Fear Rules: Part II

The Scream by Edvard Munch

Part II

Managing fear is a key role of every leader — that was the theme of Part I. Too much fear causes the organization to think small, to retreat, to think everything is a threat not an opportunity. When fear is under control, optimism prevails, confidence rises, and opportunities outnumber threats.

The task is both to manage fear of self and fear of the leader’s team. The leader’s key tool is narrative, a narrative for self or team that transforms debilitating fear into calm optimism. Ex-Unilever CEO Paul Polman illustrates overcoming fear of self and ex-Lego AG CEO Jørgen Vig Knudstorp demonstrates overcoming in the leadership team.

Paul Polman and the Leader’s Own Fear

When Paul Polman took over as CEO in 2009, fear ruled Unilever. He took its reins in the depth of the global financial crisis — a calamity that induced fear in the whole world. On top of that, Unilever was doing particularly badly — its brands losing share, its profitability shrinking, and its relevance dissipating. The board hired the first outsider in corporate history, somewhat embarrassingly a veteran of both of its fiercest competitors, P&G in its non-food business and Nestle in its food business.

The classic CEO fears were well ensconced at Unilever. For example, investors are only interested in the short-term. Polman explains the consequence of the fear: “We had become victims of chasing our own tail and cutting our internal spending on capital, R&D, and IT to reach the market expectations. We had become very short term. We were developing our brand spending on a quarterly basis and not doing the right things simply because the business was not performing and then catering to the shorter-term shareholders.”

But Polman managed his own fears and refused to accept that exculpatory story. He understood the downward spiral that fear caused and that gave him the fortitude to manage the fear rather than fall prey to it. Instead he told a different story; a narrative of a firm dedicated to the longer term. He announced that Unilever would henceforth stop quarterly reporting and stop giving guidance. It wasn’t easy: “Now, that was not very well received by shareholders. Shares went down about 15% at that time, and I got a lot of pressure. But anyway, I had done it and I explained to them that this was not because a profit warning was coming but this was because we were going to run the business for the longer term. We were going to invest in capital. We were investing 2% in capital spending, whilst the industry was investing 4%. We were going to invest in training and development. We were going to invest in new IT systems. And we were going to invest back in our brand spending.”

But by managing his own fear, Polman was able to author an entirely different narrative. That narrative was motivational to two different constituencies. The first hated the narrative and stopped being shareholders. The latter was compelled by the narrative and invested behind it. As a result, Unilever developed a new set of shareholders with a fundamentally different set of attitudes: “I’ve spent my time with investors on attracting the right shareholder base; shareholders that are aligned with our philosophy of doing business, which are the longer-term shareholders, the pension funds and sovereign wealth funds.”

On the second typical fear and associated exculpatory story, that investors don’t care about sustainability and just want performance, Polman told himself an alternative story; a confident, happy story: “At COP20 in Paris, there was $34 trillion of capital in the management that was asking for a price on carbon. But if people tell me that the financial market doesn’t care, they don’t read the signs of the stars. They do care a lot, but they find that the CEOs of companies are not able to explain it to them or are not able to have the conversation.”

On the third fear, the easiest story to tell was that the more data we put out there the more vulnerable we become. But he reframed it and developed a contrary narrative that was aspirational not scary: “Transparency builds trust. We set out 50 sustainability targets and are very transparent about what we were going to do. We stopped giving quarterly financial guidance, but we had much more transparency on sustainability targets. Some of the data was strange for the financial community, and frankly, many were not asking about that, but some did, and bit-by-bit we educated them on why these data were important. Why, for example, the number of people we could reach for hand washing with our Lifebuoy brand is directly correlated of the success of growing our Lifebuoy bar soap brand. Or the number of toilets we built to stop outdoor defecation is directly correlated with the success of our Domestos brand. And when Dove reaches women with its campaign on self-esteem, Dove performs better. So, brands with a stronger purpose are actually for us more profitable, and they’re growing faster. It helps the financial community because the more you publish, to some extent the more you take risks away from them. You still need to have a good strategy and be in the right business, perhaps, but if you then operate with transparency, it helps.”

