The 2008 financial crisis was the one of the worst economic crisis since the Great Depression of 1929. It took place despite tremendous steps by the Federal Reserve and Treasury Department to keep the U.S. banking system from a collapse.
The financial crisis was essentially due to deregulation in the financial industry. This allowed banks to get involved in hedge fund trading with derivatives. Banks then asked for more mortgages to back up the profitable sale of the traded derivatives. This led to the creation of interest-only loans that were affordable to subprime borrowers ultimately resulting in push up of housing prices. This is what ultimately led to the global recession.
The main lesson that we learn from macroeconomic crisis is that we need to be agile and preemptive in our approach to deal with such disasters.
During the recession time, financial institutions and regulators underestimated the impact and risk which led to a more disastrous effect. The consequence was a financial structure that became vulnerable to future shocks. In other words, the global economy was crumbling on its foundations without policymakers, economists, or financial institutions observing the impact.
For any institution or organization, to respond to a macro economic crisis, it is essential to always look out for signs that could result in a financially complex situation. Apart from that have policies into place that check into undesirable events from taking place. But how can business leaders display striking leadership in the times of crisis? No two people will react to events with the exact same approach. Some might be unaffected, while others may display exemplary behavior, and others may react in unexpected ways. The Action of business leaders during these times are important to maintain motivation, improve productivity, and prevent attrition of alienated employees when the economy is in the doldrums.
Managers have a crucial role to handle in the times of crisis; indeed, how managers lead their employees today will determine the tomorrow. Following are the action points that would help any organization become agiler in their approach to handling macroeconomic issues:
Focus on fears and anxiety
People go through a lot of emotions during situations of crisis because of their concerns over their job security, their salary, and their financial condition to pay bills. That’s why Managers should plan to address concerns such as speculation of job cuts, layoffs, salary deduction etc. to combat fears and anxiety.
Performance and productivity will take a dip
People react differently in uncertain times. Expect to watch people facing issues while focusing on work, being forgetful, displaying anger, and increased cases of absenteeism. These are all normal responses but if you allow people to talk more and have natural ways of dealing with the crisis, then you can become a better leader.
Open communication is a must
During times of difficulty and uncertainty, business leaders tend to stash information. This practice is undesirable as it will wreak havoc on the motivation levels of your workforce. Meet with your employees at all levels to express concern, as well as to give timely updates on the events.
Restrict negative behavior Times of difficulty may bring out the best and worst from your workforce. Ensure that your performance management process
Times of difficulty may bring out the best and worst from your workforce. Ensure that your performance management process keep a check on performance issues caused due to the financial crisis. Be cautious and take appropriate actions to keep negative things from happening.
Plan for the future
In the times of financial uncertainty, encourage activities that keep people motivated and engaged. You can’t expect the difficult times to last forever so take measures and have strategies to steer your organization into success when the times change.
Help those who seek help
Make no assumptions about who needs help the most and reach out to people who have been impacted by the crisis. Recognize the people who may need professional assistance and make sure they understand how to access the employee assistance program. (EAP)
Merely taking agile steps will not solve the big problem but it would help mitigate the crisis. These steps are a smart thing to do from the standpoint of business. Do not forego your employees and resort to rampant lay off as when the times change, you would need people to work for you. If you treat them right, they will be loyal and work for you with unmatched zeal. If you want your organization to be successful even during macroeconomic crisis, then your actions and agile reaction play a huge role.
(This session was conducted as part of People Matters Talent Acquisition League Annual Conference in Mumbai on June 9, 2017.)