Chapter 14
Turning Around a Company in Crisis

The Emotional Triggers That Stemmed Co-Op Member Defections

I know you believe what you think I said, but I’m not sure you realize that what you heard is not what I meant.

—Robert McCloskey

Companies in crisis often point to one significant occurrence as the cause of their troubles. Maybe that’s the case; maybe not. But one thing is certain: a turnaround effort must be based on solving the right problems, or it won’t work. Sometimes companies on the brink, in their haste to make things better, grasp at easy answers. But when a single occurrence becomes synonymous with the actual crisis, it can obscure other considerations. This is a story about a struggling cooperative, one of the largest in the United States, that turned to emotional-trigger research as the starting point, instead of as the last resort. By choosing to forgo obvious “facts,” and focusing instead on the strong emotions that caused members to desert the organization in large numbers, attrition was drastically reduced and a successful turnaround was well on its way.

LESSON #11

Trust is not an expendable commodity.

Shock, Outrage, Desertion

This multi-billion dollar cooperative had thousands of members serving the needs of consumers and commercial enterprises in a combination of four different ventures. For readers who are unfamiliar with cooperatives, they are businesses owned and operated for the benefit of those using its services or buying its products. Members join forces to gain economic power, purchasing strength, goods and services, and marketing opportunities.

Throughout a period of several years, the co-op had grown through a series of mergers. The mergers had not gone smoothly. Different management styles, duplicated staff functions, and internal power struggles added up to one dysfunctional company. But senior executives and the board of directors presented a very different picture to the membership. To hear them tell it, everything was terrific; things couldn’t be better. That is, until the day they dropped a bombshell and announced, out of the blue, a surprise loss of more than 100 million dollars. At first the members were stunned. Then they were outraged.

In addition to sales generated by their own businesses, members received dividend checks at the end of each year based on a percentage of the organization’s profits. This was money members counted on and factored into their annual operating budgets. Naturally, once the co-op incurred major losses, there were no profits for members to share. Suddenly, without advance warning, all dividend payments stopped. Within the span of a few years the co-op had gone from being highly profitable to one on the verge of financial disaster. Following the announcement of the financial loss and the lack of further dividends, more than 1,500 members had joined competing co-ops and hundreds more were about to leave.

Drastic Circumstances Call for Drastic Measures

The future of the company was extremely precarious. At this point, the major lenders replaced top management and mandated board changes; a new chief executive officer was brought in to stabilize the situation. Reversing the trend of member defections and regaining their trust was pivotal to the co-op’s short term survival and subsequent turnaround. They desperately needed to reconnect with the membership, develop meaningful opportunities for growth, and create a persuasive and credible reason to avoid further attrition.

Management Was Positive. Were They Right?

Most senior officers and field executives were positive the explanation for member defections was the co-op’s suspension of annual dividend payments. They repeatedly maintained that this single “occurrence” was the reason members were fleeing in droves. The new CEO wanted to test this assumption, in order to understand what really influenced members’ decision to leave the co-op and, ultimately, what management had to do to convince them to stay.

Given all the undercurrents rampant within the co-op, conducting emotional-trigger research with high-value members became the first step toward plotting a turnaround strategy. Half of those interviewed were classified as high-risk members and known to be in serious negotiations with competing co-ops. The other half were considered to be typical members who were upset but, up to that point, had refrained from exploring other options. The allegiance among many in this second group, however, was hanging by a thread.

As usual, the truth was more complicated than the facts suggested. No one was happy about losing their dividend payments. Admittedly, it did provoke some disgruntled members to seriously consider joining another co-op, but the majority of members regarded the suspension of dividend payments as symptomatic of something bigger and much more infuriating. The dividend uproar was simply the straw that broke the camel’s back, rather than the entire problem like management said it was.

