In retrospect, catastrophes are rarely unexpected. There's almost always advance notice that something awful is coming, and leaders are responsible for scanning the horizon to watch for the warning signals. The ability to evaluate those signals and anticipate the consequences is one of the things that distinguishes good leadership.

When competent leaders see disaster coming their way, they take preemptive action, marshal their forces to deal with the likely effects, then dig in to repair the damage. So do great leaders. But somehow, great leaders manage to do those things in such a way that their organization winds up in better shape than it was before the tempest touched down. These kinds of leaders are scarce, and one has to search both history and business journalism to find even a handful. But one model of brilliant leadership in the face of total disaster can be found in, of all places, the small community of Wapakoneta, Ohio.

Wapakoneta, population 9,474, is in the middle of "flyover country." But the disaster that befell it and the rest of the Midwest was of passionate interest to the people who live there. In 2002, while most people in the United States had their eyes on the Middle East, part of Middle America was experiencing drought on a scale not seen in years. The drought threatened to destroy businesses, small-town economies, and individual lives.

The hardest hit businesses in any drought are those involved in agriculture -- when there's no water, there are no crops, and there is no income. Small farms are often the first businesses to die, and second are the companies that sell agricultural products. In Wapakoneta, that company is Auglaize Provico, a farmer cooperative (more commonly called a "co-op") that buys and markets grain and sells petroleum products, livestock, farm supplies, fertilizer, seed, and spray materials.

Corn-belt co-ops were first established more than a century ago, and their structure hasn't changed much. Most are owned by farmer-members, governed by a board of elected member-directors, and meant to be non-profit -- in that profits are returned to members as cash or a greater stake in the co-op. Like many farm community co-ops, Auglaize Provico is a leading local employer, with 135 employees in 14 small towns.

Larry Hammond is the CEO of Auglaize Provico. His co-op had endured damaging weather patterns for a couple years, but when the drought intensified in the spring of 2002, he knew that the worst was just beginning. Even his most dire fears, however, were too optimistic. Auglaize projected up to a 60% decrease in grain volume due to the drought, which accounts for half of its revenue; it turned out to be 70%. By the end of the disastrous 2002 harvest, the co-op was down about $4 million in margins and service income. For a small company in a small town, a loss like that is more than devastating. It's final. But Hammond's co-op survived, and for the next three years, posted record profits.

So how did a small co-op, a remnant of 19^th-century farming, turn calamity into victory -- something global mega-companies and trillion-dollar governments fail to do all the time? Actually, it wasn't all that complicated -- just incredibly hard.

Before 2002, Larry Hammond had a managerial style that CEOs really shouldn't emulate. It was essentially this: Everyone and everything went to Larry. "He would operate [Auglaize Provico] almost on a paternal basis," says Barry Conchie, a Gallup leadership consultant. "Larry used to do pretty much everything." Hammond was successful because the co-op only had 160 employees at the time and because he is deeply committed to the well-being of each one of them. You can do everything if you know everybody. This style creates inefficiencies, however, and when disaster hit, Auglaize couldn't afford any weak spots.

"When we saw that the drought was getting worse, I called forty of our key people together and said, 'Guys, we have to change the model of this business,'" says Hammond. The first change was a 25% reduction in staff to cut costs -- a difficult decision in a company with near zero turnover. The reduction was handled extremely carefully, though: Some reduction in staff occurred from the resignations of part-timers and seasonal help, some near-retirees opted out early, and the rest were assisted into other jobs.

"[At the time], we had to have transparency and be honest about what we needed to do and what was going to occur," says Mike Dammeyer, a division manager at Auglaize Provico. "It may not have always been popular -- it surely wasn't what management in any phase wanted to do -- but it was what we had to do. And it went over surprisingly well."

Grain elevators were sold, and the co-op took on work outside its previous core business. Hammond asked the CFO to cut his pay as CEO, though no one knew about it at the time. "It was for me psychologically. I wasn't trying to be a martyr, but I needed to know that I was making a sacrifice, just like everyone else," says Hammond.

Copyright Ó 2007 The Gallup Organization, Princeton, NJ.  All rights reserved.  Reprinted with permission.  Visit The Gallup Management Journal at http://gmj.gallup.com/

Article from The Gallup Management Journal