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In a Downturn, Include Your Employees in Cost-Cutting Decisions

Executive Summary

Downsizing during a downturn is risky. Instead of using industry benchmarks, managers can turn to their own employees for suggestions of where costs can be saved. When leaders take this bottom-up approach, the authors find they not only cut costs significantly but also realize their goals more rapidly because managers and employees are motivated to help. Leaders should ask employees for four different types of data: the key projects and routines going on in the company; the effort required for each routine and project; the ranking of each project according to strategic priority; and a plan to redesign operations around these priorities.

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Almost every business is reorganizing its operations in response to the economic slowdown caused by the Covid-19 pandemic. Often, companies take a top-down approach to resizing based on a limited set of data such as earnings forecasts and competitive benchmarking. But following this playbook usually results in “wrong sizing” and demoralized employees.

Instead, leaders should redesign their operations based on data provided by their most valuable sources of proprietary insights — their employees. Democratizing the collection of data and recommendations allows leadership teams to gain a much clearer picture of activities and initiatives underway within their organization. It also offers a more detailed lens through which they can evaluate which activities are the most valuable to achieving strategic objectives and which ones can be automated or managed in a shared services environment — or ceased.

When leaders take this bottom-up approach, we have found they not only cut costs significantly but also realize their goals more rapidly because managers and employees are motivated to help. Changes are then also more likely to stick.

Insight Center

By supplementing one leadership team’s top-down analysis with qualitative and quantitative data from vice presidents, directors, and employees, one fast-food restaurant chain was able to reduce its sales, general, and administration costs by more than one third and refocus on core strategic areas, such as marketing, product innovation, and new franchises. Likewise, a hospital group uncovered ways to improve clinical and administrative team interactions, making it possible to treat more patients across specialties, while reducing operating costs by more than 20%.

In both cases, leadership teams were able to transform their companies because they based decisions on more accurate information. But how can leaders be sure that they are collecting the data they need?

Below, we recommend focusing on four different types of information:

1. Key routines and projects. The first step in redesigning a company is for the leadership team to ask each head of a division or function to create a list of 20-30 routines and projects that are fundamentally important to the company. Routines are repetitive by nature and can range from daily to quarterly. Projects, such as the deployment of a new support system or the launch of a new service line, have a specified beginning and end.

Further Reading

Gathering this data can enable a company’s leadership team to see the activities and projects underway at a more granular level, making it possible to spot gaps and redundancies quickly. For example, one company we worked with discovered several hundred of its global sales and marketing employees attended conferences to sell products in spite of low success rates. Another found salespeople repeatedly visited the same client because salesforces were not coordinated. Yet another leadership team uncovered that three times as many IT projects were underway than had been budgeted. And on and on.

2. Effort required. To help a leadership team better understand the effort required for every identified routine and project, division heads then hold workshops with their managers to discuss the volume and nature of the work involved.

Operational data supplied by employees permits leadership teams to evaluate precisely which routines require more or less support. One leadership team may discover armies of people are executing the same basic support tasks after a series of acquisitions — like IT, human resources, legal, finance, and government relations. Or, at the other end of the spectrum, more people may be needed to carry out critical responsibilities. For example, food and pharmacy retailers may have to ramp up staff to fill and deliver online orders, which have soared from five percent to nearly 40% of many companies’ sales during the pandemic.

3. Strategic priorities. After this exercise, division heads should then ask managers to work with employees to tag identified routines and projects based on the strategic priorities of the company and their own division. These tags should be sorted into three categories: “core,” “context,” and “cease.”

Core routines and projects are a company’s top priorities. These are capabilities that companies may want to invest in to differentiate themselves from the competition to spur future growth, like research and development in the pharmaceutical industry, design in the fashion industry, customer experience in retail, and capital expenditure management in heavy industries like transportation and manufacturing.

By contrast, context routines are standard services and activities that can be de-prioritized and optimized to be more efficient, often by sharing or automating services. For example, managers at one retailer pointed out that one team could scout the world for new fashion trends in men’s shoes, women’s shoes, and accessories — instead of sending a separate team for each product. One human resources department’s recruiting function suggested a chat bot could handle basic questions and answers from online job applicants, freeing up employees to focus on the interview and hiring process, speeding up the pace of new hiring.

Other routines should be categorized as cease if they are adding little value or no longer relevant to a company’s strategy. For example, one retailer halted the preparation and distribution of most of its management reports by the finance function. Only a few managers found them useful even though they took up most of the team’s time and effort. A pharmaceutical company identified unprofitable product lines that could be retired, freeing up about 40% of the research team’s time to develop new products.

4. New operating model ideas. Next, leadership teams should empower division heads to work with managers and employees to begin to redesign their operations by pinpointing which capabilities should be built up in order for the company to bounce back and grow. Managers should crowdsource not just the operational data they think they need to achieve new efficiencies, but also innovative ideas for reinventing their operations and their offerings for the future.

By including this data from employees in the process, leadership teams can then pursue more ambitious visions, since they will have both the significant savings and the talent they need to execute their plans. Retailers will be able to pivot and offer much more elaborate shopping experiences online, complete with “magic mirrors” that let customers try on shoes or apparel virtually and touch screens that tell them which store has them in stock. Grocers and pharmacy retailers can invest in digital networks that allow them to nimbly redeploy their workforce by sending them alerts when there is an opening for someone to work in a different store, or branch, or stock room. Transportation companies can reallocate their scarce resources to developing more efficient ways to deliver packages from their warehouses to customers’ homes. And pharmaceutical companies can ensure a brighter future by developing new products and services at a faster pace, transforming innovations like new vaccines or treatments into the bread-and-butter products of tomorrow.

By tapping into data provided by managers and employees to redesign a company, leadership teams will not only be able to make better decisions — they will also be able to improve their operations, and still have workforces engaged and motivated to continuously improve them.

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How Struggling Businesses Can Renegotiate Rent

Executive Summary

This article outlines strategies every business owner should consider before speaking to their landlord to try to reduce rent expense, and how to treat this as a negotiation that takes both sides’ priorities and incentives into account. Among the strategies prescribed are to recognize your landlord’s incentives to accept a discounted payment or a deferred payment; to think long term in negotiations; and to set rent as a percentage of revenue (instead of a fixed payment), aligning tenant and landlord’s incentives and reducing tenant risk if businesses are once again shut down.

Nivek Nelso/Getty Images

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Tens of millions of businesses around the world are currently struggling to cover their overheads, and most economic activity is being generated from people’s homes. This renders rent — for offices, entertainment/hospitality, non-food retail, and industrial spaces — a large but temporarily unnecessary cost item. The ability to manage it may be a key managerial skill for surviving the crisis. In this article, we cover the main points that every manager should consider before speaking to their landlord to try to reduce this expense and the main strategies that are likely to help both the landlord and the tenant. Finally, we note some likely consequences of these arrangements for future rental contracts.

