The Economic Crisis: A Leadership Challenge

"Those executives flying around in private jets and buying fourteen-hundred-dollar trash baskets are making every leader look bad," says a manager at an automotive company in the southern United States. "We've lost twenty-five percent of our workforce in my division, so I'm putting in an extra twenty hours a week or more. Yet my division head is on her second cup of coffee when I get in, and I have no idea what time she leaves at night."

I'm putting in an extra twenty hours a week or more. My division head is on her second cup of coffee when I get in, and I have no idea what time she leaves at night.

In the toughest economy the world has faced since the Great Depression, most organizational leaders aren't taking time to ponder the upholstery of their antique desk chairs; most are trying to make it through the day. And the economy is likely to get worse before it gets better: Most economists say the U.S. GDP will turn around by mid-2009, but the unemployment rate will continue to climb through 2010.

That reality presents two discrete leadership challenges: keeping a company on track while the global economy is falling apart and keeping it functional until the economy recovers. Right now, most executives are focusing on the former. "Around the world, there's a giant ball of fear," says Tom Rath, Gallup global practice leader and coauthor of Strengths Based Leadership. "Almost all leaders are focusing on just keeping their companies together."

That's an essential short-term strategy. Senior executives must get their managers and employees through the first of the worst before they can implement long-range plans. But leaders must also cope with anxious Wall Street investors, legitimately nervous staff, an uncertain future, and consumers who are spending warily. Keeping a company together is quite a feat under such conditions -- but employee engagement can help in this effort.

Engagement = profit

Employee engagement is an emotional attachment between an employee and his or her workplace. Employees are more likely to become engaged when 12 key psychological needs are met, such as feeling cared for, having necessary equipment, and knowing what's expected. Gallup measures employee engagement using an assessment called the Q¹² that includes 12 items -- one to represent each of those 12 needs. (See graphic "The 12 Elements of Great Managing.)

In a time when jobs are scarce and employees with jobs are unlikely to jump ship, why should companies care about whether their employees are engaged? Because research by Gallup and others shows that boosting engagement links to financial performance in several ways:

• Business units in the top quartile of employee engagement have 12% higher customer advocacy, 18% higher productivity, and 12% higher profitability than business units in the bottom quartile.
• Business units in the bottom quartile, in contrast, have 51% more inventory shrinkage, 31% to 51% more turnover, and 62% more accidents than business units in the top quartile.

An engaged workforce can also boost stock price, which is of great importance in a volatile market. Gallup research has shown that organizations with more than four engaged employees for every one actively disengaged employee saw 2.6 times more growth in earnings per share (EPS) than did organizations with a ratio of slightly less than one engaged worker for every one actively disengaged worker. And growth in EPS for organizations in the top quartile of employee engagement outpaces the EPS growth for companies in the bottom quartile by 15.6%. (See "Investors, Take Note: Engagement Boosts Earnings" in the "See Also" area on this page.)

"A bad economy is the test of an organization's culture," says James K. Harter, Ph.D., Gallup's chief scientist of workplace management and well-being and coauthor of 12: The Elements of Great Managing. "In good times, consumer demand can disguise the lapses in productivity that disengagement causes. But in bad times, there isn't any way to hide the performance problems of disengagement."

Reaching out

When a company is in trouble -- as many are these days -- employee engagement can be the difference between surviving or not. Keeping engagement alive in a good market takes effort and commitment from the top. Leaders must do even more to keep their managers and employees engaged when bad economic news can distract or frighten employees.

First, leaders must keep managers focused on meeting their employees' emotional needs with unflagging predictability, especially the first six elements of the Q¹². "Outside events affect workgroups," says Scot Caldwell, a Gallup learning solutions consultant. "The first six elements can be used to address, coach to, and respond to those events. They provide both a barometer of and a way to respond to change."

But leaders shouldn't stop there. Fear and uncertainty can erode an organization's well-being, but there are steps leaders can take to build confidence and avoid the paralysis or stagnation caused by relentless bad news. Helping their employees feel secure and cared for, providing clear communication, and leading with honesty and hope can go a long way toward bolstering engagement.

Security

Even if your company hasn't been forced into implementing layoffs or pay freezes, your employees know that other businesses have -- and that may be affecting them. "The big challenge to executives right now," says Rath, "is that uncertainty breeds fear. And fear feeds on itself."

Leaders can't entirely quell those fears. They can't control the economy or predict the future, so they can't assure workers that everything is fine and always will be. But they can promote a feeling of stability from day to day, and that creates a sense of security and engagement. Employees who are highly confident about their company's financial future are nine times more likely to be engaged than those with lower confidence, according to Gallup research. So don't change what you don't have to, and maintain office traditions as much as possible, while keeping in mind that public displays of executive belt tightening can avert an "us versus them" mentality in the ranks.

A leader's biggest short-term problem can be the paralysis that comes from panic. Predictability is a good antidote for that. "Make sure your systems and processes continue to function consistently and that your approaches don't vary widely because of changed circumstances," says Barry Conchie, a Gallup leadership expert and coauthor of Strengths Based Leadership. "Try to exude as much of a 'business as usual' feel, and meet people's needs for stability and security so that while everything else is changing, there are some predictable elements in life and in work."

Caring

The lifeblood of employee engagement is caring -- the feeling that your boss or someone at work cares about you personally, that someone encourages your development, and that the people around you care about the work they do. While caring is always an essential aspect of engagement, when workers feel threatened or insecure about their jobs, knowing that someone cares is enormously important -- and individualization is implicit in caring.

