Financial Crisis Tests European Leadership Skill: To Disclose or Keep Silent?

If you’ve been following the financial press recently, you will have been informed about the recent sovereign debt crisis in Greece, Portugal, Spain and particularly in Ireland in recent days. Such a crisis is having profound repercussions upon the business communities in each of these countries, and indeed in all Eurozone (and too an extent, non-Eurozone) countries as well.

In such situations, businesses face increased borrowing costs through no fault of their own. For a temporary period, the performance of the business becomes severely detached from the efforts of management, which can lead to demotivation and a frustrated workforce, already nervous due to the threat of further job losses. If someone were to say that no leadership style would be ‘perfect’ for this type of situation, I would actually agree with them. Sometimes economic conditions do throw you an uncatchable ball.

However, there is one thing business leaders can be doing to mitigate the damage this macro-economic crisis is causing.

Management need to balance transparency and secrecy when times are hard. I’ve seen many new-age authors that recommend management should be completely transparent such that employees can trust them more. However, there are some truths during times of hardship, that would have direct and indirect costs to the business if management were to fully inform staff of the difficulties the business is facing. For instance, companies that enter financial distress and make this clear to their employees, will see a flight of talent as the employable and ambitious employees (particularly middle management) seek to jump ship before bankruptcy nears. This will only compound an difficulties and reduce the chances of a swift recovery.

On the other hand, this downturn represents an opportunity for executives to be frank and open with employees, and almost issue the bad news as a ‘challenge’ to staff to rise up and meet. This is best practiced when a company is still profitable, but is facing unprecedented downward pressures on sales and upward pressures on costs. The strength and passion of a company’s employees in this case, to fight to maintain the margin may be a natural consequence of management issuing the challenge to staff. A good example of this in practice are professional service firms such as the Magic Circle law firms and the Big Four accounting firms, who are all currently profitable, but at far lower levels than 3 years ago, and whom will need to rely on the innovation, hard work, and persistence of its employees to turn round the tables.

So as I have demonstrated, if rather simplistically, a senior manager needs to assess the condition of a company and its employees very carefully before deciding on just how much to disclose. Of course, a severely failing company will not be able to cover up its problems indefinitely, as employees will notice the tell-tale signs, but management can very much destroy the value it gets from its workforce by disclosing too much with the wrong tone.