Understand Your Landlord’s Position

The first step in a successful negotiations of rent payments is to understand the point of view of the landlord. While there are many different types of property investors who may own your business space, the most important features for negotiations are their cash position, attitude towards risk, and the ability to bear a rent reduction, as well as their contractual obligations.

Further Reading

For instance, real estate is a popular investment asset for pension funds because it traditionally provides a steady income useful in meeting their liabilities. If your buildings are owned by a company like this that relies on income, their priority might be to see some payments (even partial ones) being made. In contrast, many buildings are owned by investors who need to periodically report the value of their assets and income return (e.g. investment funds). Their priority is to report good performance, and they are more concerned with the overall level of payments than their timeliness. They may be less willing to offer a discount but more likely to accept a deferral. Also, these owners are in a difficult position because it is impossible to value properties at the moment, so they do not know how much their assets have lost in capital value. This puts them under pressure to manage income return the best they can.

Other owners have different priorities. Family offices who are focused on the long term may be most flexible in dealing with tenants to keep the in properties; in contrast, some property developers have much more of a short-term perspective. Knowing who owns your building and what their priorities are will help you prepare a good negotiation strategy.

Propose a Solution

If your business is in survival mode, you may not be able to pay your rent and should try to renegotiate the existing lease. We recommend that you approach your landlord with a proposed solution rather than simply stopping the payments. This gives you more options and reduces the risks you will face when the current crisis eases.

In preparing an offer for your landlord you may want to consider the below points:

Think long term: There are several parameters of your lease you can probably alter today that will not require any cash from you but will have value to your landlord. If you are a good tenant (in normal times), extending the lease for a longer term could be an attractive proposition to property owners who are worried about increasing vacancy rates in the coming years, especially if the recession proves to be a long one. A good example of this are hotels, which at the moment generate no income but have sustainable business models that rely on the properties they operate in. Extending the lease with a good hotel operator may be an opportunity for the landlord to secure a good tenant who will stay in place, avoiding the risk of an empty property during the recession.

It may also be possible to alter the covenants of the lease or remove some clauses that list the reasons the tenant can break the lease, which serves to reduce the risk to the landlord. Naturally, this limits the tenant’s flexibility in the future, but the present value of this flexibility to you is probably low if you are in survival mode. If you go out of business, it will cost you nothing. In fact, renegotiating your lease in this way does not affect your balance sheet, so it might be a good way to reduce your costs without affecting your credit or working capital.

Share the risk and the reward: Another incentive you can give your landlord is to offer them a different financial reward for allowing you to delay or waive your current rent payments. It can take the form of interest on the deferred rent or an income-sharing arrangement. A good example of the latter is to make the rent a percentage of the tenant’s revenue.  (In countries where “revenue” is known as “turnover,” this is called “turnover rent.”) This ensures that the tenant has enough cash to pay and that the payment is proportional to what they earn. Both differed rental payments with interest and turnover rents tie the payoff of the landlord directly to your future performance. Not only you will be able to defer any payments, but you can considerably increase the incentive your landlord has to help you stay in business.

This approach is commonly used in shopping centers where anchor tenants have a big influence on the value of the property. Turnover rents align the incentives of landlords and tenants and can be used in office and industrial properties, too.

Be entrepreneurial: Many established businesses are now in the position usually reserved for start-ups; they are cash poor but have the potential to generate income in the future. This means that they can use structures and ideas from the private-equity world to keep their business going. This includes paying creditors in equity, sharing ownership of assets, or perhaps even sharing intellectual property rights. In many cases this is an extreme version of turnover rent, where the tenant enters into a partnership with the landlord. This was relatively popular in the last financial crisis when many businesses that struggled with paying back their loans offered their banks equity instead of cash. These deals often turned out to be very lucrative for the banks.

Know what game you are playing: Some landlords are contractually obliged to enforce the lease agreements to the letter. If that is the case for your landlord, there is very little you can do to stop legal proceedings. However, because many courthouses are closed at the moment, enforcing legal rights and obligations may not be easy. This reduces the value of the “best alternative to negotiated agreement” (BATNA) for the landlords.

Your strategy should be reduce this value as much as possible to bring the landlord to the negotiating table. You should speak to your legal team about how to do this formally, and together you should look closely at the lease agreement when considering alternatives. Many chain brands — including such as Adidas in Germany, Burger King in the U.K. or Staples in the U.S. — have publicly announced that they will not pay rent. This created a very public debate about whether retailers or landlords should bear the pain of the shutdown — and it is likely a calculated strategy designed to force their landlords to negotiate.

Regardless of whether your landlord is able to work with you or not, talking to them will help if you are facing difficulties. Negotiations reduce information asymmetry. Even in a conflict, negotiations will help establish what risk you are facing and which lines the other party is not willing to cross. Information is critical to understanding and managing priorities and payoffs on both sides of the table. However, negations also help understand the motivation of the other party. For example, many landlords are worried that opportunistic tenants who do not need help will try to take advantage of the current situation and ask for rent reductions. Convincing your landlord that this is not the case for you is a good starting point for a discussion.

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The Upside of Perfectionism? Creativity.

Executive Summary

There are downsides to perfectionism, but also benefits.  One largely unrecognized upside is how it boosts creativity. This happens in four ways:  when perfectionists are bothered by evidence that runs contrary to their own or consensus opinion, so explore it; when their desire to understand everything pushes them to seek out new information; when their stubbornness leads to an innovative solution; when your competitiveness makes you hustle to keep up with others.

Michael Blann/Getty Images

Perfectionism is a poor master but a good slave. It has downsides if you let it take over: you waste time on relatively unimportant decisions, you get excessively annoyed with yourself over small mistakes, which drains you, and, because you expect others to conform to your standards, you sometimes make collaboration more difficult.

However, perfectionism isn’t all bad. Part of what lures people into its grasp is that it sometimes pays off, like a slot machine does. It’s intermittently reinforced, and that pattern tends to be very sticky.

It’s also why perfectionists resist when told they need to change. The idea that perfectionism is a negative quality they should drop isn’t consistent with their experience. If perfectionists instead recognize both the up- and downsides, they are more likely to see a path forward in which they can turn that quality up or down depending on the situation.

The most obvious ways perfectionism can benefit people relate to when (a) cautious strategies prevent mistakes and (b) highly competitive situations in which a tiny margin in performance is the difference between being on the right or wrong side of a cutoff (e.g., for admission to medical school or in an interview for a highly competitive job). However, a largely unrecognized benefit of perfectionism is that it can enhance creativity. Here’s how.