"You can't show people you care if you don't know them, so you have to spend time with people one on one," says Harter. "Talk with your employees about their home and work situations. Don't make assumptions at a distance. Those things are always important, but they're even more so now."

Even in the best of times, many leaders are hesitant to show that they care about their employees. They may think that expressions or demonstrations of caring will undermine professionalism, make difficult decisions harder, or have a negative impact on employees' performance. In fact, that's wrong. Gallup research shows that the more leaders or managers know about their individual employees, the higher those workers' performance will be.

Yet when companies are laying people off, retreating from personal connections is a natural self-protective stance. How can you ask a worker about her kids today when you suspect you'll be pink-slipping her tomorrow? But cutting people off can make them more insecure -- and make bad news harder to hear too.

"Caring doesn't mean that you run away from difficult decisions about cutting jobs or restructuring. Caring means the way that you communicate, how you involve others in tough discussions, the value that you show for people, and what you do to people when the worst happens," says Conchie. "I think the organizations that will lose significant numbers of their people, yet still retain that sense of compassion, are the ones that will recover engagement quickest."

Showing that you care for your workers can keep engagement alive. Remember, however, that some of the people who most need you to care are your managers. They're stretched very thin these days, they often must bear the brunt of downsizing decisions, and they're the ones taking care of frontline staff. "Leaders need to take care of their managers," says Denise McLain, Gallup principal. "The most important and best thing leaders can do is to let managers know they're valued and to tell them what they're doing right. Right now, they really need to hear that."

Integrity and honesty

"Respect the people you work with enough to give them up-to-the-minute information about how your business is doing," says Shane Lopez, Ph.D., Gallup senior scientist in residence and a leading researcher of hope. "I think this issue of 'We don't want to scare them' is paternalistic."

It's not only paternalistic, it's counterproductive. Employees are scared -- and with good reason. They know that the economy is bad, that it's affecting their company, and that it might affect them. Sugarcoating the truth, or avoiding it entirely, stokes employee fear and only makes things worse.

Employees need to know how their organization is doing, and leaders are responsible for delivering that message, no matter how bad the news is. "There is almost always a need to convey the truth about the circumstances that you're in, and sometimes that news is pretty harsh," says Conchie. "If an organization's leaders can be honest and direct in the expression of harsh realities, then they'll also go a long way toward either retaining or improving levels of engagement."

Delivering news honestly shows that leaders respect their workers, and that promotes trust, which they will need in the days ahead. Lopez suggests that executives issue memos about the company's situation broadly and systematically so that the information is predictable and reaches everybody. In any case, it should be truthful -- even if the truth is that leaders need to stop, take stock, and develop the next plan.

"There's a difference between not knowing exactly what to do and disengaging from the problem," says Conchie. "Most leaders worth their salt have got some pretty good ideas about what to do but don't know how all the variables will play out. It's okay to be honest by saying, 'These are things that we're thinking of doing. Here are the uncontrollable variables. Here's the rationale. And here's how I think it would help.' I think that's perfectly permissible. That is the way to operate with integrity."

Hope

In the United States, 5 million people have lost their jobs since the recession began. Some of the sturdiest, most profitable companies in the world are laying people off. The housing market is struggling, it's difficult to get a bank loan, and consumer confidence is languishing -- between February 2008 and May 2009, 51% to 85% of consumers have classified current economic conditions as negative, according to daily Gallup Polls.

"We haven't even crested our wave of fear. And that's what companies need to manage today," says Lopez. "The challenge today is managing fear, then building hope about goals that we can all believe in." Instilling hope is an economic imperative for leaders. Gallup has found that 69% of employees who strongly agreed that their company's leadership made them "feel enthusiastic about the future" were engaged in their jobs, compared to just 1% of employees who disagreed or strongly disagreed.

Again, it's a mistake to condescend to employees or fudge the truth. But no matter how bad things are or will get, there certainly is reason for hope -- eventually the economy will improve. Employees just need to know how their company plans to survive during the downturn. They need to know what to focus on to help set it up to succeed. They need to know that leaders are doing whatever they can to protect jobs. And they need to know what the market wants and how to meet it. Put simply, employees need a reason to hope.

"Prepare for the worst and for the best," says Rath. "There's a ton of research that indicates that followers need hope and stability more than anything. Without hope, it's hard to get by at all."

Shore up, then dig down

Much has been said, frequently in coarse language, about leaders like former Merrill Lynch CEO John Thain. While Merrill Lynch's stock was sliding and major layoffs were looming, Thain spent $1.2 million decorating his office. He didn't help his cause by making a late disclosure of billions in fourth-quarter trading losses and awarding billions in bonuses shortly before Bank of America took over his company.

But little has or will be said about leaders like the division head mentioned at the beginning of this article. She's working endless hours, making painful decisions in uncertain conditions, and putting her career on the line to keep her company afloat during these dark days. That's true of many leaders now, and they aren't making headlines.

Still, no matter how hard these leaders work, they can't control the economy. One thing they can influence, however, is employee engagement. Fortunately, that's also something that drives profitability and productivity -- two factors vital to businesses right now. We may not hear about the leaders who are advancing engagement in their companies during these bad times, but we don't need to. We'll know who they are when the recession ends. They'll be the ones with healthy businesses.