Here is a brief excerpt from an article by Derek Dean for the McKinsey Quarterly, published by McKinsey & Company. In today’s tough and fast-changing environment, CEOs must help their top leaders to work through fear and denial and to learn new rules. To read the complete interview, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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When business conditions change as dramatically as they have in the past year, CEOs need to be able to rely on their best leaders to adapt quickly. But what should they do when their strongest executives seem unable to play a new game? The costs—organizational drift, missed opportunities, unaddressed threats—are so big that it’s tempting to replace leaders who are suffering from paralysis. But this is a mistake when, as is often the case, these executives possess valuable assets, such as superior market knowledge, relationships, and organizational savvy, that are difficult to replace.

Before sending promising executives off the field, CEOs should try to help them learn to play by new rules. While part of the task—making a compelling case for change, helping him or her meet new job demands—involves appealing to an executive’s rational side, there’s also frequently an emotional element that is at least as important. Empathizing with the complex emotions executives may be feeling as the assumptions underlying their business approach unravel can be a critical part of overcoming the fear, denial, and learning blocks keeping them stuck (see sidebar, “CEOs, tough times, and emotions”).

Helping senior managers swim through this thick stew of challenges is a perennial problem that has become more acute for many organizations over the last year. The credit crunch and global economic slowdown didn’t just cause the unraveling of many business models. They also unsettled the assumptions and confidence of many senior managers. Mopping up the collateral damage in the executive suite is now a mission-critical task for many CEOs and is likely to remain one even when business conditions begin to recover.

Overcoming fear

Among the many emotions that can influence how executives interpret and respond to events, there’s one worth addressing on its own: plain old white-knuckled fear. In times of rapid change, when the actions that used to lead to success don’t any more, even strong leaders can experience intense, unproductive levels of fear caused by threats to their identity, their reputations, their social standing, and even their basic survival needs of a job and a paycheck. Ironically, leaders with the strongest track records are often more susceptible to fear during tumultuous periods because they have less experience facing adversity than their colleagues with more checkered pasts do.

Spiking levels of fear can convert frank, flexible, open, and self-reflective leaders into defensive, close-minded, rigid, and literal ones. These leaders may take things personally, feel persecuted, cease productive self-reflection, and lose the ability to process new information and respond to difficult situations. Others in the organization will notice this, of course, and will let the executive know in subtle ways—reinforcing fear and defensiveness.

Breaking this cycle doesn’t require a CEO to become an armchair psychotherapist, but it does require engaging team members on an emotional level. As leadership-development expert Donald Novak puts it, “helping executives verbalize their emotions and acknowledge their validity can allow them to move past fear and become more productive.” Putting fear on the table, so to speak, helps get it out of the way.

To understand what this kind of empathetic coaching looks like in practice, consider the CEO of a large global firm who recently discovered that one of his best functional executives had become “stuck.” Although this executive, at the outset of the downturn, had led his peers in dialing back investment and then cutting costs, he had subsequently boxed himself into a corner, telling the CEO, “I simply cannot cut any more if you still expect me to support the business.” The CEO addressed this paralysis in a conversation about his functional leader’s underlying fears: of failure, of disappointing his boss, and of losing his team, to name just a few. The CEO admitted that he had some of the same fears and emphasized that this was a completely normal way to react. This acknowledgement helped the executive out of his corner and stirred a discussion about ways to reinvent the function without sacrificing performance.

When CEOs acknowledge their own fears, they strip away the stigma attached to the emotion and make it easier for other executives to move beyond it. It’s also important for CEOs to examine the role that they play in reinforcing fears. They may need to change some kinds of behavior (such as blustering about the consequences of underperformance) in order to engage productively with their team. They may need to address anxiety about reputations and job security more transparently than usual. Finally, the CEO needs to model the “right” sort of behavior, including openness to dialog and collaboration, respect for all opinions, and self-confidence. Some of these may be difficult to summon in tough times, but they are powerful counters to the prevailing defensiveness and fear that often are rife in those times.

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Fear, denial, and the need to learn aren’t new challenges, but more senior executives are falling prey to them in today’s shockingly tough and fast-changing environment. It’s up to CEOs to help their leaders work through these issues, including the powerful emotions involved.

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Here is a direct link to the complete article.

Derek Dean is a director in McKinsey’s San Francisco office.