5 Traits that Help CEOs Thrive in Recessions
Well, it’s official, the US has recorded two consecutive quarters of negative growth in Q1 and Q2 of 2022 resulting in another recessionary period in the US economy. While many experts are arguing how deep and how long of a recession this will be, the fact remains that many CEOs are now having to think about the best ways to steer their organizations during a period of slow or negative growth.
At Summit Leadership Partners, we help investors and boards determine, assess, and develop for critical skills and traits in their CEOs. We also work closely with many CEOs as executive coaches. While one CEO style and approach does not fit all business scenarios, our experience and research have surfaced 5 common attributes that help CEOs navigate a recessionary environment successfully.
1. Demonstrates Intense Curiosity
In an article by David Cote, the ex-CEO of Honeywell, he makes a good argument for CEOs to remain curious and always scanning not just the industry but the greater landscape of business and politics. He attributes this to his ability to steer Honeywell into some early cost-saving moves prior to the 2008 recession that helped his company set the stage for future gains against the competition. He suggests that CEOs look for early signs of how things may impact their organizations.
When assessing senior leaders, intense curiosity and a deep desire for continuous learning often predict better leadership outcomes. In the midst of recessions, CEOs should remember to constantly ask questions and look for new input and ideas. Those that revert to old playbooks and paradigms, rather than looking for novel ideas, will face significant challenges in this environment.
2. Makes Decisions Quickly
CEOs must make critical decisions every day. However recessionary context will cause the need for decision-making urgency to rise. Some leaders excel when they can take the time to set the direction, create goals, cascade communications, and track metrics. But recessions tend to create issues that are harder to predict and need to be dealt with under extreme conditions and urgency. The CEOs who can both evaluate new data and pull from past experiences to quickly generate new decisions will do better in this context. There may not be time for the full strategic planning and goal-setting process, instead, leaders can target specific areas for cost containment and think creatively about ways to restructure work, reduce labor costs, and still invest in those areas that will increase growth as economic recovery happens.
3. Calibrates Risk Tolerance
David Solomon of Goldman Sachs recently suggested that CEOs should “start considering your risk appetite and prepare for a slowdown”. It comes as no surprise that CEOs with the ability to carefully assess risks and move towards more caution in an oncoming recession generally fare better.
In our experience, some of the very things that create success for entrepreneurs- like high-risk tolerance and optimism in the face of challenges- are the very things that will cause them to struggle in the face of recession predictions. They will often maintain overconfidence in their ability to navigate the headwinds and miss the opportunity to run scenarios and consider early preparations.
An interesting note based on gender, women leaders tend to fair better in recessionary environments, but not for the reasons you might think. In the article Are Female CEOs Really More Risk Averse? Examining Economic Downturn and Other-Orientation, the authors find that female leaders are not more risk-averse than their male counterparts, they just choose less risky strategies in recessionary type environments due to their ability to sense the shifts more quickly. Essentially, their “orientation to being open to others” allows them to intuit shifts in the market and listen carefully. This will often lead them to reduce risks faster.
4. Remains Agile Under Stress
Personal agility and emotional resilience will help CEOs to act quickly while maintaining relative calm in the organization. Those CEOs whose emotions are more likely to show up in their demeanor and actions will struggle to keep the rest of the organization calm and directed. In times of pressure, the organization will look more closely at the reaction of the senior leadership to see how worried they should be based on behaviors and tone. For those CEOs that haven’t perfected their “game face”, this is the time to practice.
In addition, doing things to personally manage stress and increase endurance will help CEOs ensure that their actions and expressions help to support the organization through the inevitable hard choices that come with recessions.
5. Shows Empathy in Times of Crisis
CEOs and other senior leaders must make tough decisions considering economic downturns which always impact people and culture. Decisions like reduction in force, cost containment on development dollars and recognition, fewer bonus payouts, and salary freezes, create strain on the workforce and downturns in engagement. CEOs who have an emotional connection to what’s happening with their people will be able to think of innovative ways to bring them along, set a vision that compels people to endure, and highlights places where investments are still being made so that the employees remain confident that the company will emerge even stronger after the recession.
When hiring a new CEO, we suggest that board or investment teams include these traits in their scorecards to ensure they have a new leader who can guide them in both the short-term environment and the future.
If you are a CEO who is experiencing a downturn for the first time in your career, we recommend you check yourself against this list and set development goals for yourself. Lean into your mentors and executive coaches to help provide ideas and accountabilities through the disruption. The ability to remain curious and agile, make fast decisions based on as much input as possible, check tolerance for risk, and stay connected to how changes are impacting people and culture will enable your success. It’s not too late to check yourself against these capabilities and make necessary adjustments now.