Introduction
You face moments when the stakes are high, outcomes are uncertain, and your organization hangs in the balance. When a crisis strikes, your decisions test your character and determine whether your enterprise survives.
Michael Useem explores how leaders perform under extreme pressure by examining nine historical and corporate crises. He demonstrates that extraordinary leadership is forged during critical turning points.
Exceptional leadership is forged during critical turning points through the dual integration of far-reaching vision and decisive operational action.
The book reveals how you can prepare during normal periods to act effectively when crisis hits. You will discover answers to several vital questions:
- How do you make critical choices when failure means disaster?
- What separates ordinary managers from leaders who rescue failing institutions?
- How do you balance competing demands for social good and commercial profit?
1. Leadership on the Line and the Threefold Prescription
Leadership is defined not by a precise title or trait, but as the active choice to make a difference, change a failed strategy, and mobilize others. True leadership requires changing a languishing organization, making active choices among alternatives, and bringing followers along to get the job done.
Exceptional leadership is tested during difficult, high-stakes decisions where goals hang in the balance and outcomes depend entirely on mobilizing others.
You examine fateful moments when goals are at stake, success is uncertain, and searing stress defines the experience. These singular, unforgettable events leave a lasting impression of pride or remorse regarding how well you guided those around you.
Mountaineer Peter Hillary and seven fellow climbers neared the summit of K-2 in 1994 when deteriorating weather convinced Hillary to turn back. The others pushed on and none returned, leaving Hillary with haunting memories of his inability to convince his fellow climbers.
Defining Leadership Moments
Failing to anticipate new conditions, conduct adequate reconnaissance, and prepare for unknown terrain leads to critical mistakes during crises. You risk relying on blind luck, starting late based on optimistic estimates, and failing to secure local guides or understand the surrounding topography.
The author and a college friend climbed the Dom, the highest summit wholly within Switzerland. They got caught in a severe snowstorm without a tent or sleeping bags, and were saved only when a hut keeper placed a kerosene lamp outside as a beacon.
The book analyzes nine extreme leadership situations across varied fields, extracting guiding principles that can be applied to everyday management in companies or communities. The nine episodes feature Roy Vagelos ending river blindness in Africa, Wagner Dodge outrunning a Montana forest fire, Eugene Kranz returning Apollo 13 astronauts, Arlene Blum ascending Annapurna, Joshua Lawrence Chamberlain at Gettysburg, Clifton Wharton restructuring a pension giant, John Gutfreund losing control of Salomon Inc., Nancy Barry building a bank for Third World women, and Alfredo Cristiani cracking El Salvador's killing cycle.
Preparing Before the Crisis
Preparing for leadership crises requires a threefold prescription executed during normal periods rather than during active fires. Developing leadership is least practical precisely when an organization faces challenges or redirection.
You must prepare yourself for upcoming trials before they arrive:
- Study far more avidly before moving onto unknown terrain
- Prepare much more carefully before undertaking challenging tasks
- Gather information on approaching weather, required time, and local topography
You must also prepare your colleagues and your organization. Normal periods must be used to build capabilities beforehand so that you do not improvise solutions when failure means disaster.
2. Public Health, Radical Rescue, and Mission Control
Crisis situations require leaders to balance social needs above commercial profit, invent radical survival tactics, and maintain unwavering optimism.
Attacking River Blindness
Roy Vagelos committed Merck to discovering and perpetually distributing Mectizan for river blindness despite knowing the project would not yield commercial profits and could cost hundreds of millions in lost revenue, arguing that health precedes wealth and profits eventually follow customer and societal needs.
In 1988 a chief and fourteen elders welcomed a visitor to Sikoroni. Worldwide, 20 million people were afflicted with river blindness. In 1978 a potential solution emerged from a New Jersey laboratory. Up to 200 million microworms inhabit some victims. Bringing a single drug to market typically requires 200 million dollars and twelve years. By 1992, sales of ivermectin reached 500 million dollars a year. USAID provided 2.5 million dollars for distribution assistance in 1991. By 1997, lost income from Mectizan totaled 200 million dollars or more. Merck contributed 45 million dollars worth of Mectizan in 1995.
The Escape Fire at Mann Gulch
During the Mann Gulch fire, crew chief Wagner Dodge realized he could not outrun the wind-driven prairie fire, so he lit an escape fire in front of him to burn a clean zone, laid down in its center, and survived while his crew fled and perished.