Emotional-trigger research signaled something worse, something that went far beyond the co-op’s bottom line. These interviews exposed a widespread hostility toward management that had been hovering just beneath the radar for a long time. When the financial loss was announced, this hostility finally erupted in an avalanche of recriminations and defections. Management mistakenly thought the crisis was all about money; it wasn’t. To the membership, it was about integrity and respect. These were the emotional triggers that literally ignited a firestorm from Maine to Hawaii.

“Management mistakenly thought the crisis was all about money; it wasn’t.”

The Unforgivable Sin

Individual owners were painfully aware of the problems facing their co-op, but they were shaken more by management’s deceit and misrepresentation than by the actual circumstances; that’s what they thought was truly unforgivable. After all, it was their co-op. How dare the management team, whom they employed, have the nerve to deliberately mislead them!

Members Weren’t Upset; They Were Furious

Many of the members who were straddling the fence about whether to remain with the co-op intended to leave unless there were dramatic changes. Business had to be conducted very differently going forward. That was management’s only hope of repairing their frayed relationship with members. Communications had to be open. Commitments had to be honored. More time had to be spent with members around the country. Management had to get out of their “ivory tower” and observe the consequences of their decisions. Above all, members demanded they be treated with integrity and candor. They had no tolerance for posturing. Honesty meant everything. Most would have reacted differently to the financial crisis if management had a track record of owning up to their mistakes and admitting when they were wrong.

Members felt management was arrogant, dismissive, and patronizing. That was clear by the way they’d hidden the truth about the co-op’s escalating monetary losses. Not only did members have a right to know what was happening, management had a moral obligation to tell them. They were supposed to serve the membership base, not vice versa. Instead, their refusal to accept responsibility was considered inexcusable. When problems arose, members had difficulty finding anyone to take ownership and help them resolve the situation. Management also consistently failed to deliver on its promises regarding operational issues, financial matters, new programs, or promised system improvements.

Members were offended by how infrequently management made trips to visit with them. When they did show up, many executives breezed in and out as if they always had something better to do. The cultural divide between the corporate group and the membership was enormous. Members wanted to do business with people like them. The importance of the human connection was a strong emotional trigger. They valued individuals who were genuine and down-to-earth, and they expected true partners to roll up their sleeves to help solve problems; instead the management team was aloof. This discrepancy between expectations and reality caused an innate distrust of management aggravating the co-op’s woes.

A major sore spot was the endless number of poorly planned and poorly executed programs that management continually introduced. These programs had cost the co-op credibility, goodwill, and revenue, as members who had been previously burned shied away from new initiatives. Too often, the difference between what was promised and what was delivered was unacceptable; members had become jaded. They railed that management didn’t appreciate how their decisions negatively affected them, individually, or the co-op overall.

These programs were an emotional trigger, because they represented yet another aspect of management’s perceived lack of regard for members. Complaints fell on deaf ears and members were seething. Their opinions were disregarded; worse still, they were rarely solicited. No one seemed overly concerned about the financial or operation limitations of the members. Again and again, management demonstrated their insensitivity. They neglected to streamline and simplify the programs, let alone reduce them.

Most of the problems that arose would have been avoided if management had only listened when members voiced their concerns. It was a radioactive topic. Members fumed that new initiatives were never tested in the field. No one did contingency planning. There was inadequate coordination between corporate departments to ensure a smooth execution. And if all that weren’t enough, expensive but poorly thought-out programs, made worse by weak sales, resulted in losses that ultimately reduced the co-op’s profits.

“Members whose concerns were met with a deaf ear were the most likely to sever their association with the co-op. Ignoring their input was offensive.”

Members whose concerns were met with a deaf ear were the most likely to sever their association with the co-op. Ignoring their input was offensive. Dismissing outright the value of incorporating their feedback into the advance-planning process was demeaning. When members discussed all these issues they weren’t speaking abstractly about their opinions. They were talking about their real need to be treated as equals by management. Their sense of dignity was completely intertwined with their need to be shown respect.