1. You’re bothered by evidence running counter to your own (or the consensus) opinion.

I’m currently writing my next book. Here’s how that process typically goes: As I’m researching, I’ll read a bunch of studies that back up what I want to say, and then out of the blue, I’ll read one, or a snippet in a study, that runs counter to my planned argument. Part of me will want to gloss over this, but for my inner perfectionist, this is like having sand in my shoe. Whatever doesn’t make sense will bother me until I go back and figure out a way to reconcile it with the other research I’ve done. But, when I have to figure out how to combine seemingly dissonant ideas, my thinking and writing become more innovative.

Perfectionists find it harder to ignore “the emperor has no clothes” situations in which the herd has settled on a way of thinking but there are flaws in that consensus. Their tendency to ruminate and inability to block out intrusions can be helpful in challenging the status quo.

2. Your desire to understand everything pushes you to acquire more information.

Curiosity is strongly linked to creativity. Curious people are more motivated by the possibility of acquiring new knowledge than they are by the prospect of solving specific problems. Many perfectionists also tend to want to understand everything, even if it’s only very loosely related to the task at hand.  Following these tangents can lead to a much more diverse set of ideas and information than a more narrowly focused approach.

To accrue this benefit, you need to have the type of perfectionism that is driven by a desire for excellence (rather than how your performance is evaluated by others) and that manifests as persistence (rather than avoidance) in the face of uncertainty. People like this typically have a growth mindset — a belief in their capacity to improve through effort.

3. Your stubbornness leads to an innovative solution.

Perfectionists don’t like making tradeoffs or settling for reasonably good solutions. They want a plan that ticks all their boxes and they will work to achieve that, including coming up with their own out-of-the-box alternatives. For instance, I’m a working mom who wants a completely flexible schedule. Most reasonable people would sign up for part-time day care. But I didn’t want to commit to be any place at any particular time. Happily, I found a workaround. My gym has drop-in childcare, provided parents stay in the building. So you’ll frequently find me working at the gym:  walking at 2.3 miles an hour on the treadmill while reading studies or tapping out bullet points for articles. By utilizing this quirky option, I get to keep my schedule totally open and be with my child most of the day, but also have some undistracted professional time when I need it. It’s cheaper than traditional day care, and I like moving while working.

Perfectionists are often the ones who arrive at amazing, creative solutions because all the standard options have something in their negative columns. Even when settling seems like a logical decision, they refuse to.

4. Your competitiveness makes you scrappy, hustling to keep up with peers.

When a perfectionist sees a colleague racking up achievements they’re not, it tends to bug them. They think “I should be doing that, too.” This instant competitive instinct pushes the perfectionist to not only try to match their colleague’s achievement but do so as soon as possible. They don’t like the feeling of being behind anyone. This sense of urgency may lead them to devise creative routes to catch up.

The reaction is similar when perfectionists realize they’ve overlooked or missed deadlines. Many people would shoot off an email acknowledging the oversight and asking for an extension. Perfectionists are more likely to hustle to get the work done. They’ll still give it their full effort, and the disinhibition and adrenaline of the short timeline may propel their creativity.

If you’re a perfectionist, do you recognize yourself as having had any of the experiences I’ve outlined?

I often write about how to dial down perfectionism to avoid its downsides (e.g., here and here), but my real focus is on maximizing the upsides and minimizing the downsides of extreme traits. It’s important to develop a deep and nuanced understanding of when being a perfectionist can help you and when it’s self-sabotaging, so you can learn to switch in or out of that mode.

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Gender Equity Starts in the Home

Executive Summary

Many men teleworking from home for the first time are getting a front row seat to the daily demands of running a home and caring for kids, as well as a crash course in learning to “balance” work and family. Although many men have experienced traditional role reversals for short stints, most have never worked from home for an extended period while leaning in as primary caregiver for children. Most of this work has fallen on women.

The presence of more men sharing more fully in domestic duties for an extended period of time has the potential to create a sea change in gendered norms — at home and at work. Men teleworking during the pandemic are more likely to appreciate women’s work-family experiences, understand the value of flexible work arrangements, appreciate the benefits of relationships with work colleagues, and role model more equitable work-family gender roles for their children.

Martin Poole/Getty Images

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Jack Koban, a geologist and engineering project manager, is working from home during the pandemic shutdown while his wife, Ashley Saucier, works long hours as a pediatric emergency medicine physician. In our recent call with Jack, he reflected, “I don’t remember the last time I’ve cooked three meals a day and done the dishes for three straight weeks. It’s been nice being home, having more family time, and being more involved with the kids. We’ve definitely achieved a new work-life balance.”

Not everyone is seeing a silver lining in the shutdown, though. Families are struggling with unemployment, keeping small businesses afloat, and having to work to survive in the absence of paid sick leave. What’s more, many individuals are now discovering what it’s like to spend so much of their time managing work, childcare, and a household.

Further Reading

For most women, this last challenge is nothing new. Despite the fact that women outnumber men in the paid workforce, women still do more of the domestic work and childcare — almost twice as much as their male partners. The pandemic has closed many schools and daycare centers, creating childcare scarcity and exacerbating the stresses and strains of caregiving, home-schooling, and domestic duties, especially for dual-earner mothers who were already doing more unpaid work. Even with expanded use of telework and flexible work arrangements by many businesses, working from home isn’t necessarily easier when parents are juggling job responsibilities, full-time childcare, and supervision of children’s education.

Because 44% of all U.S. households with children are comprised of married dual-earner full-time working couples, and because 1.57 billion children are currently out of school globally and most non-critical workers are now teleworking from home, a seismic shift in the traditional division of household responsibilities is likely. It is not a stretch to expect that men are doing more housework and childcare during the pandemic — an enlightening experience for many.

Many men teleworking from home for the first time are getting a front row seat to the daily demands of running a home and caring for kids, as well as a crash course in learning to “balance” work and family. Although many men have experienced traditional role reversals for short stints, most have never worked from home for an extended period while leaning in as primary caregiver for children. Nowhere is this more evident than among men who are partnered with women who are essential healthcare professionals, currently required to work even longer hours outside the home. Because the healthcare industry is female-dominated (25 of 30 occupations are majority women), many of these families include a husband who is taking on primary caregiver and household responsibilities during the pandemic.

The presence of more men sharing more fully in domestic duties for an extended period of time has the potential to create a sea change in gendered norms — at home and at work. Men teleworking during the pandemic are more likely to appreciate women’s work-family experiences, understand the value of flexible work arrangements, appreciate the benefits of relationships with work colleagues, and role model more equitable work-family gender roles for their children.

