Bringing Risky Back ...

... why would anyone want to take risks in the new world

No matter how the current downturn unfolds over the next few quarters, one thing is certain. We have to re-learn the art of taking risks in a highly de-leveraged world.

What does this mean for the average CEO? Look at it this way. Imagine that from today all your credit cards are taken away from you and you are forced to live life the old fashioned way - on cash. How would this change your behaviors and, most importantly, your view of risk?

For those readers who are as old as I am, you might remember a time before the proliferation of credit cards. We used to wait for the monthly pay-check, make a list of purchases we must make (consumables, mostly) and then make a separate list of 'discretionary spend' - stuff we've always wanted to buy, but couldn't afford. We would then painstakingly prioritize the second one and arrive at a very short list of items we felt we could 'afford' that month. Say, we decide that a sound system makes the cut. We would then go about studying the various options in the market, talk to friends at length about the pros and cons of each and then go out and make the purchase - in cash. As we handed out the money to the store keeper, we would feel a serious level of anxiety and dissonance (called post purchase dissonance by marketing people in those days).

Then came the age of credit and we forgot most of the steps and jumped straight from urge to splurge. The same holds true for the corporate world - investing on credit was never quite the same as investing in cash.

Well, looks like things have changed a fair bit around here. Leverage has suddenly become a four letter word and investors are returning to value today as opposed to growth tomorrow. How on earth do you make a risky move in these markets.

Here's my list of 4 things that we need to do to embrace risk in the new world
Understand the difference between good and bad risk. Good risk is the risk you take after you make lists, prioritize heavily, do the due dilligence, talk to people and seek out best value. Without good risk, you will simply not be successful in business or in life.

Don't indulge in anything that you don't understand. Even Warren Buffet owns up to the fact that he would not put money in a deal that wasn't crystal clear to him. So, trust only yourself, not the smart-talking financial advisor. Your own limited intelligence is a wonderful filter - use it.

Feel the dissonance, its good for you. The dissonance you feel when you have to pay for things in cash is a natural and powerful force that makes you build your own sixth sense about value. Running away from post purchase dissonance is a step towards the lala land of avoidance. So, whether you're buying a BMW for yourself or an asset for your business, embrace PPD.

Learn from your mum. Mothers have an amazing ability to scope out value. Over generations, mums have done the little things that constitute the art of 'buying into value'. That huge bottle of shampoo that you needed both hands to lift is an important lesson from your mum. If you are getting cheaper assets today at bargain prices that you can consume well into the future, have the sense to invest now. Conversely, conserve cash if you believe that the swanky jacket you saw in Saks (or Saks itself) will go into sale in a couple of months.

Hopefully, if we all do our bit to bring risky back ... we'll end up saving the world ...now that's a risk worth taking.

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Time to be positive again ...

... why leaders need to find a way to change before the market does

In my work with clients I have often observed this phenomenon I call the "mood lag" in business. I would define "mood lag" as the amount of time that a leader takes to adjust his / her mood to reflect the mood of the market.

Look around you. The real global downturn started around March 2007. For CEOs around the world to take off their rose tinted glasses and stop saying things like "this will pass quickly and we'll be alright next quarter" ... it has taken about 7 months.

The mood lag in Asia is even more pronounced. Asian CEOs are still in denial and will probably take another 2 months to change their own personal mood about the future. What this translates into is irrational decisions about investments, costs and restructuring. It puts people and companies in danger and makes recessions deeper and more painful for everyone.

Here's the clincher. The mood lag works both ways. Once business leaders actually switch to the doom and gloom mood that they should have activated 7 months ago, they continue to cruise in negativity well into the first couple of quarters of recovery.

Unfortuantely, by then, the best seats in the new world have been taken by competitors. Leaders struggle to work on their own positivity, and more importantly, struggle and fail to get their people to think positively about the future.

In fact, the best leaders operate in "mood lead" not "mood lag". By sensing what the future holds round the corner, the best in the world are able to bring to bear a personal conviction that pre-empts changes in the marketplace by 1 or 2 quarters. Using this, they are able to move their organizations towards stronger market positions by acting before everyone else.

As markets hit a series of 'bottoms' around the world, there is an increasing sense that a second half (of 2009) global stabilization is on the cards. Ideally, if you are leading a business, your mood should be moving from negative to positive just about now. That way you will have 2 quarters to rally the troops, think recovery strategies and invest in new growth pathways when the recovery gets underway in 6 months time.

The challenge for leaders is that their mood needs to change at a time when the night is darkest.

If you are not turning positive now, watch out ... you are possibly heading for another bout of "mood lag".

When will we ever learn?

Ever since I was a kid, I have been told (repeatedly) that leadership is about heroism. I was taught in school about the great heroic leaders in history, in college about the heroic leaders in science and technology and, finally, in B-school, about the fearless CEO!

Yet, over my career I have noticed a peculiar fact. Every time I turned to worship the heroic CEO, I was told "oops, sorry ... that one is a fraud, and the other one there that you thought was god... sorry, he is on his way to jail too!"

Ramalinga Raju was one such hero. Worshipped in India, and, increasingly, around the world, he built the aura of invincibility around him that says ... "I am a hero ... I can do no wrong". The world bestowed on him award after award, calling him (and I quote) - "an extraordinary entrepreneur", "a global example", "a tough leader with a heart of gold" ... the list is endless. And yet ...

Nothing is more sad than watching angels fall. People like Raju made me want to believe in the "Great Indian Dream". Where Indian companies (and their leaders) will one day become the gold standard of the business world - leading not only in stellar performance and shareholder value, but pioneering an understated, unassuming and balanced style of leadership that makes our American counterparts look callow in comparison.

You can argue that Satyam is a one-off incident and the ascendancy of the Indian business leader is going to continue. I am willing to buy half that argument. I don't think that Satyam is one-off. I am convinced that there are others that will emerge as the high tide recedes and (to paraphrase Warren) we suddenly realize that some of us were swimming butt naked. At the same time, I do believe that the new generation of Indian businesses will continue to thrive over the next few decades.

But I'd like to see one thing change.

I'd like for us to see leaders not as heroes but as stewards. I'd like for us to see success in business as a team sport, not a spark of individual genius. I'd like for us to put our heroes to bed ... and build institutions instead. I'd like to see us look beyond Ratan Tata and Narayan Murthy ... to the institutions of that will hopefully outlast their grandchildren.

The CEO and the cult of hero worship is not an Asian thing. It was imported from the US over the years and has slowly taken over our love for institutions and belief in collective success in India. It has created an entire generation that has grown up wanting "to become like Bilgay!"

Hopefully, Satyam will be our wake up call. Hopefully, the patriots in us will not reach for the snooze button.