When an Explanation Becomes a Crutch

These needs were pivotal emotional triggers that would ultimately decide the co-op’s fate. Management had adopted a blanket explanation regarding why so many members were leaving: the co-op’s inability to pay dividends. It had become too convenient of a crutch. In fact, management was using this crutch to deflect attention away from their culpability. Members may have vented their anger and frustration about dividend checks. But their decision to stay or join another co-op often hinged on operational and management issues.

A Beacon of Hope

Members no longer trusted management, but they did trust other members. Because of that trust, a beacon of hope emerged for the co-op. Members considered their peers more credible than corporate executives and turned to them for input or advice. Many members had assumed a leadership role in their respective communities and operated as goodwill ambassadors or mentors. When called upon they always helped.

These larger and more successful members could potentially play a decisive role in turning the co-op around. If this important group of influencers were convinced of management’s sincerity and commitment, they would carry considerable sway. They had one huge advantage: other members sincerely believed these individuals had their best interests at heart. If they became advocates for remaining with the co-op, they would accomplish what management could not. Handled correctly, they represented the best opportunity to spread a positive message through word of mouth. But if these leaders questioned management’s ability or willingness to make the necessary changes, it would seal the co-op’s fate.

Intense emotional triggers emerged during these interviews. The more powerful the trigger, the less it was about money. These triggers were very personal.

A Cultural Revolution

Because the interviews bared such raw emotional triggers, the solutions required sweeping cultural, operational, and strategic changes. For starters, every element of the turnaround plan had to display a newfound respect for the members and a genuine sensitivity to their sense of betrayal and disenfranchisement. Going forward, their input had to be an integral part of the planning process, and management had to be responsive to that input.

The first order of business was to transform the existing management culture. Survival demanded radically different ways of doing business. The emotional triggers that surfaced during the interviews became the basis for developing a code of conduct. This code encapsulated the operating principles by which the corporate group would be guided in the future. Substance replaced hype. Integrity replaced deception. Active listening replaced patronizing exchanges. Members’ priorities replaced those of management. Cross functional planning replaced “ivory tower” dictates.

Given their stature within the co-op, influential members needed to be convinced first. Management had to prove they were focused on the right things, were sincere about making them happen, and had the ability to translate words into action. If this elite group was persuaded, the co-op could enlist their services to help advance the turnaround agenda. They were the best arbiters of potential member reaction in their respective communities. Bringing these individuals in at the preliminary planning stage provided management with valuable feedback, while flattering the members by acknowledging their positions of prominence. Once they were part of the process, they would share ownership of the result, making their support more likely. Finally, their advocacy would enable the co-op to launch a credible grassroots initiative, because it would be the members, not management, spreading a message of real change. Members trusted other members. Influential members, in their dual capacity as leaders and mentors, enjoyed even more authority. Beginning with this select group of members sparked a positive snowball effect. When they chose to remain with the co-op, others did the same.

A Fresh Approach to Planning

Given how toxic the relationship between management and members had become, tackling the cultural issues was the logical starting point. But changes within the culture alone weren’t enough to steer the company out of crisis mode. The business had been battered by the loss of more than 100 million dollars. That figure was compounded by the additional loss of revenue associated with the loss of 20 percent of the membership to other co-ops. Sweeping process re-engineering efforts were also necessary. A return to profitability demanded a fresh approach to internal planning. It also demanded management spend more time in the field gaining a “real world” perspective.

Associates at manager level were assigned to work with a member for several days. This helped the corporate team become more familiar with members’ businesses and observe, firsthand, the impact of poor decisions made while sequestered in their “ivory tower.” The new CEO led the charge. More time was devoted to member interaction and less was spent in corporate meetings limited to headquarters personnel. Member reaction was positive and word-of-mouth began to spread.