In interviews we conducted for our forthcoming book, Good Guys: How Men Can Be Better Allies for Women in the Workplace, women told us that gender equality at work had to start with men becoming equal partners at home. Real allyship and gender partnership demands that men do their fair share of household chores, childcare, transportation for children’s activities, the emotional labor of planning and tracking activities, and supporting their partner’s career. When men genuinely enact equal partnership at home, it accelerates gender equality at work in three ways.

First, women with equal partners at home are more successful at work. When people are less concerned with the impact of their job on family responsibilities and able to focus and commit more fully to their work, it’s no surprise that they’re more productive and able to take advantage of growth and advancement opportunities.

Second, fathers who are equal domestic partners role model equity for their children, shaping expectations of our future workforce. Daughters with dads who do their fair share are more likely to pursue their career aspirations, often in less stereotypical occupations, with more self-esteem and self-autonomy. Sons who see their father role model equal partnership in household duties have a more egalitarian perspective of women’s and men’s roles at home and work.

Finally, men who equally share unpaid work at home aren’t afraid to ask for and talk about why they need flexibility in their work schedule. When women alone request and use flexible work arrangements, paid sick leave, and parental leave, the perception that these programs exist solely for women creates a stigma that deters men from using them. For example, although men are more likely to be in jobs that allow telework, women still telework more than men. But when men lean in to truly equal partnership at home, they tend to use flexible work policies, normalizing it for everyone.

This pandemic has created a golden opportunity for men-as-allies to purposefully leverage their newfound domestic partnership chops. Men can start with considering how to intentionally lean in to being a better ally to their partner at home. Here are some recommendations to jumpstart better male allyship at home today:

Do your fair share of chores and childcare. There is no time like the present to check in with your partner and ask for a domestic performance audit to assess how you’re doing. And when she tells you that you need to do more, don’t get defensive; figure out how to be better.

Take on the emotional labor of tracking, planning, and organizing family needs, activities, and special occasions. The mental lists that women are more likely to maintain for their family is another form of unpaid work — cognitive labor. Grocery lists, holidays, birthdays, children’s school requirements, children’s clothing, medicines, pets’ needs — the list is seemingly endless. Men need to do their fair share of this labor.

Be purposeful in prioritizing work and family responsibilities. To help you prioritize, use “ruthless compartmentalization” in setting boundaries between work and family and adhere to them. As you set goals for work, do the same at home. Set key performance indicators (KPIs) for your family responsibilities the same way you do for work. This will help you self-monitor and ensure you’re being the dad and partner you intend to be.

Support your partner’s career without reservation. This may mean putting your own career on hold, reducing current work responsibilities, or changing your work hours so she can have the time she needs to not just do her work but explore opportunities for professional growth. We find some couples creatively striking a balance by designating paid work (telework) days and non-paid work (kids and chores) days for each parent. This establishes a clear and shared priority for childcare and household duties.

Deliberately role model allyship for your children. Depending on the age of your children, openly communicate family and career goals. Life is messy, so show your kids how to disagree, listen, and respect others’ perspectives. Be transparent with your children in how and why decisions are made through compromise and balance. When you lean in to doing your fair share of domestic work, let your kids see that this is important and meaningful, and not just another task. Your positive attitude toward childcare and household responsibilities will send an enduring message of commitment and allyship to your children and your partner.

Be authentic and transparent about your current work-family situation. This includes transparently managing your daily schedule and availability so that you can prioritize family responsibilities. Most people now realize that when you’re working from home with children, pets, and others in a shared space, it’s futile to try to create an image of peace and serenity. Accept and normalize it for yourself, your family, and your coworkers. Authenticity makes you more effective in all your roles.

Leverage your partnership at home to build connection and community at work. We’ve all learned that it’s not only okay to talk about family and domestic challenges right now, but it’s actually quite powerful and meaningful in building relationships, emotional connection, and a caring community. Share both your wins and setbacks in achieving work-life integration so that others feel comfortable sharing theirs as well.

The current crisis is presenting new experiences for everyone at home and work — especially men. The silver lining for men’s experiences may be the ability to engage in gender equality and partnership in a way that we have not seen before. The benefits of equal partnership at home may be the catalyst to finally create a workplace that is equal for women.

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Your CEO Succession Plan Can’t Wait

Executive Summary

CEOs tend to be older, putting them at greater risk of Covid-related illness, and adding to the urgency, succession planning has long been a blind spot for most boards. From 2015 to 2016, the authors conducted a global survey to better understand the experiences, practices, and attitudes of board members, and here they share what their work reveals about relative levels of succession preparedness across regions and industries. They also offer suggestions for approaching this admittedly delicate task thoughtfully.

HBR Staff

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“We really need to have a name in the envelope as soon as possible.” So begins many of the discussions we’ve been having lately with board members who are frantic about CEO succession planning. Given that the median age of S&P 500 CEOs is 58 — putting many executives at higher risk of Covid-19-related illness — it’s no wonder that inquiries we’ve received from companies around the world focus intensely on best practices in running a “quick” CEO succession process.

Adding to the urgency, succession planning has long been a blind spot for most boards. From 2015 to 2016 we conducted a global survey to better understand the experiences, practices, and attitudes of board members. In this article we will share what our work reveals about relative levels of succession preparedness across regions and industries. Our findings should spur directors of companies without adequate plans to act now. Toward that end, we also offer suggestions for approaching this admittedly delicate task thoughtfully.

Where the Need for Planning Is Greatest

Among the companies based in countries with the highest number of confirmed coronavirus cases thus far, those in Spain, Brazil, China, and Italy are the least prepared for an emergency succession. A startling 83% of boards we surveyed in Spain, and more than three quarters of boards in Brazil, China, and Italy did not have a contingency plan in place, failed to discuss CEO succession regularly, and lacked a process for such planning. The gaps can too easily create major leadership instabilities that may stall economic recovery.

When we looked at the industries with the greatest economic exposure to the coronavirus, media and leisure products were least prepared for an emergency CEO succession. Many of these boards did not discuss CEO succession on a regular basis prior to the coronavirus pandemic. This pandemic may fundamentally alter these industries, and boards will need a robust succession plan to ensure that they have the right person in place to lead into the tumultuous future.

We also found that 63% of private companies did not have a CEO succession contingency plan in place, and 69% of companies with less than $50 million in annual revenues lacked a plan. Succession planning was more common among larger firms, but the need for a succession plan is often more acute in small firms, especially start-ups. As one start-up director said, “We have significant key-man risk, as this is a start-up that monetizes the thought process and experience of the founder.” Moreover, when the pool of internal executives is small, boards need to think creatively about back-up plans and ways to divvy up critical responsibilities to ensure business continuity.

