Lessons in leadership from Third Avenue – communicating bad news

Creating an open and transparent workplace where coworkers feel comfortable about communicating bad news to their seniors.


The announcement of the Third Avenue Focused Credit Fund of its intent to liquidate is widely seen as the biggest failure in the U.S. mutual fund industry since the 2008 financial crisis; yet again it seems management and leadership culture is to blame as the “blunt and autocratic” CEO David Barse, is dramatically escorted from the building (WSJ source).

As Business Insider reported today, “Barse’s hard-charging personality made it hard for subordinates to bring him bad news”. It serves to remind us that the art of good leadership is behavioural; and if you fail to  get the behaviour right, it can damage the entire organisation. Royal Dutch Shell learnt the lesson in the mid 1990s and twenty years on Toshiba Corp, Volkswagen (see analysis) and now Third Avenue Management LLC are learning the same hard lessons.

Creating an open and transparent workplace where co-workers feel comfortable about communicating bad news to their seniors is critical in today´s business. There are things that co-workers can do to effectively communicate bad news and there are things that the leader can do to create the right environment for coworkers to confidently come forward.

4 Lessons for the co-worker

1/ Prepare
If there is bad news that needs communicating, the coworker needs to prepare their message and method of communication; empathy is key here – understanding the leadership style of the receiver is critical. If the leader, like Barse, has a blunt and autocratic style then it is important to deliver a crisp and direct message. Make sure you have the root cause information to hand if the leader requests it. Prepare also some solutions to the challenge so that you come across as prepared and accountable.

2/ Choose the right moment
A simple rule is “the sooner the better,” but avoid ambushing the leader. Ensure the message is delivered in a confidential environment out of hearing of other co-workers – the leader will thank you for your consideration afterwards particularly if they emotionally react.

3/ Tell it as it is
In the UK TV series Fawlty Towers (The Waldorf Salad episode), the manager of the hotel, Basil Fawlty needs to explain to a straight-talking guest why his chef doesn´t have the ingredients to make a Waldorf salad. Fawlty´s untruthful, overdetailed and contrite explanation infuriates the guest. Don´t BS, get to the point, own the problem and adapt to the leader´s style. Whatever their reaction, do not try to defend or justify what happened (as Basil Fawlty did) just stick to the facts and focus on solutions.

4/ Learn from it
If this has come as a surprise to the leader, understand that there is more that you can do in the future to ensure the leader is aware of emerging problems.  Use risk assessment and traffic light tools to alert your stakeholders of issues to avoid unexpected surprises.

4 Lessons for the leader

1/ Be a good role model
Be open and transparent in everything you do. Share with your coworkers mistakes that you have made in the past and how you learned/developed from them.

2/ Be constructive when things do wrong
When things don´t go to plan, resist ranting or blaming others; celebrate the fact that your co-workers were willing to come forward (see this as a strength of your leadership) and take opportunities to coach and develop.

3/ Build better communication channels
Be imaginative with the communication channels within the organisation and ensure these channels encourage dialogue and openness. If your co-workers are talking with each other and regularly flagging incidents, then mistakes will surface earlier.

4/ Incentivise an open transparent environment
When coworkers deliver bad news, recognise their courageous action, use them as a positive example and reflect this in performance related bonuses if appropriate.

Laurens Van der Post once said “Human beings are perhaps never more frightening than when they are convinced beyond doubt that they are right.” When mistakes happen in the organisation (and they do), don’t compound the problem by creating a climate of entrenched views, fear and unforgivingness.  Partner with your co-workers to create an open environment where problems are quickly surfaced and dealt with.

by Ric Kelly PhD