Leadership is critical to a financial recovery. A leader articulates a vision of what will be achieved through financial recovery. In addition, a leader demonstrates the behaviors and attitudes that are necessary to recover. They engage stakeholders in the recovery process and enables them to make meaningful contributions. A leader also makes tough decisions and keeps the recovery process on track and moving forward.
Here, you can learn about the essentials of leadership in the financial recovery process. The site provides a checklist of key leadership tasks and behaviors. You can access the following topics:
- Who is the leader? Who fills the role of leader during the recovery?
- General leadership behaviors for recovery. The common traits of effective recovery leaders.
- Leadership credibility. Followers asked to take on difficult challenges will require credible leaders.
- Recovery leader and elected officials. How the recovery leader can work successfully with elected officials.
- Communication. Communication is a vital task at all stages of the recovery process.
- Leadership tasks in the three phases of recovery. Different tasks are required in the Bridge, Reform, and Transform Phases.
Who is the leader?
The leader of the recovery process must catalyze the organization into action. Therefore, the leader must be sufficiently highly placed in the organization to influence others to change, ideally the organization’s CEO. The finance officer should be prepared to exercise leadership to help build the case for action, to get other people behind the recovery effort, and ultimately to lead the organization to financial resiliency.
Leadership is Everyone's Job
Leadership should come from people across the organization. "Champions" of the recovery process can be created by engaging those who are willing to support the recovery process.
Widespread leadership will result in a faster recovery and better institutionalization of the improvements made.. Good financial management practices will take root because many people want them to, not because of the threat of sanction from the finance department.
At a minimum, there should be a central recovery team that is comprised of senior management. This team can work together to complete the leadership tasks described on this site.
Effective leaders of financial recovery have some commonalities.
Below is a checklist of important leadership qualities and behaviors for recovery. Leaders can develop skills that they do not already have.
Trust and Credibility. Usually financial distress is a long-term problem, so it is important to build, maintain, and often restore trust and credibility through the ups and downs. The guidance provided by the GFOA Code of Ethics is one example of how finance officers can build their trust and credibility.
Emotional intelligence. Emotional intelligence is essential in a financial recovery because stress, distrust, paranoia, and lack of confidence are prevalent. The leader will need to understand these emotions and offer an empathetic response and honest answers in order to calm fears, create a supportive environment, and to motivate people.
Collaborative. The leader must be comfortable with collaboration and recruiting other people to the cause, trusting their judgment, and enabling them to help create the solution. The leader will need to build teams and delegate as early as possible. And collaboration must always be balanced with decisive action.
Action-orientation. The leader should be a catalyst and not wait for events to take their course. The leader should also create a focused sense of urgency - not panic, but a relentless pursuit of relevant objectives.
Detail-orientation. The recovery leader must be willing to give the process personal attention and delve into the details of diagnosing the causes of financial distress and creating solutions. Especially in larger organizations, the leader does not have to know every minute detail of the organization’s finances, but they do need to have a substantive command of financial position and the issues in play. They must also pay close attention to designing a process that is participative, that is perceived to respect the opinion of the public, and that is perceived to be based on an expert approach to financial management.
Vision. The leader needs to see the end-goal and communicate it to others. This vision becomes the new story of the organization and helps everyone relate to their role in that future.
Enthusiasm about public service. The leader spreads this enthusiasm for public service to others. At the same time, the leader is patient and sticks to strategies, realizing that change does not happen overnight.
Fairness. The recovery process must balance the concerns of different stakeholder groups, respect the public's wishes, and lead toward real financial sustainability. If people believe the leader is unfair, they are far less likely to follow.
Respect. The recovery leader shows respect for all stakeholders, including employees, the public, and elected officials. This respect is reflected in communication strategies and the process.
Honesty and forthrightness. The leader shares needed information (even bad news) with people so that they can make the best decisions. Honesty reduces uncertainty. Uncertainty amplifies the stress people feel in a recovery situation.
Skepticism. The leader treats with extreme caution any solution that sounds too good to be true or promises gain without pain. Also, the leader subjects his or her own views to scrutiny - both through self-honesty and inviting the opinions of others.
Courage. Courage is often hard to find when a local government experiences financial distress. Courage is necessary to deliver bad news. It may be tempting to wait for a “good time” to address a problem, but there never is a “good time” in a distressed situation. Courage is also necessary to propose and take bold actions. This may even include going outside of what are normally considered “best practices.”