Every aspect of the way programs had been conceived, planned, and implemented had to be scrapped. The failure of these programs encapsulated many of the emotional triggers exposed during the emotional-trigger research interviews. Members had a need to be heard. They were passionate about management’s refusal to consider their operational and financial limitations. Real world restrictions were never incorporated into the planning process. Making things worse, management didn’t share the loss. Members absorbed it all. They felt demeaned when their opinions weren’t solicited or when they were patronized. And, having already been burned by the co-op’s surprise announcement of a major loss, they valued honesty above all else. Talk was cheap; the programs were not. Management had over promised and under delivered. Members got hype, fanfare, and distortions. What they wanted, and what they felt entitled to, was straight talk.

Management immediately cancelled most of the new programs that had been scheduled to be introduced, and the membership cheered. Then the entire procedure involving future programs was radically overhauled. Cross-functional planning was implemented for all new initiatives. A formalized procedure was put in place to obtain input from all key disciplines for ideas under serious consideration, and, a cross-section of typical members served as the “conscience” of the membership. Previously, management’s litmus test for new programs was whether they advanced corporate interests. With members now reviewing every proposal, nothing got out of committee unless everyone stood to benefit.

Selection of the member panels was crucial. Those chosen were individuals who were well known and respected by their peers. Focusing on members who were influencers and leaders was central to every aspect of the co-op’s turnaround strategy. This instilled confidence in the process and assured other members they were being heard. Member representation was not a token gesture.

Critical, Sophisticated, and Powerful Insights Lead to Turnaround

During the next two years, cross-functional teams were set up to tackle issues affecting every discipline within the company. Members took notice as the cultural shift and process re-engineering efforts began to coalesce. In large numbers, they elected to remain. The new CEO embraced the emotional triggers unmasked during the interviews and called them critical, sophisticated, and powerful insights that made a significant contribution to the successful turnaround of the co-op. Unquestionably, members were upset about losing their dividend payments. That was a “fact.” It just didn’t happen to be the hidden reason they had been joining competing co-ops. Emotional-trigger research uncovered the real priorities this company in crisis had to address. Conventional thinking and self-serving assertions would have led them astray. What was “accurate” proved to be something entirely different than what was real.

SUMMING UP
TURNING AROUND A COMPANY IN CRISIS

Situation

Throughout several years, one of the nation’s largest coops had grown through a series of mergers. The new organization, however, was continually plagued by internal power struggles. During this difficult period, the board of directors had misrepresented the co-op’s situation. Members were assured all was going well, right up to the day when an enormous financial loss was announced. At first, members were shocked, and then they were outraged. In addition to being misled, the loss meant the co-op would no longer issue dividend checks. Within just a few years, 20 percent of the membership had joined competing cooperatives, and hundreds more were threatening to leave. Headquarters and field executives were confident the explanation for member attrition was the suspension of dividend payments. But a new CEO, brought in by the lenders, wanted to understand what really influenced a member’s decision to leave and what management had to do to convince them to stay. Emotional-trigger research was conducted to answer these questions.

The Memberships’ Emotional Triggers

Intensely felt passions and deeply held personal values created a combustible mixture of emotional triggers. The dominant trigger, however, was not about money; it was about relationships. Members felt betrayed. They were enraged by the lack of candor and took offense at what they saw as management’s arrogance. As owners they resented being excluded from key decisions that negatively impacted their businesses.

Genuine Insight

Suspension of dividend payments had become the convenient crutch management used to absolve them of culpability. The checks were only a symptom, not the hidden reason. The truth was more human. Members felt disenfranchised by a management team that had no interest in forging real partnerships with their actual employers.

Solution

The corporate culture had to change. A new management code of conduct was implemented. Next, cross functional planning was instituted to ensure future programs benefited both management and members. A group of typical members, with an emphasis on individuals who were well known and highly regarded by their peers, comprised part of every project team. These members served as the “conscience” of the co-op. The new corporate culture combined with the operational changes, instilled a newfound confidence among the membership. The attrition rate was drastically reduced, and the turnaround was successfully underway.