In the '90s, I worked in the private banking sector when we had to deal with the introduction of strict Know Your Client and Anti Money Laundering legislation. The new rules made it much more difficult to open new accounts, do certain transactions, and also put a high burden on clients to justify the source of their wealth. The changes caused "bloodshed" in the wealth management industry when clients balked at the new requirements. Many executives refused to comply, and open warfare was going on between the client-facing account managers and the legal and compliance departments. As a result, many executives lost their jobs, got into problems with financial controllers, and some banks even lost their licenses. The new rules themselves did not so much cause the issues, but how the banks' management introduced these changes.

A similar situation we often find in conscious capitalism. Visionary business leaders who want to align their company's mission with the stakeholders' interests, i.e., shareholders, employees, clients, suppliers, community, and/or environment, often encounter fierce resistance from within their organization. The change itself does not so much fuel the resistance as the people's fear of loss.  While leaders may be convinced about moving their organizations to the next level, others within the organization may have equal certainty about the losses resulting from the leader's initiative.

According to the Harvard Business Review[1], 70% of all change initiatives fail. The financial cost of failed change to organizations, the economy, and society is enormous.  The human cost – measured by employee disengagement, lack of trust, apathy, turn-over, sick days, and depression – is even higher. To successfully lead an organization into change, the leader must internalize the need and desire for that change with the people driving the change.

How can a leader successfully lead change without getting crashed and burned in the process?

When dealing with change, we must make a distinction between technical and adaptive challenges for change. Technical challenges have well-defined problems and solutions. The ability to drive the change exists within the system, is identifiable, and can be worked out with experts' knowledge.  According to Ronald Heifeltz[2] leadership would be a safe undertaking if organizations only faced problems for which they already knew the solutions.  

Adaptive challenges are more complex and ambiguous. The issues are more subtle and submerged. It requires doing things differently.  People need to adjust behaviors, learn new capabilities, and be willing to take the change to heart. A leaders' push to create adaptive change with a technical fix is one of the most common causes of change failure. Although technical fixes are not bad and maybe part of the solution, they are insufficient for adaptive change. When treating adaptive change with technical fixes, problems keep coming back, again and again.

So, what is it that leaders can do to create change that is acceptable to the stakeholders?

As my father used to say, “bad news first.” There is no one-fix-for-all solution for successful adaptive change. The good news is that the following three-step approach discussed by Johnston and Berger[3] may do the trick.

The first vital step is to gather group input. Listen to stakeholders who are being affected by the change. Try to understand what they feel and think about this issue and be generous to accept their dissenting voices as constructive and not disloyal. Leadership guru Warren Bennis[4] wrote "it’s a common failure of organizations to accept that internal disaccord is not a crisis, but rather an invaluable insurance against disaster.”

The second step is to define the challenge and clarify what success would look like. Have the stakeholders agree to the change and decide on how much of the desired outcome is within the leader's power and how much depends on others.

The third step focuses on the most critical adaptive issues by identifying the human elements of the challenge and the potential conflicts involved. There are three different levels where people might disagree:

1.      Values, purpose, and mission

2.      Objectives, strategy

3.      Tactics, implementation.

Often people agree on the big ideas (values or objectives, for example) but disagree on more specific issues like implementation or tactics. It is helpful to get clear about the level where the main disagreement lies. Once this is understood, and having the three steps in mind, tactics can be adapted to achieve a satisfying implementation for change.

In the end, all change is about people's involvement and their willingness to move forward. Without the buy-in from the stakeholders, changes are doomed to fail.

"Anyone operating with a theory of leadership that assumes that experts know what is best and that then the leadership problem is basically a sales problem in persuasion is in our experience doomed at best to selling partial solutions at a high cost.”[2] - Heifetz

[1] HBR: Cracking the Code of Change, Nitin Nohria and Michael Beer, May-June 2000

[2] Ronald Heifetz and Marty Linsky, Leadership on the Line: Staying Alive  

[3] Keith Johnston and Jennifer Garvey Berger, Guide to adaptive challenges and action learning, November 2011

[4] Warren Bennis, On Becoming a Leader, 1989

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