Leaders should be mindful of how their words and actions impact credibility. Credibility is essential during financial recovery. Here is a checklist for creating credible leadership.
Articulate a vision. People will want to follow a leader who will take them to a better future. The vision gives followers hope.
Be consistent in words and behaviors. Credible leaders model the way forward for others by acting in a way that is consistent with their words, message, and decisions.. The leader will also need to be careful about what they say with regards to the political environment, lest circumstances require a change in direction. Staff leaders will also need to make sure that their words respect the importance of the elected officials’ role.
Be flexible in solutions. The leader is willing to consider new ideas. The leader is also willing to change tactics or strategies when they are not working.
Be honest. A leader cannot always reveal everything they know to followers, but they can share the truth, and exercise judgment and delicacy in doing so.
Give the personal touch. Make use of in-person communication to improve responsiveness. Don’t over-rely on e-mail. YouTube and other forms of video can extend the personal touch, especially when in-person meetings aren’t possible.
Show empathy. The recovery process will almost inevitably result in some people experiencing loss, be it a job, salary, benefits, or even just prestige (e.g., if their department is deemed a lower priority for funding). Acknowledge the pain other feel and, later, help them to find new meaning.
Demonstrate expertise. The leader must demonstrate an understanding of the technical aspects of the recovery. For example, just providing financial data says little about what the leader knows about the situation. Instead, demonstrate a real world understanding of the organization’s operational and capital investment challenges, link that to the origins of financial distress, and then describe the path to a better future as well as what that better future looks like.
Trust followers. Once the leader has formed a recovery team or teams, the leader should give their subordinates sufficient power and authority to carry out their goals. The leader does not micromanage, but the leader does trust blindly either. They recognize which followers need more direction and which can be given a goal and latitude to achieve it. The leader also couples their trust with accountability for results.
Encourage followers. The leader openly recognizes the successes and achievements of others and gives credit where it is due. When followers believe in themselves, their contribution to the recovery will become that much greater.
Communication is a vital task for the recovery leader at all stages of the recovery process. Use the following communication checklist, especially in the beginning of the recovery process:
- Be direct, honest, accessible, and forthright. And be respectful in the process.. If you want to influence people, be willing to be influenced.
- Acknowledge the concerns of employees and the public.
- . Be realistic, but still be willing to take some risks.
- Find and convert key influencers to your cause. Hearing from key influencers will encourage others to make difficult choices and take difficult actions.
- Repeat, repeat, repeat. It may take a few times before a message sinks in.
Communications plan. Early on, the leader should develop a communications plan. The overall objectives of the communication plan are to build support for the recovery, develop trust with stakeholders, and provide transparency on the process being followed and the strategies being pursued. With that in mind, the plan should focus on answering the following questions:
- What to communicate? Simple messages are good. Be sure to have good communicators and wordsmiths as a part of your recovery team to help tell the story behind the numbers and to challenge financial staff to do the same. Tailor your message to the audience.
- How to communicate? E-mail, one-on-one talks, video, blog, formal presentations, etc.
- To whom? This will be driven by the stakeholder analysis in Step 2 of the recovery process.
- Where? Are some message better delivered out of the office? Are there times to visit someone on their own turf, rather than calling them to yours?
- When? Time communications so stakeholders feel they are getting current information, not an after-the-fact report.
Media relations. . Meet with the local media to start getting the word out and put your frame on the situation. This might go beyond traditional media to include community influencers on social media, etc. Commit to working with media and being transparent
Having good communicators as part of your budgeting and financial recovery team(s) will also help make sure the budget tells a story that the media can report on.
Recovery Leaders and Elected Officials
In a local government financial recovery, it is possible to have a behind-the-scenes leadership style; however, it is better and often necessary to have a hands-on and visible style. Below is a checklist for how the leader can be visible and hands-on while working cooperatively with elected officials.
Make a personal commitment to work with and protect elected officials. This mindset will make the recovery leader a real ally to the elected officials rather than a potential political risk. Some tactics to help finance officers and elected officials work better together include:
- Establish a five-year forecast and update it regularly Explain variations between the forecast and actual results. Strive for a dynamic forecasting process. If the environment is too uncertain to have a single long-term forecast, consider scenario planning instead.
