As interest rates rise and consumer spending habits change, rumors of a recession have started to emerge as a strong possibility for the coming months.
Regardless of whether a recession happens, the mere rumors of a recession can have a massive impact on our employees and their feelings about work, and managers should be considering how to adapt their leadership style to handle any economic worries by their direct reports.
On a high level, below are a list of things that typically happen when there are concerns of a recession:
· Companies go on hiring freezes or begin laying people off – Companies tend to hire based on what they believe they will need so when a recession strikes and their projections are incorrect, they are forced to change course and lay people off as they adjust their projections.
· Employee confidence diminishes – Strong economies with low unemployment help employees feel confident asking for higher wages and greater perks.
· Teams are consolidated – Companies create departments and teams based on projected growth, but when economies start to slow, teams tend to be merged, people are laid off and those remaining must pick up the additional workload.
Some companies and industries and going to be more impacted than others. If you lead a team and feel that your direct reports show some concern about the economy, this article covers how to be a better leader in times of uncertainty.
As a professional, I am a firm believer that you are an entrepreneur of your own life. I am not writing that everyone should be an entrepreneur, but as a person, you have full agency to make the decisions that you believe are best for you. When it comes to work, especially if you lead a team, it is critical that you do your own research to identify if the company you work for will thrive for the foreseeable future.
For example, one of the executives in our mastermind group works for a company that does COVID tests. This business model boomed over the past few years, but as fewer people get COVID tests, our leader has recognized that something needs to change for his team to continue working for their company.
As opposed to doing the same thing over and over again as business dwindles, he is being completely candid with his team. He has been identifying business opportunities that he and his company can pursue based on the infrastructure they have created over the past few years. Essentially, he is becoming an intrapreneur – or a person who is pursuing entrepreneurial opportunities within a company.
This openness, honesty, and candor has caused his team to feel excited about the work they are doing. They still complete the tasks that keep the lights on, but they are taking the additional time they have from diminished business and putting that towards identifying new opportunities they can leverage and deploy.
Many of the ideas proposed won’t work out, but it is much better than doing nothing and hoping it works out. His team has greater clarity and understanding regarding the business’s health and prospects, and most employees are staying and trying to help find a new path for this business.
This team is still searching for the next business model that will reinvigorate their business, but this isn’t solely a task for the leadership team anymore. Now, the entire company can be a part of the solution.
Therefore, to recap, when your team feels uncertainty because of a potential recession:
1. Lean into the concerns and share openly and candidly why the company’s current way of operating won’t be affected by a recession (e.g. if you work in healthcare or grocery, you can share multiple data points that show that those industries tend to be minimally affected by a recession) or what you are doing to pivot and stay agile even if a recession does come.
2. Incorporate your team in the innovation process when it comes to identifying ways to cut costs and increase revenue (laying people off has a very negative impact on employee morale and confidence).
3. Understand the risks and benefits because if your team is unsuccessful at effectively pivoting, your employees will understand why they are being laid off. The benefit of incorporating your team in the innovation process is that they will feel that they had a chance (an opportunity!) to help be a part of the solution that turned the company around as opposed to being left in the dark and then one day getting laid off.
The key when identifying the opportunities to innovate and pivot is to explicitly lay out the risk tolerance you have for ideas. You may not have a million dollars to test out every idea, but you might have $1,000 and that could be enough to garner some early data points of success or failure. Risk tolerance also applies to legal risk. Our executive in our mastermind group is in the healthcare space which has rules and regulations companies must follow. It is critical that your team understands those rules and regulations before trying different ideas.
· Set up both team and 1:1 meetings to meet with your direct reports to ask them if they have concerns and if so, what concerns do they have. Don’t avoid the conversation because a solution is unknown.
· Once you have gathered all of the concerns shared, craft a response for each concern. A response could be why the current way the company operates won’t be affected by the concern proposed, a potential solution that is being implemented that should alleviate the concern, or incorporate them in the solution process to help alleviate the concern as a group.
· Clearly lay out a plan for your team for what the next 3, 6, 9, and 12 months will look if a recession has little to no effect on the company, a moderate effect on the company, and a major effect on the company. The worst thing you can give your team is uncertainty so crafting this projection allows them to fully understand and prepare for the worst possible outcome (which is never as scary as the unknown negative possibilities they could come up with in their minds).
Regardless of whether or not you are right, people will follow those that are certain. Certainty can come in the form of processes, inclusion in the solution, metrics that show why things will be fine, or projections for the best, moderate, and worst-case scenarios.
As a leader of people during times of uncertainty, you must give people certainty.