After the most recent jobs report indicated 517,000 new jobs were added in January and an unemployment rate of just 3.4%, economic pundits predicting a recession must feel a bit like Chicken Little. Is the sky falling or not? The answer depends on what part of the market you’re sitting in. Even though broad swaths of the economy aren’t feeling it yet, the technology sector has been in a recession since last summer.
Rather than debate the recession question, I have a better query for business leaders. How will you steer your organization through this uncertainty? Because the deciding factor on how a business survives an actual recession—or just the lingering threat of one—isn’t its products and services…as important as they are. Company leadership is the ultimate arbiter.
Recessions Come and Go
In my 28-year career in executive search, I’ve lived through multiple recessions, including the one my technology clients are now experiencing. Each of these downturns has had distinct characteristics, in terms of length and cause. We can all attest to the extended duration of the housing-bubble-induced Great Recession and the surprisingly brief extent of the pandemic-induced recession of 2020.
As for the similarities between recessions, they’re all officially declared by the National Bureau of Economic Research (NBER) only in hindsight. The fact that different industry sectors tend to enter a recessionary cycle at different times can delay that declaration like we’re seeing now. Still, in my experience, technology almost always enters and exits a recession first.
This tells me two things. First, we’re likely nearing the peak of tech company layoffs in this cycle. Second, just as they get through the worst of it, other sectors will likely begin to feel the pinch at which point we can expect job cuts in non-tech companies to start picking up steam. Dow Chemical, which announced a layoff of 2,000 employees in early January, is a front-end example. This is all simply the nature of the economic beast and a reality that requires preparation by company leadership.
In a Recession, Leadership Matters More than Anything
Leading a company during a booming economy is relatively easy. Even so, executives may be tempted to solely hang their hats on accomplishments achieved at such times. This is something Warren Buffett warns against in his idiosyncratic way: “In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world.”
As one half of Berkshire Hathaway’s incredibly durable C-suite collaboration, Buffett’s words remind us that executive leadership skills aren’t fully tested until you hit a significant rough patch. Or to put it more bluntly, according to Mike Tyson, “Everyone has a plan until they get punched in the mouth.” No doubt, if you have a weak business plan and/or poor products or services, your business will suffer more than those without such problems in an economic downturn. But poor leadership poses the biggest existential threat in the coming months.
Five Guiding Principles for Effective Recession Leadership
In observing clients and other businesses over the years, it’s clear to me that the most effective leaders follow a set of guiding principles. In particular, they use these standards to lessen the impact of impending recessions and to steer their organizations through them once they hit:
- Examine and analyze the existing business plan: Effective leaders don’t automatically assume that slashing budgets is the only play during a recession. They use a downturn as an opportunity to take a timely look at their business plan and examine their short- and long-term strategies to identity strengths and weaknesses given current conditions.
- Make strategic decisions: Even so, they hold true to their convictions. If the original business plan is still sound, they don’t ditch it out of fear. Instead, they figure out what adjustments need to be made to get through this time. For example in terms of the employee ranks, a company that has a deep leadership pipeline may be able to replace a C-level executive with that person’s top lieutenant at a lower compensation.
- Conduct layoffs with empathy: Many companies include treating people with respect as one of their core values. The best leaders ensure those aren’t empty words at the very point when respect is needed most—during layoffs. They use a well-thought-out plan designed to preserve the dignity of impacted employees rather than acting rashly with a late-night pink-slip email and nothing more. As we’ve all seen, the latter invariably goes viral by morning, just in time to tank a company’s reputation when it’s already down on its heels.
- Understand that top talent always has other opportunities: Savvy recession leaders recognize that a downturn doesn’t necessarily mean employees have no other options. In most cases, when public companies begin to lay off staff, especially higher-paid talent, private companies are waiting in the wings to recruit these high caliber mid-level candidates and executives that they otherwise would not be able to afford.
- Dare to be bold and buck the trend: They’re also not afraid to take a calculated risk during a recession. They know the history of start-up and growth-stage companies who catapulted out of downturns to become the next business juggernaut. This includes household names like NerdWallet, Uber, and Venmo out of the Great Recession and Microsoft long before that.
Positive Leadership Stories Begin (or End) with Recessions
Even if you can’t predict the exact timing or full extent of the recession everyone is talking about, one thing is certain. No matter your specific industry and regardless of whether you’re a long-time C-suite executive or a first-time one, the coming months give you an opportunity to expand upon your existing leadership legacy or burnish a new one. The only question is whether that story will be a positive or negative one.
By Adam Charlson, Managing Partner of Focus Search Partners
Interested in making a strategic executive hire to help navigate your business through the economic turbulence of 2023? Contact Focus Search Partners today.