- Have high level discussions of financial strategies as early as possible in order to learn of concerns about a given strategy and begin shaping more specific strategies. The strategy development process with elected officials is often gradual and organic.
- Give credit for ideas and recognize constructive suggestions from participants.
Alter politics. Develop political mechanisms that create shared decision-making for hard choices and sharing of the resulting blame and credit.
Show that it is not all pain. Show benefits from the recovery process besides just financial benefits.
Develop and adopt financial policies. Financial policies set the baseline standard for financial stewardship and crystallize the strategic intent for long-term financial management. Financial policies are a great way for elected officials to exercise governance and clarify expectations for staff. Some important financial policies to consider for recovery include:
- Fund balance. Define the target amount the government believes it needs to hold in reserve to mitigate the risks it is subject to, such as extreme events and natural disasters and revenue fluctuations and cycles within the year.
- Debt burden. Define the level of debt the government is willing to take on, both in terms of impact on the government’s budget and in terms of affordability to the community.
- Fees. Define the extent to which services will be subsidized by general tax dollars. For example, public safety will likely be heavily subsidized, while recreation may be much less subsidized. This helps identify where fees and costs are out of alignment.
- Long-term financial planning. Commits the government to taking a long-term perspective on financial strategies and guards against reliance on strategies that have short-term benefit, but long-term costs.
Don’t play the blame game. This only makes others defensive and reduces their receptivity to new approaches at a time when new approaches are sorely needed. Especially when there is fear of blame at a public meeting, all participants will become more defensive, thereby slowing progress towards the goal.
Engage elected officials in the solution. Listen carefully to elected officials, take their good ideas and work those into the recovery strategy, and give credit where it is due. Soon, the recovery strategy will become everyone’s strategy.
Help elected officials deliver key messages. Elected officials are the organization’s natural leaders in the public’s eyes. Assist elected officials in filling that role Provide elected officials with simple charts and easy talking points. Look for the messages that elected officials want to take to the public and prepare them to deliver these with concision and accuracy.
While the staff leader may have a more visible role inside the organization than outside, elected officials should still have an important role in communicating with the employees.
Create roles for elected officials in the recovery process. Elected officials have a unique set of skills. Find a way to use those skills in the recovery process.
No surprises. No one likes unpleasant surprises, least of all elected officials in a public setting. Use private or one-on-one meetings with elected officials to give bad news in advance of it going public.
Leadership Tasks in the Three Phases of Recovery
The process for recovering from financial distress has three stages:
The Bridge Stage is about getting through the immediate crisis and creating breathing room to make more sustainable reforms. In the Reform Stage you carry out the short-term recovery plan and develop and implement long-term therapies. The Transform Stage is the institutionalization of long-term financial planning and becoming more resistant to financial distress and adaptable to a changing environment.
Each phase has different leadership tasks associated with it. This section of the site describes those tasks.
Leadership Tasks in the Bridge Stage
In the Bridge Stage, the leader is focused on getting the recovery process underway, strengthening momentum for recovery, and building a base of supporters. The key leadership tasks in the Bridge Stage are below.
Initiate the Recovery Process
The leader must first get the recovery process underway. The two key tasks are below.
Inspire the organization to action. Build a case that change is needed.. Ideally, the leader will seize the initiative and frame how the issue of recovery is viewed and thought of in the organization.
Do a quick analysis of who possesses credibility and enlist them in the cause.
Also, start building credibility with people inside the organization.
Get information out. Share information on the financial situation, but at the same time acknowledge imperfection in the information.
Also, begin to describe the goal of the recovery process. A better employee workplace and creating value with tax dollars for the community are the larger goals.[SK2]
Get a Handle on the Situation
The recovery leader must quickly assess the situation. Getting a handle includes both stabilizing and diagnosing. This also provides the leader an opportunity to demonstrate technical aptitude and, thus, build credibility. A checklist of key tasks is below:
Provide some immediate relief. The leader must take action to stabilize the situation.. Step 3 of the recovery process addresses generic treatments, while Step 5 address further reaching treatments.
Diagnose. When the leaders can demonstrate a substantive command of the issues facing the organization it will give people confidence that the recovery can be successful. Step 4 of the recovery process describes how to perform an initial diagnosis.
Set targets and measures. Define clear objectives and measures to judge the success of the recovery efforts. The measures should be simple, effective, and provide timely feedback.
