What has emerged this year with great clarity is that there are two forms of confidence governing business leadership behaviour – external and internal. Usually, it is external confidence that is referenced – where leadership takes a view on the state of the business and economic environment – including the apparent or perceived confidence of others (consumers and businesses) and makes decisions according to how they feel.
This type of confidence will influence new product development, decisions about expansion, investments, marketing, debt or financing. This is where caution creeps in, though ‘gut feel’ or from economic data. Business leaders are quite used to the normal economic cycles of economic recession and have largely learnt to weather the conditions and batten the hatches somewhat as the mood or economic indicators dictate.
But the post Covid recession and downturn is very different. No one has ever seen anything of this nature. We are seeing state leadership looking and sounding scared; Even steady hand Rishi Sunak is sounding at times unsure and in short, no one has the answers to solve all the economic fallout from Covid 19.
The crash of late 2008 led to the recession of 2009 and the usual drop in external confidence. But therein lies a huge paradox, it partly speaks to the lag effect but throughout 2008 the financial crisis was very serious though it never reached into the commercial or consumer economy in a significant way. This time it is very different. The economy has been stopped on the supply and consumption side. It will be a long road to full recovery. We are seeing not only a general weak external confidence in the economy but more seriously a weakening self confidence on the part of business leaders and their leadership teams. Understandably perhaps since the scale and nature of the downturn does not have precedent and no one is predicting the time of full global recovery
The loss of external and internal confidence is manifested in terms of leaders deferring even decisions that have little or no cost implications. Business leaders are sitting on their hands – as if hoping that the storm will pass and that they will be able to ride on the coat tails of the sunnier economic climes to come. Many business are suffering and leaders simply do not know what to do or when and their self confidence has taken a knock. There are clear manifestations of this:
Firstly, UK and US corporate are sitting on more cash in their balance sheets than at any time in history. In the US case, the figure is $30 trillion. That’s a lot more than the staggering US debt.
This is a remarkable and unwelcome state of affairs. Corporates are taking the view that cash is the safest insurance against any further economic shocks. This is to damage the economic cycle. The larger businesses need to be investing to support the collectively larger small businesses. The wider economy is lacking the growth opportunity that it would otherwise have as a result
Innovative and bold incentives as well as political pressure will be needed to break this cycle before it causes long term damage. Meanwhile, innovation, organic growth drivers and performance progress resulting from good leadership are taking a back seat. This will lead to reduced global competitiveness and a sapping of the enterprise culture.
Clear thinking is needed on this and it is incumbent on boards and shareholders to wake up to the unfolding disaster. The problem is currently being ignored – mainly because very few people recognise it.
The engagement of management is vital if companies are to increase performance and develop externally focused enterprise initiatives. Leadership must regain its grip on its own raison d’etre as well as the purpose of business.
Since the recession, UK companies are hungrier than ever for strong leadership. Now even the good leadership is being challenged; too few examples exist of leadership courage.
Where are they going wrong and how can they adapt themselves, their management and teams in order to foster a culture that cultivates leaders capable of making courageous yet low risk decisions?
The answers lie in: Focus, simplification, structure for organic growth; balancing the short term and long term demands of shareholders and stakeholders; respect for the wisdom of your own people.