Is Your CEO Recession-Capable?

No chief executive has experience running a business in an economy like today's. Here's a game plan for ensuring effective leadership

By Stephen A. Miles and Nathan Bennett

Confirming what everyone has long sensed, the National Bureau of Economic Research (NBER) recently announced the U.S. economy has been in a recession since December 2007. The Dow Jones industrial average is down more than 35% in the past year; unemployment is up to nearly 7%. This global economic situation is unprecedented, which raises the question: Is your CEO prepared to play by today's rules or is he or she proficient only at the game played before the recession began?

And how can boards be certain they make decisions about leadership and succession that will properly position the company for the game as it will need to be played tomorrow?

We contend that the competencies required to lead a company effectively have changed. Particularly at risk are the CEOs who are at their best when working at a broad, conceptual level. The sky box is not the place for today's CEO. Times are too uncertain for leaders like this to chart a course for a company's future convincingly. Here are the factors you need to consider:

1. Operational Strength. Given our contention that no one has led through times like these, we certainly can't claim experience is the key to understanding which CEOs will succeed. There are cases, however, where we think incumbent leaders have the right skill set for the demands of today's game. Specifically, we believe leaders with strong operational backgrounds—such as Mark Hurd at Hewlett-Packard (HPQ), Jamie Dimon at JPMorgan Chase (JPM), Muhtar Kent at Coca-Cola (KO), and Marius Kloppers at BHP Billiton (BHP)—are best equipped to deal with today's challenges. These times require leaders capable of digging deep into the details of operations to provide a dispassionate review of the business.

2. Financial Acumen. Understanding how different decisions about operations will affect the company's financial position—and vice-versa—is critical. But this capability, as well as operational strength, doesn't mean leaders are excused from more traditional CEO duties. Indeed, leaders must inspire and motivate the entire organization to ward off a morale contagion that would only exacerbate problems.

3. The Right Mix. Over the past decade, the CEO's main responsibility has been selling the company's vision—to Wall Street, to shareholders, to employees, and to other constituents. This required many to spend as much as 80% of their time on tasks other than running the company. What does the right leader need to look like now? Our work with many global companies leads us to believe the best leader for the foreseeable future is one made of three parts: 20% CEO, 40% COO, and 40% CFO.

4. Micro-Leadership. The 20%-40%-40% distribution implies the leader can move seamlessly around the company—from up to the sky box down to the manufacturing line—demonstrating what Bill Watkins, CEO of disk-drive maker Seagate (STX), calls "micro-leadership." The micro-leader deeply understands his or her company independent of the current times and appreciates not just how and why decisions will affect the operation but also their financial consequences.