Build a Recovery Team
The leader must form a team to carry recovery forward. Recovery team-building is the first step in engaging employees in the recovery process. A checklist of key tasks is below:
Define needed roles. Establish the roles you will have on the recovery team. In addition to technical roles, look at balancing the team with individuals who are strong in planning, making things happen, empathy, and persuasion. Finally, consider the need for sub-teams.
Identify potential participants. The leader must identify which senior managers can contribute to the recovery process.
The team might also identify good analysts who are not senior managers to be resources that the team can call upon as the need arises.
Also, identify those employees who are sitting on the fence and try to find a way to get them on board. Further, figure out who the fierce resisters are and acknowledge and account for their concern, but be ready to move on. Finally, be cautious about volunteers whose goal is really to protect turf or find reasons that change does not have to happen.
Consider the role elected officials will have on the team. The level of elected official involvement will depend on the organizational culture and preferences of the board. Typically, only a few officials at most would be included to keep team size manageable. To encourage candid communication, team meetings should not be televised. If it is not possible to have elected officials on the team without maintaining candor, then consider a subcommittee approach where the staff recovery team works closely with a subcommittee of the board.
Make sure day-to-day operations are covered. Day-to-day services must be provided while the team does its work. Identify any risks to regular service delivery arising from focusing key staff on the recovery process and plan accordingly.
Consider the need for personnel replacements. In some cases, it may be necessary to replace personnel in order to form a solid team. Two such situations include instances of professional malpractice and perpetual denial of a declining financial position. Be careful that a replacement doesn’t poison attitudes about the recovery process. Try to make use of existing progressive discipline procedures to achieve your objectives.
Consider the need for legal advice. For large and complex issues, legal expertise should be involved early. A legal advisor defines the boundaries in which a strategy must be developed.
Build Support for the Recovery
The recovery leader must constantly build support for the recovery process. Followers must be sufficiently committed to endure challenges. At the same time, the leader must be ready to adapt to changing conditions and redirect the process as necessary. A checklist of key tasks is below:
Refer to policies and plans. If financial policies or long-term financial plans were developed in the calm of good times, they can provide decision-making parameters that are widely agreed upon. If policies and plans do not exist, refer to GFOA’s Best Practices. These are ready-to-go and have built-in credibility and expert legitimacy.
Of course, in some cases, existing plans or policies may no longer apply. You may need to develop new strategies. If the organization has a solid mission and values statement, use it as a means to test the validity of new strategies.
Engage the public. Recovery will necessitate hard choices. These choices could result in reduced services and/or increased taxes. As such, public support will be needed. Budget simulation is one way to engage the public in making hard choices.[SK1]
Establish communication channels. Decide how to communicate progress on the project to others.. As much as possible, the communication methods should encourage strategic thinking about the financial situation. If reports are too detailed, however, they may divert time away from implementing the recovery process.
It is important to obtain feedback from stakeholders to see if your message is getting through.
Employees will understandably be anxious about their jobs and compensation. Communications should be honest about what leaders know and don’t know about what will happen to their salaries, health insurance, and working conditions. Employees will also want to know about how their job duties or goals may change. Give assurances that leadership will do its best to treat people fairly throughout the recovery process.
Start changing the organizational culture. Distressed organizations may have cultural traits that contribute to decline and impede recovery. Recognize some of the more visible, announce your intent to change them, and initiate new behaviors that are consistent with the desired new culture. The Long-Term Treatments section of this site addresses cultural change issues in more detail.
Deliver quick wins. Early successes are important for combating an expectation for failure that may have developed in a declining organization. Quick wins depend on the situation, but here are some tips for finding them:
- Employees may have money-saving or revenue-enhancing ideas. Even the small ideas build positive momentum. If you do seek out employee suggestions, be sure to let people know what happened to their ideas.
- Breaking larger goals into chunks not only makes goal achievement easier by making the next steps more apparent, it reveals potential quick wins.
- In many distressed situations, financial information is poor. A good long-term forecasting model might be a first for the organization.
- Review what the organization has done right in the past. Show how past successes have attenuated distress and how the organization can build off those successes.
- Reduce uncertainty by defining with stakeholders a clear process for recovering from financial distress. Also define a policy framework for adapting to new circumstances and taking advantage of opportunities.
Deal with Dissent
Not everyone will support the recovery process. Some may even actively resist it. The leader’s strategy must differ for political dissent versus staff dissent. Below is a checklist for how to deal with dissent.
