are, people will follow you. If you think you don’t have to walk the talk, it won’t work at all. The second condition is that you have to be prepared to make some tough people decisions, sometimes about colleagues who are very close to you. This was not an easy thing for me to do. But everybody has to understand that the company comes first; we are here to do what is best for the company.

The full interview can be viewed at http://www.mckinseyquarterly.com/Transforming_a_high-performing_company_An_interview_with_Roberto_Setubal_2312

To arrange a meeting with Marketing Statements, please contact Jenny Patterson on 07957 473 270/020 8983 3984 or jenny.patterson@marketingstatements.com

Marcus Rich Interview

The second part of this interview, will be posted over the next couple of weeks.  In part two Marcus talks about generation X and generation Y in this digital world, as well as sharing his views on the future of advertising.

Marcus Rich is the Managing Director, Mail on Sunday and Deputy Managing Director, Associated Newspapers – http://www.mailonsunday.co.uk

To arrange a meeting with Marketing Statements, please contact Jenny Patterson on 07957 473 270/020 8983 3984 or jenny.patterson@marketingstatements.com

JP.    As a leader of a major transformation, “Boris Johnson” and the public’s perception of him, what did you find to be the biggest challenge?

KP.    The fact that the public knew him was a great strength for us because we had a head start, but they already knew him as one character – a comedian and an entertainer – and this was our biggest weakness as well as our biggest strength.  We had to build on the strength, he could get invited onto programmes, the platform was open for us, but we needed to dampen the weakness by pointing out that this was a serious man and he was serious about his aims and objectives and he wants you to be serious about him as the next Mayor of London.  That took some real work and actually not just with the journalists but also with Boris himself because occasionally he flipped back into entertainment mode and we had to pull him aside and say “hang on a minute you’ve changed”.

He has an exceptional brain and is a very intelligent and talented man.  What he does very cleverly is that he will go somewhere and he will say to someone “I don’t know about this can you explain it to me?”…He always listened and I have worked for a lot of politicians who didn’t.

Word of mouth is the best and worst form of marketing…everyone makes mistakes, everyone messes up but it is the way you deal with a crisis that counts.

There were things about Boris that I liked and didn’t like, but I was so grateful for the opportunity that we had.  Although we are no longer working with him I still believe that he is doing a great job and I will always promote him positively, I will always sing his praises.  There is a lot to do and a long way to go but it is very difficult to change the environment that he is in and I think he is doing a great job and I am very proud of him.

When running a campaign it is very easy to get caught up in political minutia, people would often drill us about the facts and figures of things and I would have to say “stop, stand back are we not doing everything we hate about politics?”  Let’s forget about that and go back to the things that people care about, which is services that are on time, efficient, clean, safe and a good price.  People don’t believe percentages and numbers.

This is not a complicated business it is common sense but people get themselves in a pickle and too bogged down with detail.

I encourage our clients not to use notes, only a prompt card with the 3 points on it, so that they will stick to those and talk around them and not get annoyed that they have missed things they wanted to talk about out.

JP.    With Boris, people had a perceived idea about him and you changed that so dramatically.

KP.    Yes and now he has the best of both worlds because he has learned that if you want to be taken seriously and you want to take peoples issues seriously, you have to be serious and by that I mean the way you act, the way you dress, the way you talk to them and the way you get back to those people about their concerns.  However, he can break the ice start the conversation with old Boris.  He has learned that he has this talent and learned to use it.

We had to explain to him that people might like you but have they got confidence in your running their city and are they going to vote for you?

That is the difference and the transformation we had to make.  We did that by making sure he was wearing the right clothes, nothing grand just smart.  Making sure he wasn’t wearing something ridiculous to go jogging in!  Every morning we used to make sure that he left the house looking presentable with a manifesto tucked under his arm…the amount press we got that said, “Boris is off to work to prepare to be Mayor”.  It is sometime the small things not the big things that people remember.  It made people think; he is a determined chap, he isn’t messing around anymore.  Every time he was snapped with a manifesto under his arm the hits on the website to download it went up.  We got more people reading our prepared information because he presented himself in a more professional manner.

