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New Normal: Unstable Financial System

December 4, 2010

Recent trends in global finance have been chilling, Euro zone sovereign debt troubles are piling one on top of another, as Greece, Portugal and now Ireland face rising pressure to undertake radical reforms. The state of public finance in other major European economies, including Spain and Italy are not much better. In the United States QE2 (quantitative easing version 2) is facing growing criticism, and reflecting badly on (1) the failure of the much larger QE1, (2) the massive bank bailouts of the past two years, and  (3) a host of financial service reforms that are not addressing the underlying problems. Add to this a growing crisis in mortgage foreclosures, potential failures in the municipal bond market, fiscal meltdown at the State level and you have the makings of a potential disaster.

What’s a business leader to do in such a situation? Leadership is never easy at any time, but in a world of disruptive change it can be an incredibly lonely position. Leaders must be aware of the dangers as well as the opportunities in the global economy, identifying patterns, potential entrapments and critical issues before they become problems or fatal death blows to the company.

The New Normal for business is like high altitude climbing; it’s fraught with extraordinary challenges and sudden dangers – reaching your goals requires much greater awareness, responsiveness and adaptability. Adaptive leaders must have the knowledge and experience to both inspire their teams to achieve challenging goals, but to do so with greater risk awareness.  

In November of this year, Jim Elzinga, founder of our management consulting group Heroic Hearts (www.heroichearts.ca), set out to climb a new route in the Canadian Rockies. With Jim on this climb was an aggressive younger climber, Maury Perreault. This was the team’s second attempt on this summit. On their previous attempt the duo came tantalizing close to their goal, but rapidly approaching darkness, a snow storm and a long descent, with a lot of rappelling over steep, rocky terrain led Jim to abort the climb just short of the summit.

With base camp set up on this clear November day, Jim went for a walk on the glacier to scope the route. It was at this point that experienced eyes saw what youth and enthusiasm missed; a dangerously unstable snow pack was evident 1000 meters up on the face near the summit ridge. Recent ice and snow had accumulated on top of a zone of underlying weakness which Jim had been tracking; there was a half-kilometer long crown just below the ridge, indicating that the fresh snow had broken away as result of overloading the interface.  In addition, right at the end of this crown the bowl they were to climb was filling in with fresh snow. It had clearly been blowing in and building for some time: there was a distinct cornice along the ridge above formed by winds steadily blowing snow from the far side of the mountain. This all added up to serious avalanche risk. Not just risk of spontaneous avalanche, but a very real risk that climbing in the snow-filled bowl below the frozen waterfall would trigger the team’s own private ride into hell.

The reality for business today is similar; none of these global financial issues are unmanageable in and of themselves, but the combination of problems accumulating on an unstable foundation is reaching critical mass. I believe we’ll look back on November 2010 as a turning point; a period of time when cold reality dawned and sentiment shifted from believing we’re in recovery mode, to the reluctant realization that like a high mountain pass the accumulation of overburden has reached an unstable point – needing only a trigger to fail.  

 Things to Think About

  1.  Adaptive leaders scan the environment; continually reassessing the situation. They track the patterns that indicate disruptive change; identifying forces that could destroy their business with the abruptness of a avalanche.
  2.  Like Jim’s young climbing partner, many managers today are unaware of the serious risks that threaten organizational survival. And while there is no doubt that success demands risk taking, sustainable success, and survival in business today demands that teams take measured risks.
  3.  As an experienced team leader, Jim was as committed as anyone to reaching the summit. But as an Adaptive Leader Jim needed to keep the big picture in mind – it’s not only about getting to the top, but surviving so the team can tackle other peaks. Adaptive leaders keep a close eye on changing conditions; they weigh the options and generating new ones as necessary. As leaders of businesses today, it’s time to do the same.

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