Send the right message. Dealing with dissent starts with sending the right messages from the beginning. Make sure that stakeholders understand that there is a real problem and that something has to be done about it. Provide justifiable and, ideally, compelling reasons for cost-reduction and change strategies. Make it clear that the right thing will be done. Define the "right thing" through a long-term vision, financial policies, and/or a long-term plan.
Define priorities. As the recovery process unfolds, describe what the priorities are. Although everyone may not agree with the priorities, they will at least know what the priorities are
Be open and accessible. Be sure to provide information as soon as is practical in order to preempt misinformation. Preemption is a far more effective strategy than trying to correct misinformation after misinformation is in circulation. Be responsive as well as proactive in providing information.
Listen to dissent and learn from it. Understand the nature of dissent and then deal with it accordingly. By understanding the interests and worldview of dissenters, the leader may be able to frame the change in a way that would resonate with them. If possible, provide feedback on how differing viewpoints had affected the recovery plan in specific ways.
Establish that there are consequences. Make it clear that failure of staff to cooperate with the new way of doing business will have repercussions. Be clear about what the repercussions are and make sure they are realistic in the context of collective bargaining agreements, civil services rules, etc.
Don’t be afraid to terminate employment. At-will employees who obstruct the recovery process harm the public and other employees. The leader should consider it a duty to remove them.
Open direct communication with employees. Don’t rely on middle managers to relay all communications. The message may not always make it through in the form you intended. Consider the use of interactive channels social media, web meetings, etc.
Contain dissent that you can’t manage. In a political environment, it is possible that there will be sources of dissent that are very difficult or impossible to neutralize. Take steps to isolate these sources so that their negative attitude is attenuated and doesn’t spread.
Stabilization of finances isn’t enough. The organization needs a vision to create a strong financial foundation and a thriving community. Leadership in the reform stage involves creating a vision for the organization and the structures to realize it. A checklist of key tasks is below:
Help the organization articulate its vision. Ideally, this would take place through a formal strategic planning process. The process should result in a set of prioritized goals and objectives. These goals should address service and financial issues. If a formal strategic planning process is not possible, a simplified priority-setting process can work.
Further involve staff in change process. In the Reform Phase, the leader can involve staff more intimately. However, the leader will need to provide a well-defined framework for staff involvement to ensure that discipline is maintained and that the involvement activities produce good results.
Ensure accountability. In distressed organizations, managers are often not held accountable for financial or service results. To address this, the leader should introduce simple performance management systems. It is critical that the performance management system and the concept of accountability be taken seriously. The leader will have to demonstrate that there are consequences for not doing so.
Focused training. The leader will need to provide training in areas critical to realizing the financial recovery strategies.. Training in the Reform Phase is especially important if training was reduced or eliminated in the Bridge Phase as a way to cut costs.
Communicate. The leader must continue to get out the message. Communications should be regular, made to a wide audience (including the public), and convey meaningful information. Err on the side of over-communication.
Align rewards and incentives with recovery objectives. In public-sector organizations, especially in one recovering from financial distress, financial incentives are likely out of the question. However, self-interest is part of human nature. Therefore, the recovery leader must develop incentives as best as they can. Possibilities for incentives are:
- Job security. Many people join government because of perceived job security. Play to that interest by making financial recovery about maintaining job security.
- Mission-driven. Many public employees have a real interest in serving the public. Use the organization’s strategic vision to reinvigorate employees’ passion for the job.
- Professional pride. When a key public institution in the community is in distress people will pay attention. Employees will want to be seen as helping reverse the decline.
- Non-financial rewards. Non-financial rewards like award ceremonies, public recognition at a board meeting, or first choice of work equipment can make a real difference in performance.
- Disincentives. Disincentives may play a role as well. For example, require managers to explain negative variances in their budget to a subcommittee of the board at a public meeting.
- Temporary assignments. Assignment to special projects can provide opportunities for valuable new experiences and perhaps eventual promotion.
The Transform Stage is where the organization goes above and beyond where it was when it started financial decline. The goal is not to just get back to where thinks were before, but to have a stronger financial foundation so that the organization is more adaptable to changing conditions and able to recover readily from setbacks. GFOA’s Financial Foundations for Thriving Communities is characterized by a number of good financial management practices, but is really about a new way of leading local government and making decisions.