What Steps Should Boards Take?

Even in the best of times, succession planning can be a challenge. In the words of one director: “We find this really difficult, so [we] are ducking the issue. We know we have to address it, but keep deferring.” Such excuses are even less tenable now. Covid-19 is forcing boards and management to work together more intensively to ensure the long-term health of the firm —and this new level of collaboration decidedly includes succession planning. In particular, the pandemic necessitates more extensive contingency planning than usual and a reassessment of leadership needs within the rapidly evolving industry environment. We recommend the following steps:

  • Start by laying groundwork for the short term. Boards need to know who can take the helm on an interim basis in the event that the CEO leaves the firm, or becomes ill, or otherwise unable to fulfill their duties. Directors need to prepare a list of candidates — ahead of time! — to call if a vacancy arises. The board should collaborate with human resources to ask the CEO for a list of back-up candidates and also identify directors who could step up.
  • Don’t cut corners on the longer-term plan. When planning for the longer term, boards should devise and maintain the process of leadership development, succession planning, and CEO selection. Although the process might need to be accelerated, it is important for the board to work through the appropriate steps and to evaluate the new reality: What does the CEO role require moving forward? What is the appropriate profile?
  • Revisit existing plans and priorities. Boards that already have a longer-term plan in place cannot be complacent. A plan from a few months ago might not be relevant any longer. Given how dramatically the pandemic has affected some industries, directors should be prepared to reconsider the profile of their next CEO. For example, companies in the cruise and retail industries that were focused on growth just a few months ago are now facing the need for a turnaround. The right candidate to lead the charge might need deeper operational experience or other capabilities that were less of a priority in the past. We are also hearing that more and more boards are looking for a digitally savvy CEO and are willing to skip a generation of executives to get one (called “CEO leapfrogging”).
  • Consider all critical roles. It takes more than one person at the top to manage a crisis situation. When formulating a succession plan, look at the rest of the top team and the board. Are there back-up plans in place for all individuals in critical roles? This is a time for management and board directors to be aligned, cohesive, strong, and supporting each other both personally and professionally.

But Don’t Rush Things

While we strongly urge boards to plan succession carefully, we are equally adamant that they should take the time they need to select wisely — especially given that directors are being pulled in many different directions right now. Rushing a decision and selecting the wrong candidate can lock the firm into an even more dire and challenging situation.

Further Reading

For some firms, postponing a CEO change to maintain business continuity can be a wise choice, especially if the board is considering an external candidate who will need more time to build relationships and for on-boarding. Amid extreme disruptions in the airline and financial services industries, the International Airline Group (parent company of British Airways, Iberia, and Aer Lingus) and the California State Teachers’ Retirement System (CalSTRS) have announced that their CEOs will defer previously announced retirements.

Still, waiting it out might not be an option for some boards. Under investor pressure, Altria’s CEO, who was on temporary medical leave to recover from the coronavirus, has officially stepped down. The CEOs of ADT, Morgan Stanley, NBCUniversal, and Booking Holdings have also tested positive for Covid-19, and the list continues to grow.  Preparing for an emergency scenario with the CEO and other critical roles is more important than ever. Having an interim plan will give the board time to make a more permanent decision.

And once a new CEO is chosen, the board will need to do everything it can to help them as they faces the post-Covid reality. One way to do this is to retain retired executives who can provide valuable expertise, institutional knowledge, and support. Boards can consider transitioning the former CEO to an executive chairman role or even a co-CEO role in order to keep them involved in the company’s operations. Disney’s Bob Iger, who stepped down as CEO in February, has reportedly “reasserted control” as the company contends with park closures and extensive employee furloughs. Meanwhile, at Michaels Companies, former CEO Mark Cosby is remaining employed full-time with the company as a senior advisor, rather than as a board member as previously announced.

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Looking to the Future of Air Travel

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As the battle against the SARS-CoV-2 virus takes it toll on the global economy, no industry has been harder hit than aviation. In the United States, the major carriers have seen passenger numbers and revenue plummet. In 2019, the United States transportation security administration (TSA) screened around 2.5 million passengers every day across the U.S., with some variation according to the day of the week. In April 2020, that dropped to between 90,000 and 130,000 passengers.

Further Reading

Harvard Business Review sat down to discuss the challenges (and opportunities) facing the industry with Jon Ostrower, the editor-in-chief of The Air Current, Courtney Miller, managing director of analysis for The Air Current, and Dan McKone and Alan Lewis, two Boston-based managing directors at L.E.K. Consulting who have experience advising major airlines.

Is this the biggest crisis the aviation industry has ever faced?

Jon Ostrower: Yes.

Alan Lewis: Not even close. 

In recent years, major airlines listed a pandemic in shareholder communications as one of the risks they face. Should they have seen this coming and have been better prepared?

Dan McKone: True, this is not a “black swan” in the classic sense of the term. Many people predicted that a pandemic would eventually break out. But I’m not sure there’s any way to fully prepare. The crisis is so extensive.

Courtney Miller: I agree. Any CEO that would have hoarded cash to prepare for this eventuality would have very quickly become an ex-CEO.

Ostrower: I have a slightly different view. I think we will see how different strategies that airlines took going into the crisis will play out. For instance, Lufthansa believes they are better prepared to survive something like this because they own their own airplanes, and so don’t have as much debt to service.  Time will tell.

This is the second time in my life that major U.S. airlines have had to ask for a bailout. Does it suggest that there is something structurally wrong? That shareholders aren’t rewarding the right type of management?

Miller: I don’t think so. There’s been a lot of attention paid to all the dividends and buybacks from airlines in recent years, and questions raised over whether they could have squirreled away the cash instead. But any business without revenue can’t sustain itself. I don’t see a way the airlines could have survived this on their own, even with a different management approach.

McKone: I’d add that the government was right to prop up the airlines. They play so many critical roles in terms of our economic and national security.

Two of you (McKone and Lewis) have written a book on ancillary revenue. Are there any innovative ways that airlines can use to try to find some revenue at the moment?

McKone: Traditionally, airlines have found ancillary revenue by unbundling services and selling them a la carte — so things like checked bag fees, seat selection, and so on. This source of revenue obviously is close to zero now, because there are so few passengers traveling. Instead, airlines are looking to find any use for their aircraft in the absence of passengers, whether it be cargo or moving medical supplies and personnel to different markets.

What will be more interesting will be how airlines approach revenue creation when demand returns. What add-on features and services will they offer? Perhaps they will allow customers to more easily book out a middle seat for distancing. Or add some sort of “peace of mind” product that guarantees the airline will take care of you if flights are cancelled or quarantines are put in place. The trick will be determining what customers will be willing to pay for above the ticket price and what they will expect as part of airlines’ delivering a safe experience.