On August 5, 1949, the Mann Gulch fire broke out with 15 firefighters under Wagner Dodge's command. Helena recorded a record temperature of 97 degrees Fahrenheit. Fire potential stood at 74 on a scale of 100. Dodge lit the escape fire at 5:55. For 45 years the disaster remained the worst in Forest Service history until 1994.
Wagner Dodge lost the trust of his crew because his rapid movements caused confusion and he communicated little of his thinking or alarm, leading his men to believe he had gone insane when he lit the escape fire. In Mann Gulch, firefighters Robert Sallee and Walter Rumsey saw Dodge lighting a fire in front of them and thought he had gone crazy, refusing to join his safety circle.
Returning Apollo 13
During the Apollo 13 crisis, flight director Eugene Kranz refused to concede failure, actively countering pessimism among his engineers by demanding solutions and asking what systems were still functioning well.
On April 13, 1970, an accident struck Apollo 13. The astronauts were hurtling away from Earth at 2,000 miles per hour. Normal pressure for the second oxygen tank was 860 pounds per square inch. The tank pressure dropped to 300 pounds per square inch. Electrical flow in the lunar module dropped from 55 amperes to 12.
Eugene Kranz established the Tiger Team in Room 210 and demanded options and solutions instead of guesswork when an oxygen tank exploded on Apollo 13.
Effective leaders handling time-critical emergencies must be active listeners, avoid satisficing, and adjudicate conflicting claims firmly. Eugene Kranz listened to inputs from multiple engineering specialists and superiors, insisted on exact precision rather than settling for good enough, and made decisive final calls despite opposition from his mentors. Eugene Kranz listened to conflicting arguments from Chris Kraft, Deke Slayton, and Max Faget regarding crew sleep versus thermal rolls, then made the final decision himself. Reentry required enduring 5,000 degrees Fahrenheit, approaching Earth's outer atmosphere at 25,000 miles per hour.
3. Restructuring Institutions and Managing Crisis Recovery
Monopolies grow insular and bureaucratic over time. They fail to see that upstarts and mutual fund alternatives will exploit their inflexibility unless management decentralizes operations into accountability centers.
Monopolistic enterprises facing market disruption must dismantle rigid structures, introduce consumer choice, and align employee compensation with measurable service results.
Restructuring TIAA-CREF
When Clifton Wharton took over TIAA-CREF in 1986, the organization held $52 billion in assets, 3,950 participating institutions, and 890,000 account holders. It operated as a rigid monopoly offering defined-benefit plans without consumer choice.
Clifton Wharton restructured TIAA-CREF by unbundling its rigid investment options, introducing transferability, breaking up functional divisions into four accountability centers, and tying managerial pay to customer-focused results. Under his 1990 plan, 9 percent of lower-level manager compensation was placed at risk based on results. You can apply similar restructuring principles when managing bureaucratic organizations:
- Constitue a working group to review white papers on necessary changes
- Distribute strategic plans publicly for customer comment before implementation
- Create revolving positions for highfliers to spread intelligence across the firm
- Establish Executive Cabinets, Executive Councils, and Officer Groups as two-way conduits
- Regroup functional divisions into accountability centers with bottom-line responsibility
- Build a compensation system that puts a percentage of manager pay at risk based on results
- Institute systematic annual appraisals, lateral assessments, and succession planning
Crisis and Compliance at Salomon Inc.
At the apex of an organization, where risks and uncertainties are greatest, inaction or delayed response to illegal behavior can wager the survival of the entire enterprise. While midlevel managers can be circumvented, a chief executive who sits on explosive information regarding regulatory breaches creates a disastrous appearance of a cover-up.
John Gutfreund waited over three months to report Paul Mozer's unauthorized bids on U.S. Treasury securities at Salomon Inc., leading to a near-collapse of the firm, massive fines, and his own resignation. The U.S. Treasury sold $30 billion in new securities every week, and primary dealers faced a 35 percent limit on auction totals any single dealer could seek. John Gutfreund's delay triggered massive fallout. Salomon shareholders lost $1.65 billion within six weeks of the scandal breaking.
To rescue an organization from near-insolvency after a major scandal, interim leadership must practice unequivocal cooperation, complete contrition, and aggressive internal compliance enforcement. By waiving privilege, offering full transparency to regulators, and replacing toxic managers with integrity-focused operators, a firm can avoid criminal indictment and restore market confidence.
