Leadership during slowdown

Great CEOs see opportunity even when the general mood is gloomy

Leadership, especially during a downturn, throws up many challenges. One of the lesser discussed impacts of an economic crisis is the psychological toll it often takes on a significant number of employees. Management experts have a name for it: Psychological recession, which is a feeling of economic and psychological vulnerability and a growing sense that the employer gives a damn about them.

Studies worldwide have found evidence that a slowdown has significant psychological repercussions on the workforce because of the fear of unemployment, having to work more and salary cuts, leading to anxiety and depression. The cost of such fears can be heavy since even in normal times, distractions consume as much as a third of the average worker’s day and sap productivity.

That is when true leadership comes in. Able leaders would make sure that they create an ecosystem to help people break through hopelessness and channel their anxieties into results. That requires engaging with employees more, especially with the talent they need to stay on.

But if history is any guide, many companies prepare too little, too late, and too defensively. A majority of employees say they have not heard from their leaders how their company will be impacted by the slowdown, leading to harmful gossip that helps nobody. Pink slips may become inevitable in periods of slowdown, but the pain can be reduced if they are done in a way that those who stay back feel those who had to go have been fairly treated.

Great leaders, however, continue to operate in the long term as well as the short term, and maintain focus on people as well as on results so that the company can be positioned for recovery. They focus on maintaining loyalty among high-value customers. Think of examples like Hyundai’s Assurance programme, which allowed customers to return cars if they lost their jobs.

One of the most celebrated examples of leadership during a crisis is Honeywell, which experienced a sharp drop in new orders in 2008. There was little room left to cut costs through additional efficiency improvements and the task before CEO Dave Cote was to make a choice of whether and how to cut the workforce costs. While layoff was the most obvious choice, Cote decided to opt for furloughs (temporary unpaid leave) in the belief that downturns don’t last forever and because they instilled a sense of “we’re all in this together”. The move paid off handsomely as Honeywell was ready for the growth phase with an army of loyal employees.  

Companies like Apple have succeeded because they have chosen to act reactively rather than proactively. For example, Apple released its first iPod in 2001 — the same year the US economy experienced a recession, contributing to a sharp drop in the company’s total revenue. Its long term focus prompted Apple to keep investing in transforming its product portfolio through constant innovation and increased spending on research. These strategic bets have made Apple what it is today.

Ford’s dramatic turnaround following the financial crisis of 2007-08 happened because of one man — Alan Mulally who took over as Ford’s CEO in September 2006 at a time when the expectation was that the company would have to file for bankruptcy after a crushing $12.7 billion loss. By the time Mulally retired in 2014, Ford had achieved an incredible turnaround.

Mulally realised soon enough that Ford had a toxic, macho culture that was ruthless to outsiders, had forgotten its customers, and had an outdated and bloated product lineup of vehicles that fewer and fewer customers wanted. On top of this, it was running out of money.

At the centre of Mulally’s plan was people. That explained his "One Ford" vision which was to bring suppliers, customers, and even the unions into the fold as partners. He created "One Team" to eliminate pre-existing silos and turf battles, and set up a simplified leadership structure that aligned with his vision to get people to work together across the company as a global team.

In one of his interviews, Mulally summed up his leadership strategy during the crisis beautifully: “All of us want to know that we are doing great things, that we are touching a lot of people, and that what we are doing is something bigger than ourselves.”

Any leader who can manage to spread this feeling of togetherness will be a winner.