Do you really think anyone is going to be willing to sit in a middle seat again?

Miller: An airline could absolutely block the middle seat, but then you have a third of the airplane empty. You automatically limit your load factor to 66%. How long are airlines going to be willing to do that? The answer can’t be “forever.”

That’s disappointing. I was hoping this crisis would change the passenger experience for the better.

Lewis: There will be innovation to ensure peace of mind.  In Asia, where carriers are back up and running to some markets, you are seeing the use of gloves and masks by flight attendants, the use of more disposables within service, a general reduction in the amount of interaction with flight crew. Emirates ran a pilot in Dubai where it tested all its passengers for Covid-19 before they boarded the flight, though its unclear if airlines will be able to scale rapid-testing.

Longer term, you will see the introduction of technologies to increase hygiene. Touchless seats that connect to Bluetooth on your phone to lower your seat back or fold out your tray; touchless lavatories; more regimented boarding procedures so people aren’t falling over each other in the aisles. At airports, you’ll see facial recognition technology and tracking through customs and boarding, so customers and staff aren’t touching the same boarding pass.

Ostrower: I think all of these changes will be positive from a passenger’s point of view. But on the flip side, I suspect flying may become more boring for a while, as airlines try to recover financially. We’ve already seen airlines pulling in-flight entertainment system content out of seat-backs, Qantas for example. I think you will see many airlines cancelling or scaling back contracts with Hollywood to play all movies and TV shows. Many will reconsider in-flight wi-fi. There will be huge pressures on the cost side.

What impact will virtual meeting platforms have on airlines? Will people become habituated to meeting virtually and stop flying as a result?

McKone: L.E.K Consulting did a detailed study on this during the global financial crisis 10 years ago. We found that the technology would not have a material impact on flying patterns. But I think this time may be different. We now think there could be some lasting behavior change, with so many business people being conditioned to use virtual meetings like Zoom, etc. At the same time, people are still going to continue to fly in great numbers if you take a long-term view. And leisure travel will be less affected.

Miller: Maybe instead of sending 10 people to each meeting via air travel you send the two sales executives and keep the support staff on Zoom. That sort of scenario is likely, and akin to what we saw after 9/11.

We’ve looked at how new technology affected air cargo. The fax machine was supposed to kill the express business. But couriers like FedEx survived and even flourished — they lost high-yield business, but the overall growth trends were in their favor. I suspect something similar will play out with airline travel. Traffic will come back — but it will be different.

Lewis: Zoom and other videoconferencing platforms are going to have a much bigger impact on the commercial real estate market than on airlines. So many people are now working from home, I don’t see them all coming back.

What does the future hold for regional airlines — the smaller carriers that serve smaller markets?

Miller: Things are tough across the entire industry, but regional airlines that fly on behalf of the major airlines are relatively well positioned, particularly the independent regionals such as Skywest and Republic. First, their contracts with the major airlines protect them from a lot of the downside risk from a slowdown. The entire airline network is going to shrink. So now the larger markets are going to be looking for the smallest, cheapest assets to fly, which are regional aircraft. Seat costs are irrelevant if you can’t fill the seats. As an indication of this, you’re already seeing airlines retiring many of their larger, wide-body jets. They just don’t anticipate having need for them in the short term.  Regional aircraft are going to be needed.

McKone: I’d add a note of caution. Most regionals get paid for feeding traffic to the major airlines’ hubs, however. Secondary markets serviced by regional aircraft tend to be the “tip-of-the-whip” when network capacity shrinks.

I have a lot of frequent flyer points built up. Should I be worried about them? 

Miller: Frequent-flyer programs are important sources of revenues for many airlines — especially through the resale of miles to financial services firms. Just as one example, Delta’s contract with American Express was worth $3.4 billion to Delta in 2018. If you’re a frequent flyer with a ton of miles, I wouldn’t be worrying that your balance is going to be going away. Even when multiple airlines went through bankruptcies some years ago, the miles of the individual passengers were preserved and came out valid on the back end.

Lewis: Airlines need to make sure that customers keep their frequent-flier credit cards and keep spending on them. If people start feeling that frequent flyer points aren’t as useful to them now, that they’d rather have other benefits, that’s going to be a real problem for airlines. So I wouldn’t be surprised if you don’t find plenty of good redemption opportunities, at least in the short term, when travel opens back up again.

Ostrower: The downside is that so many flights have been eliminated from the network. As the network shrinks, it will be harder to travel smoothly from point A to point B. So while you may find first-class itineraries, they will likely be two or three-stop itineraries now. That’s just going to be part of the reality.

Will there be any unexpected winners from the slowdown in the aviation industry?

Ostrower: Amazon. Surprise, surprise! As airlines retire their wide-body aircraft and shrink their fleet, the aircraft are going to conversion shops to become cargo planes and then sold to companies like Amazon. The glut of aircraft is going to drive the price down. Not just for Amazon but for other growing cargo companies — the Chinese postal system, for example. The crisis has shown how integral e-commerce and package delivery is to the aviation industry.

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A Plan to Safely Reopen the U.S. Despite Inadequate Testing

Executive Summary

The big dilemma in the U.S. is how to reopen the economy when the amount of available testing for Covid-19 is likely to remain inadequate for months. If the lockdown and other social-distancing restrictions are lifted too quickly, the disease could resurge. This article offers a strategy that’s achievable in the near term and sustainable in the long term: providing high-filtration masks to the whole U.S. population and rigorously implementing physical distancing and hygiene guidelines. It requires governments, employers, and the population at large to be bolder, more systematic, and more innovative in maximizing these approaches.

Illustration by Jason Schneider

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For regions shut down due to Covid-19 to safely begin to reopen, we need ways to keep R  — the average number of additional people infected by each infected person — under one, the threshold below which epidemics contract and ultimately die out. Among the proposals for how we can do this in the United States, one calls for frequent population-wide testing to identify and isolate those who are infected. Others suggest that the country will be hard-pressed to get through this without either prolonging lockdowns or intermittently reinstating them whenever infections rise until we have enough testing and contact tracing to control the spread or enough people become immune through infection or vaccination. The former requires testing on a scale that, barring a breakthrough, will not be possible anytime soon. The latter would inflict ongoing social and economic damage with the specter of lockdowns constantly looming over us.

Further Reading

We suggest another way that is perhaps both more achievable in the near term and sustainable over the long term. It is based on our belief that given the expected limited levels of testing that will be available for the next several months, we may not be able to detect and isolate enough infected people to keep R below one without lockdowns even with strong contact tracing.