Similarly, instead of viewing the taking of responsibility for the entire value chain as a fear-inducing risk, he motivated himself with the story that not taking responsibility for the for the entire value chain would be a bigger risk: “What is different for us is we take that responsibility on the total value chain, and not just in the usual CSR territory, which would be everything that’s under your own operations. If you want to have an impact, you need to really go to the total value chain. One of the things we want to do is work very hard to take slave labor out of our value chain.”

While Unilever was in an inherently fear-generating position, backed by a fear-inducing narrative, due to the combination of its performance and the global financial crisis, and Polman had a set of well-established exculpatory stories to rely on to continue the status quo, he managed his own fear by reframing the fear-producing elements of his environment a positive, opportunity-laden narrative. That enabled him to lead Unilever in a radical and exemplary direction that has made it perhaps the most important innovator in corporate and social responsibility in the entire universe of global companies. Perhaps most importantly, he has provided a calming story for other CEOs to help manage their fears.

Jørgen Vig Knudstorp and Fear in the Team

In 2004, fear ran high and deep in Billund, Denmark. The bucolic town of 6000 inhabitants in the middle of Danish farm country housed one of the world’s iconic brands: Lego. But in 2003, the privately-owned company run by third generation family member Kjeld Kristiansen had lost a staggering US$240 million on US$1 billion of sales. While the company had grown spectacularly and profitably under his leadership, in recent days, it had stretched too far geographically, and diversified too much into theme parks, games and electronics. The overexpansion had put the venerable company on the verge of bankruptcy — a thought that terrified the board, senior management, employees, Billund’s citizens, and, given the importance to its export economy, Denmark itself.

Seeing the need for a fundamental turnaround, Kristiansen turned to reins over to Jørgen Vig Knudstorp, who had only recently joined Lego from McKinsey and Company. At a mere 34 years of age, Knudstorp was hardly a classic recipe for calming fear!

But he knew that calming fear was as big a job as staunching the financial hemorrhaging. When employees are fearful, the flight reaction translates into putting down their tools in both conscious and subconscious ways. They were paralyzed. They wanted to help but had no idea how they would contribute to a turnaround. Knudstorp knew that he had to attack the fear by creating a story of success and starting to produce outcomes that would provide data that reinforced the story.

His story to the company was that the core business was great — consumers and retailers loved the core product and wanted it to succeed. He just needed to get the company back to its basics to restore its health and momentum. That meant cutting product lines, stopping the diversification, selling the theme parks to Blackstone Group, and, sadly, shrinking the workforce by nearly half.

The story calmed fears and the actions turned around the company, setting it on course for a decade of uninterrupted growth that by 2014 propelled Lego past Hasbro and Mattel to become the largest toy company in the world — and the most profitable.

However, managing fear is an ongoing task, even in a successful company. The decade of growth had turned a small Danish company into a huge global powerhouse whose organizational structure and ways of managing had been outgrown by its size and reach. Knudstorp knew he had to overhaul the management approach and have his senior managers work more collaboratively, more horizontally with one another rather than push decision making up to him as the revered leader who had steered them through the crisis to glory. He knew that he would need to step away from running the Lego toy business day to day in order to manage the greater Lego family of interests that now included the Lego Foundation, Lego Education and Merlin Entertainment, the UK public company that held the Legoland theme parks.

The thought of moving to a new organizational structure and a new CEO put fear in the hearts of many of the senior executives, but Knudstorp was convinced the changes needed to be made and he was determined to step down by the end of 2016.

His primary tool for managing the fear of his Management Committee of 20 executives was storylines. He created a customized narrative for each member of the Management Committee. The storyline painted a vivid picture of what was going to happen going forward — a happy story. It specified what needed to happen, how management of Lego was going to work, and, most importantly, the role of each Management Committee member in the successful future of Lego. Rather than a task list or set of objectives, the narratives provided a clear picture for each Management Committee member of a happy future and their role in that future which helped each member lean more confidently into that future and manage their own fear over the change that it required.

The actions of both Polman and Knudstorp were successful and were not random. There are rules to managing fear and Part III will enumerate those rules.

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Roger Martin

Professor Roger Martin is a writer, strategy advisor and in 2017 was named the #1 management thinker in world. He is also former Dean of the Rotman School.