We had no budget at first Boris even put his money in to begin with so we had to think creatively.  You were not allowed to put political advertising on London taxi’s but something we did was to get Boris to go the cabbies breakfast cafes and talk to 500 of them – most were in favour of him.  We designed and printed 50,000 booklets of taxi receipts with Vote Boris printed on the back and distributed these to the taxi drivers to hand out to customers, which they did, in fact I was given one!

JP.    How many ides do you take from other companies that have transformed themselves?

KP.    We don’t reinvent the wheel but it is hard to say exactly which ones, the taxi receipt idea came to me when I was given a receipt with Tiffany advertising on the back.  We looked at pledge cards, everything that Boris stood for printed on a credit card size card, these were very popular.  We were inspired and influenced by Obama’s amazing website.  We used Facebook and Twitter for young people to associate themselves with Boris, not necessarily the Tories, as a lot of them were not interested in politics per se but wanted to show their support for him.  This support was huge and we were toppling the amount of hits Sarkozy and various senators in America got on Facebook and we would celebrate whom we toppled each week.  It was the students who were in charge of putting together our poll and it was their job to increase membership of younger people, it became like a game for them and one that delivered us a huge amount of people…The internet as a tool is exceptionally powerful and we used it to maximum effect.

JP.    It is interesting how you celebrated internally and externally to keep the momentum and celebrated throughout…

KP.    I learnt a lot from Lynton Crosby, the Australian strategist that masterminded Boris’s campaign, about keeping the momentum going internally.  We knew how to manage a campaign, manage a brand but we learnt a lot about motivational techniques.

JP.    It went beyond a job, it was an emotional journey, how did that feel?

KP.    I believed from the beginning he would win, and I was in it to win.  We were ridiculed for being women and told that it was the hardest job in politics that we had taken on.  No one told us that we could do it or good luck, they thought we were silly women who couldn’t attract anyone else, but it was Boris’s choice, as it was his campaign, and we told him exactly what we wanted to do for him and we delivered in the end, although there were times when it was demoralising…It was personal and we wanted to prove everyone wrong.

JP.    It was realising a vision, being determined and putting energy into the campaign that got you there?

KP.    It is very easy to get distracted on campaigns, and I have looked at campaigns and thought at what point did they go wrong?  It is when you get distracted by your opposition, or a path that people want you to go down or a row that is taking place, you loose your focus and waste weeks.

The most important thing was to stay focussed.  You have an aim and an objective and no one will steer you off your route, there may be hiccups on the way but you keep heading towards that goal.  The success of the campaign was Boris himself, who really was and is a focused guy.

We worked at a minute-by-minute basis, not even hour by hour.  PR is only as good as the people behind it, and our research team were exceptional.

A lot of people thought we went to work at City Hall but we didn’t want to work in local government and didn’t want to sell the business and give everything we had worked so hard to build.

The feedback during conference season was really fantastic and the same people who were so negative were giving us their cards telling us to call them.

JP.        What is next for iNHouse PR?

KP.    We represent both Labour and Tory and are very well placed for the next election.  Growth areas are places that are not in our comfort zones and we have brought new people with different expertise to our own.  Energy, waste and environment are interesting sectors for us, how we get rid of our waste, how we divvy up our recycling.  A lot of our work at the moment is taking advantage of the recession, job markets etc.

In every downside you have to look for the opportunity.

JP.        Thank you Katie, change is cyclical and as we say on our site – recession threat or opportunity?

Katie Perrior is a Founder of iNHouse PR – http://www.inhouse-pr.co.uk

To arrange a meeting with Marketing Statements, please contact Jenny Patterson on 07957 473 270/020 8983 3984 or jenny.patterson@marketingstatements.com