MorrisAnderson

Read this article in the October 2011 issue of the ABF Journal.

Research has consistently shown that successful leaders are distinguished less by their IQ and more by their EQ, that is, their emotional intelligence. While emotional intelligence is important for all types of leadership, it is particularly critical when uncertainty is high and time is limited—in other words, in precisely the circumstances faced everyday by turnaround and restructuring professionals.

By making emotional intelligence an essential ingredient in managing turnaround assignments, we, as restructuring leaders, can achieve the best outcome for our clients and stakeholders and can more effectively tackle the challenges we face with distressed companies.

Emotional Intelligence: What is it?

John Mayer and Peter Salovey, who first introduced the concept of emotional intelligence, defined it as “the ability to perceive emotional information and use it to guide thought and actions.” Daniel Goleman, who popularized both the term emotional intelligence and the underlying idea, has said that emotional intelligence is “an array of non-cognitive capabilities, competencies and skills that influence one’s ability to succeed in coping with environmental demands and pressures.”

Goleman has explored how emotional intelligence applies to leadership, outlining five components of emotional intelligence shared by most effective leaders. Those traits are:

• Self-awareness: knowing one’s strengths, weaknesses, drives, values, and impact on others
• Self-regulation: controlling or redirecting disruptive impulses and moods
• Motivation: relishing achievement for its own sake
• Empathy: understanding other people’s emotional makeup
• Social skill: building rapport with others to move them in desired directions

Why is emotional intelligence so important in distressed assignments?

Often companies are in distress because they have failed to act (or react) in response to changed circumstances. By the time they start addressing their core problems, they are already fighting the clock. In the resulting crunch, emotions can flare on all sides, and individuals can become defensive and guarded. Restructuring leaders often must address not only anxious company employees, but also fatigued stakeholders, suspicious customers, mistrustful vendors and wary potential investors. To achieve the best results, the restructuring leaders need to bring as many of these people on board as possible. Each group and different personalities within each group, however, must be engaged and empowered in a different way. That is where emotional intelligence comes in.

The Bag of Clubs

Let’s use the analogy of a set of golf clubs as the different leadership styles one can bring to a restructuring engagement. All players need more than one club to play a game of golf. Bringing out a 9 iron on the putting green is a sure path to disaster. Similarly, leaders need a variety of management styles as they navigate through a restructuring assignment.

The Driver
This hard-hitting, get-things-done-or-else strategy is vital to creating an often much-needed sense of urgency.  It serves as a call for action. A person wielding the driver mobilizes, executes and pushes the process forward. He or she can be counted on to get people moving and to maintain momentum. The focus is on “getting it done.”

When to use it: to kick start a turnaround, to take control when parties are unwilling to step up, to make tough decisions

When to leave it in the bag: when individuals need to be coached, when trying to build trust, when you need people to perform at their best, not their fastest

The Wedge
In golf, the wedge is used to get around obstacles (e.g. trees or bunkers). Using this club means looking for creative ways to approach a problem, knowing that steamrolling will not work. Someone using a wedge might present customers or lenders with innovative pricing strategies or work behind the scenes to build consensus among stakeholders. The focus is on “how do we make this work.”

When to use it: when you are at an impasse and are looking to bridge a gap (often necessary in family-owned businesses where relatives may have stopped communicating with each other), when lobbying vendors to avoid an involuntary bankruptcy or when negotiating financing options with new lenders

When to leave it in the bag: when you need to send a strong message to employees or customers, when options are limited, when you need to get quick results from a motivated team

The Putter
Whenever detail work is required, the putter comes into play. This club is necessary to ensure that activities are completed at high standards, all communications are clear, possible unintended consequences are vetted and job functions are transferred smoothly. Using the putter requires concentration, tact and precision. The focus is on getting it done right.

When to use it: during due diligence, when performing detailed financial analysis, when a complex message needs to be communicated accurately

When to leave it in the bag: when you need to focus on the big picture, when relying on “gut feel” to work through a multidimensional situation

Many people habitually rely on a single go-to club. Those with high emotional intelligence, however, assess the situation first and choose the most appropriate strategy. On a flat course, turning repeatedly to one club may work, but, with the hills and sand traps of distressed terrain, it is essential to be able to quickly switch clubs in tackling the various phases of a crisis and dealing with different personalities along the way.

Putting It Into Practice

There is good news—unlike IQ, emotional intelligence can be learned. However, improving emotional intelligence does not happen overnight; it takes practice, self-awareness and commitment. Feedback, coaching and training are key tools in this process.

Here are some first steps to help you get started on the road to emotional intelligence:

1. When approaching a situation, consider what kind of emotions and behaviors people bring to that situation.
2. Recognize whether your emotions do or don’t fit the situation you are entering.
3. Before proceeding, consider what style you intend to use. Are you settling for your “go-to” mode of operation? If so, is there a more suitable approach for the situation?
4. After the fact, take a couple of minutes to replay the situation and to evaluate whether your approach was appropriate. If it was, consider writing it down to reference later.  If it wasn’t, don’t be discouraged; there will be many opportunities to try again!

Working with distressed companies is challenging because of the constant need to take action amid uncertainty and stress. Emotional intelligence is a key tool to help navigate these situations and to develop flexible leadership styles that have the highest probability of success. Using emotional intelligence in our work will improve leadership effectiveness and project outcomes and will leave a longer-lasting impression with clients and stakeholders.

Want To Learn More?  Recommended Reading:

Goleman, Daniel. “What Makes a Leader?” Harvard Business Review 76 (1998): 93-104.

Goleman, Daniel. “Leadership That Gets Results.” Harvard Business Review 78 (2000): 78-90.

Paulina Fin Caprio, CFA, is a Director at MorrisAnderson. She provides actionable financial and operational advice to companies and their stakeholders and takes on interim management roles with underperforming and distressed companies. She has represented both debtors and creditors in out- of- court restructurings, liquidations and bankruptcy assignments. In addition, she has sourced capital through refinancing, debt-for-equity transactions, company sales and alternative investment structures. She can be reached at pcaprio@morrisanderson.com.