As I write this, the economy has been in a slump for nearly three years, depending on how you define the downturn. In response, companies have slashed costs and lowered investment in an attempt to weather the storm. Considering the current environment, this chapter is as timely as ever—for I believe that in downturns and difficult times, CEOs and other organizational leaders must continue to push their tolerance for risk. Fred Smith founded FedEx in one of the worst economic periods since the Depression; Compaq was launched in 1982 amid a recession; and Wal-Mart opened a record number of stores during the 1991–92 recession.
In a Business 2.0 piece, Gary Hamel and Erick Schoenfeld argue for the need for continued innovation in difficult times. They observe that cost cutting and innovation avoidance in economic downturns only make companies "smaller, not better." Innovation, combined with courage and prudent investment, will position the leading companies of the future:
In the midst of hunkering down, we need to remind ourselves that we are still living in a world pregnant with possibility. The hard times will end. Billions of dollars in new wealth will be created. Focus too much on retrenchment, and your company will emerge from the downturn weakened, diffident and uncertain of the future. Manage this period well, and your company will emerge lithe, impassioned, and raring to go. Those who beat the bear will be ready to ride the next bull.
It's true that fear makes us more risk averse, and that some reckless CEOs have given risk taking a bad name. However, members of Accountable Organizations understand that, even during tough times, they need to embrace educated, responsible risk taking to ensure the growth and prosperity of their companies, as well as the advancement of their careers. These risk takers are creative, courageous, and conscientious—they have the faith and will to follow their passion, and they do their homework. When you make it your mission to be the vanguard, you put your company on the cutting edge.
BUILDING THE ACCOUNTABLE ORGANIZATION
Gary Hamel and Erick Schoenfeld, "Why It's Time to Take a Risk," Business 2.0 (April 2003): 63–68.
Chapter Ten: Southwest Airlines—Integrating Accountable Organization Principles
The Accountable Organization can sound pretty utopian. Some might say that in the real world of cutthroat competition, most companies are wholly occupied with survival—making their targets, making the stockwatchers happy. Of course, if a company doesn't make money, eventually there will be nothing for stakeholders to have a stake in. But some companies are managing to make the grade financially while staying true to the principles of accountability. In fact, some would argue that their accountable culture makes all the difference.
Southwest Airlines: A Standout in an Industry Under Siege
In chapter 2, I related my personal experience with some apparently nonaccountable thinking at a major U.S. airline—an unfortunate thing, given the precarious position of the industry at the time. Despite an enormous bailout package administered by the federal government, major carriers were still cutting routes and laying off employees a year after the September 11 terrorist attacks. U.S. Airways filed for Chapter 11 bankruptcy protection in August 2002, and United Airlines, the nation's second-largest carrier, followed suit four months later. According to the Air Transport Association of America, the industry's losses topped $10 billion in 2002.
The following year, in a dramatic series of twists and turns, American Airlines narrowly avoided bankruptcy. Just as American's unions agreed to steep pay cuts, the deal was nearly swamped by revelations of a pension trust and retention bonuses exclusively for the airline's executives. Chief Executive Donald Carty publicly apologized for how these plans were communicated, but the damage was done: Carty would resign. After intense, down-to-the-wire negotiations, the unions and American's management agreed to a compromise that would allow the airline to avert Chapter 11. At a press conference to announce the last-minute reprieve, Gerard Arpey, American's new CEO, commented, "It will come as no surprise to anyone that there is a definite need to rebuild trust within our company. Not just between unions and management—but between every member of the AMR family." (AMR is American's parent company.)
How different the picture is at Southwest Airlines. In the midst of the turmoil, the discount carrier has stood out for its avoidance of layoffs and continued profitability. In winter 2003, Southwest boasted thirty consecutive years in the black. With the weak economy and increased insurance and security costs, Southwest faced an uncertain profit picture going forward, but its relative success in the midst of an industrywide crisis is a testament to the company's savvy business strategy—and, according to the airline's employees and executives, to its accountable corporate culture. "To me, we could not have achieved our continued success without the culture, that's for sure," says Colleen Barrett, Southwest's president and COO. According to Barrett, Southwest employees "sign up for us because they have a passion for customer service and because they want to be part of a cause, not part of a company."
"CEO and President Gerard J. Arpey's Press Conference Remarks," American Airlines press release, April 25, 2003.
Colleen Barrett, interview by author, March 13, 2003. All remarks by Barrett in this chapter are from this interview.