Once cases are declining for multiple weeks, though, we could begin easing social distancing if we can implement population-wide social protections that, combined with more modest increases in testing and tracing, could be sufficient for keeping R below one. Social protections are ways to protect against transmission, including asymptomatic and presymptomatic spread, that still allow people to work and resume some normal activities. Our plan involves two measures:

  • Mass producing and then widely distributing masks that are more protective than those that are now typically being worn by the general population
  • Ensuring rigorous implementation of physical distancing and hygiene in workplaces, public areas, high-risk settings (e.g., homeless shelters), and homes

While many reopening plans call for versions of these measures, we are calling for governments, employers, and the population at large to be bolder, more systematic, and more innovative in maximizing these approaches. In the absence of adequate testing, strong social protection is the only other lever we have to blunt transmission enough that lockdowns could potentially be relaxed without needing to be quickly reimposed.

Ultimately, social protection may neither need to be as effective as social distancing nor require testing and tracing to be perfect. The key is for their combined effect to be good enough to keep R below one. This could be more achievable than it seems. From an analysis we conducted (not yet peer reviewed), if social protection were 50% effective, we would keep R below one by isolating 40% of symptomatic infected individuals within a day of the onset of symptoms.

Invisible Spread

One of the key reasons why current levels of testing, tracing, and isolation are not enough to stop Covid-19 is its “invisible” transmission. Between 25% and 80% of infected people have no symptoms, or only mild ones, yet still infect others, some possibly contributing to “superspreading” events. Even patients who develop serious illness may be most infectious either one or two days before their symptoms start or on the day that their symptoms appear. Almost half of all transmission may happen during this presymptomatic period when people — and those around them — don’t know they are transmitting.

The White House projects that five to 10 people need to be tested to find one infected person; others suggest that number is 50 to 100 people. At current levels of infection, testing widely enough to stop enough asymptomatic and presymptomatic transmission would likely require millions of tests per day — more than the roughly 200,000 a day done now or the 450,000 a day expected by the fall. Contact tracing can find some of these invisible transmission chains, but no matter how many tracers are hired or what digital tools are used, it can only help to the extent that testing is available to identify cases whose contacts need to be traced, isolated, and also tested.

Social Protection Strategies

Many states have recently gotten R just below one by buttressing testing with lockdowns. As states gradually reopen, we need measures that mimic the protective benefits of lockdowns without their destructive downsides.

High-filtration masks. Though Covid-19 can spread through surfaces and contact, it seems to mainly transmit through the air. If we block this respiratory transmission, we should be able to control the virus. High-filtration surgical masks that are easier to wear than N95 masks can help achieve this goal. They could be just as important to stopping Covid-19 as any diagnostic or treatment.

The cloth masks that people are now using vary widely in how well they block infection but typically stop less than 50% of viral particles with many closer to 20% or less. High-filtration surgical and N95 masks used by health workers more reliably impede transmission. Right now, these are rightly prioritized for health workers. What is more, N95 masks are difficult to wear for long periods of time even for those used to them.

While not as protective, high-filtration surgical masks are generally more effective than cloth masks and more wearable than N95s. A new study suggests that combining cotton with other widely available materials, such as silk, chiffon, or flannel, could achieve levels of filtration similar to these masks.

An existing high-filtration surgical mask or a new design — ideally one that is reusable — that strikes the right balance between protection and comfort should be rapidly mass manufactured and distributed to the general population. As was done for ventilators, we need to use the Defense Production Act to mass produce and widely distribute these masks.

While this sounds ambitious, it may be easier and faster to do than establishing adequate testing. And, though there is a concern that wearing masks may prompt people to be less careful in other ways, we have not seen any data to support this notion. In fact, similar reservations were raised about whether seatbelts would cause careless driving, which studies have shown to be untrue.

Physical distancing. The Centers for Disease Control and Prevention (CDC) needs to develop clear guidelines and regulations for maintaining safe distancing in public that local health departments can use to help businesses implement and then monitor for compliance. Even once lockdowns are relaxed, we need to keep large public gatherings on hold. Public areas need to be choreographed to ensure spacing — for instance, by limiting the number of passengers in a subway car or customers in a business at any one time. Workplaces similarly need to be reorganized to minimize crowding — by staggering shifts, limiting in-person meetings, spacing out seating arrangements, resorting to telework as much as possible, and so on. Restaurants and retail stores need to actively plan and manage the spacing of customers, provide hand sanitizing facilities, and ensure appropriate ventilation to prevent viral particles from lingering in the air.

Hygiene. While masks and distancing address respiratory transmission, fomite spread — spreading a disease through surfaces — needs to also be blocked by routinely disinfecting highly frequented areas and making hand sanitizing ubiquitous in public spaces. While preventing people from picking up virus this way, we also need to other strategies to nudge them into not touching their face and mouth. In a study observing medical students, subjects touched their face 23 times per hour. While changing these behaviors is difficult, it’s not impossible. For example, wearing rubber or other reusable gloves when grocery shopping may make people less likely to touch their face. Other creative, scalable, and possibly simple ideas could go a long way.

Home isolation. People with symptoms, confirmed infection, or identified as a contact of an infected person need to be isolated until they are clearly not infectious. If isolating at home — where household members are up to 20 times more likely to get infected than other contacts — people need to be truly isolated. They should not share bathrooms, beds, or living spaces with others and should wear masks and wash hands before passing through common areas. People for whom this is not practical — for example, those living in crowded housing or with people who are at high-risk — need to be given the option to isolate in hotels, dorms, or other repurposed venues free of charge.

While people seem willing to adopt protective practices at home when someone is symptomatic, it may be unrealistic to expect people to do so when family members could unknowingly be asymptomatically or presymptomatically infectious. Scenarios may arise where guarding against this invisible spread by wearing masks and practicing social distancing within households might become important for controlling the epidemic, especially as people return to work. However, such intrusive measures would have to be weighed carefully against their extreme social cost. The number of people living in a household would likely be an important factor in navigating such situations. For community housing scenarios — like nursing homes and homeless shelters, where large numbers of people get infected very quickly — the need for protective measures is clearer.

As states look to reopen, we need to establish a multilayered, social-protection strategy that, combined with more achievable levels of testing and tracing, could keep R below one. Doing so will also require cultivating public buy-in without regressive punitive enforcement while supporting disadvantaged communities to adopt these approaches. We need to move quickly to create and widely implement such a strategy within the coming weeks, not months.