Warren Buffett took over as interim chairman of Salomon Inc. for $1 annual salary, cooperated unconditionally with the SEC and Treasury, instituted strict reporting rules, and promoted Deryck Maughan to chief operating officer. Salomon eventually paid $290 million in settlements to federal regulators and private claimants, which included $122 million paid to the Treasury, $68 million paid to the Justice Department, and $100 million paid to a restitution fund. You must enforce rigorous internal safety checks to prevent similar disasters:
- Expect employees to report instantaneously and directly any legal violation or moral failure
- Measure actions using a newspaper test based on public disclosure
- Play aggressively in the center of the court without close-to-the-line acrobatics
- Actively cooperate with federal regulators to uncover improprieties
- Form a board compliance committee among directors
- Move compliance officers out of their offices onto trading floors
- Make compliance self-policing by building it in instead of inspecting it in
- Extend risk analysis to regulatory, credit, operational, and environmental hazards
- Segregate trading functions to prevent concealment of improper acts
- Require legal staff review of all correspondence with the Treasury and Federal Reserve
4. A Leader's Guide to Vision and Action
Vision and action are the single most important ingredients for effective leadership. Without a clear destination and a way to reach it, you will flounder.
Effective leadership requires clearheaded thinking about organizational expectations, building long-term value, and preparing newcomers to handle stress.
When Apollo 13 engineers told Eugene Kranz their calculations showed no way home, Kranz insisted they find one anyway. That demand led engineers to devise a lifesaving solution.
Formal learning of generic leadership principles remains inert unless tied to actual decisions. You learn best through confronting novel problems where existing capacities are inadequate.
To explore this dynamic, the author organized a leadership trek. Nineteen people walked two weeks in the Himalayas with midcareer managers, using mountaineering as a metaphor to reflect on decision making. The group reached 14,000 feet altitude at Dingboche and climbed an 18,000-foot southern face point. The Mount Everest storm disaster struck on May 10, 1996, during this period of intense engagement.
Compelling narratives and storytelling serve as the primary mobilizing medium for great leaders. Persuasive accounts of where people came from work better than simply reciting numbers. Citing Howard Gardner's study Leading Minds, the author explains that world figures mobilize followers through shared dreams. Martin Luther King delivered more than 350 speeches in 1963. He used just eight minutes at the Lincoln Memorial to share his enduring dream with more than 200,000 people at the March on Washington.
Granting work associates greater authority makes you more powerful and effective. Restructuring reveals that giving away power judiciously increases a leader's authority. Clifton Wharton's restructuring of TIAA-CREF improved what was inherited without subverting the organization's mission.
Tactical Rules for Leaders
The book studies nine true-life experiences where leaders faced critical tests, ranging from eliminating diseases and corporate fraud to surviving extreme wilderness disasters and civil wars. Roy Vagelos committed Merck to giving away Mectizan forever to fight river blindness. John Gutfreund's hesitation at Salomon Inc. nearly led to disaster. You can apply these lessons through direct rules:
- Maintain clearheaded thinking about why you were appointed and what is expected of you.
- Identify ways to bolster long-term investor and public interest even if it momentarily reduces shareholder returns.
- Explain yourself early if you want trust and compliance.
- Provide newcomers with early training and mentoring to move their panic point when the heat is on.
- Expect high performance to help achieve it among those who work with you.
10 Key Ideas
- Exceptional leadership is forged during critical turning points through the dual integration of far-reaching vision and decisive operational action.
- Preparing for leadership crises requires a threefold prescription executed during normal periods rather than during active fires by studying avidly, preparing carefully, and gathering crucial information.
- Crisis situations require leaders to balance social needs above commercial profit, invent radical survival tactics, and maintain unwavering optimism.
- Wagner Dodge survived the Mann Gulch fire by lighting an escape fire, though he lost his crew's trust because his rapid movements caused confusion and he communicated little of his thinking.
- During the Apollo 13 crisis, flight director Eugene Kranz refused to concede failure, actively countering pessimism among his engineers by demanding solutions and asking what systems were still functioning well.
- Monopolistic enterprises facing market disruption must dismantle rigid structures, introduce consumer choice, and align employee compensation with measurable service results.
- John Gutfreund waited over three months to report Paul Mozer's unauthorized bids on U.S. Treasury securities at Salomon Inc., leading to a near-collapse of the firm, massive fines, and his own resignation.
- Effective leadership requires clearheaded thinking about organizational expectations, building long-term value, and preparing newcomers to handle stress.
- Compelling narratives and storytelling serve as the primary mobilizing medium for great leaders to connect with followers through shared dreams.
- Granting work associates greater authority makes you more powerful and effective by judiciously increasing your overall leadership authority.