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How CEOs Can Support Employee Mental Health in a Crisis

Executive Summary

Covid-19’s second-order crisis is starting to emerge: the toll it is taking on our mental health. In a global study of more than 2,700 employees across more than 10 industries undertaken by Qualtrics and SAP during March and April 2020, 75% of people say they feel more socially isolated, 67% of people report higher stress, 57% are feeling greater anxiety, and 53% say they feel more emotionally exhausted. What can CEOs and managers do? The author, himself a CEO, suggests a five-step process: 1) Open the door so staff know you are available to talk about the issue, 2) Demonstrate supportive listening, 3) Be consistent in your messaging, 4) Keep a constant pulse on how your staff are handling the stress in the aggregate, and 5) Communicate available resources.

William Andrew/Getty Images

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Business leaders are justifiably focused on the here and now of the Covid-19 pandemic, but there’s a looming second-order mental health crisis that is only beginning to emerge as a result of global quarantines and a massive, sudden shift to working from home. Since the outbreak of the pandemic, 75% of people say they feel more socially isolated, 67% of people report higher stress, 57% are feeling greater anxiety, and 53% say they feel more emotionally exhausted, according to a global study of over 2,700 employees across more than 10 industries undertaken by Qualtrics and SAP during March and April 2020.

As humans we can handle change, but we do not do well with uncertainty. Given the enormous uncertainty everyone is facing —economically, personally, and professionally — these mental health statistics are as predictable as they are alarming. Using the data from the study and our own experience as CEOs, we have identified five steps every leader and manager should take to make an immediate impact:

1. Open the Door

Nearly 40% of people say their company has not even asked them how they’re doing since the pandemic began. That’s shocking. People in this group are 38% more likely to say their mental health has declined since the outbreak of the pandemic. How can we expect to help our people if we don’t even ask how they are doing? So step one is to simply ask, “Are you okay?”

Further Reading

I suspect that a desire to respect privacy is inhibiting these manager-employee conversations. But in our study, nearly three out five of people said they are comfortable with their manager proactively asking them about their mental health. Even more importantly, more than 40% of people said they want their manager to broach the subject. So open the door to a conversation by asking if people are okay, and then let them walk through that door in the way they are most comfortable, accepting that around 40 percent of employees will choose not to engage. That’s okay, too.

Our research shows that the mental health of your reports should not be outsourced to human resources. In fact, when people were asked to rank who they were willing to talk to about mental health concerns, (selecting from a list including their manager, peers, subordinates, HR, and company executives), people listed HR as the group they were least willing to talk to about mental health. Peers and managers were the two groups with whom people were most willing to address mental health.

2. Demonstrate Supportive Listening

For employees who do choose to talk about their mental health, managers need to practice supportive listening. Don’t try to solve everything all at once. Instead just listen, seek to genuinely understand, and ensure that people feel heard. And don’t be afraid to open up yourself. Reciprocation can be a powerful tool to build trust. Share how you personally are handling the new normal. Be vulnerable. According to our data, roughly 40% of people at every seniority level of a company have seen a decrease in mental health. That means that whether you’re the CEO, a mid-level manager, or a frontline employee, you are just as likely to be suffering. The sooner people realize they are not alone in this, the better we’ll be at supporting each other.

I think back to recent conversations I had with two members of our team. One is a single mother who is balancing home school for her two kids (one of whom is in French immersion), her job, and concern for an elderly parent who lives far away. The other is an employee who is single, lives alone, and talked about the crushing isolation he is feeling. My challenges are different, but we all have them. For all of us, this has been one of the weirdest and most emotional times of our lives. We all need to learn to demonstrate supportive listening and be appropriately vulnerable with each other, recognizing that while all of our situations are different, they are all difficult in their own way.

3. Be Consistent

Talking about mental health is not a one and done conversation. One way to help people deal with uncertainty is by providing consistency, especially in how and when you communicate. When it comes to the pandemic, more than 90% of people said they wanted at least weekly communication from their company; 29% said they prefer daily communication. When it comes to discussing mental health specifically, people say that far and away the most effective form of company communication is a phone call directly from one’s manager. Employees who say their manager is not good at communicating are 23% more likely to experience mental health declines. Regular, consistent communication from managers is essential to ensuring people feel supported.

4. Keep a Constant Pulse

It’s not just about helping our managers take care of their teams, we need to take care of our managers as well — and we need to do it while keeping a constant pulse on the company as a whole. To best do that at scale, companies should be sending a regular employee pulse survey to understand how each team, department, and the company as a whole are doing. This is not a moment to be reactive as a leader: You need to get ahead of trends and understand the sentiment of your workforce so you can take action quickly.

Our study found that nearly one in three employees say their team does not maintain informal contact while working from home. People who are lacking informal contact are 19% more likely to report a decline in mental health since the pandemic began. So much of this stems from the fact that with so many people quarantined in their own homes, we have lost the opportunity for watercooler conversations and impromptu run-ins that give us energy and spark new ideas and collaboration. We can’t replicate that exactly, but we have seen many of our teams hosting virtual happy hours to end the week or having a virtual lunch where people can just catch up, share stories, and maintain connection. By regularly running employee pulse surveys you can begin to spot problems early.

5. Communicate Available Resources

Lastly, make sure you are very clear about the mental health resources available to everyone at your company. Almost half of workers said their company has not proactively shared what mental health resources are available to them. To be sure, some people want and need to leverage those resources, but many more people just want to know that the resources are there. As we noted, people don’t do well with uncertainty. That’s why just knowing that resources are available goes a long way to ease anxiety and stress. People who said their company has proactively shared how to access mental health resources are 60% more likely to say that their company cares about their wellbeing.

The mental health crisis stemming from Covid-19 is serious and will be with us for some time to come. Let’s approach it with compassion, honesty, and openness. We will emerge from this as better leaders, better people, and better companies.

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5 Questions That (Newly) Virtual Leaders Should Ask Themselves

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It is safe to say, that for the first time in the age of technology, ad hoc face-to-face meetings are no longer an option for many people. While we don’t anticipate in-person meetings to go away forever, working during the Covid-19 crisis does provide us with the opportunity to reflect on how the best leaders succeed in virtual environments.

Further Reading

For many, working from home, and communicating through digital mediums like Slack, Zoom, and WebEx, are nothing new. Many business models have supported virtual work for years as a necessity to accommodate employees and clients in various locations. Still, while technology has improved our ability to get work done and communicate remotely, we have not yet been forced to develop a set of best practices for leading remote teams at the capacity that has been brought on by this crisis.

My intent here is to challenge leaders to pause and identify what they need to do differently not only to sustain, but also to strengthen their skills in a virtual setting‚ particularly during a time when their teams are looking to them more than ever for direction.

First, it’s important to be aware of the factors that make working together virtually such a challenge:

  • For some, it’s uncomfortable. Every day, I watch my teenagers laugh and chat with their friends on Facetime, as if they were just another person in the room. But for many of us adults, who didn’t grow up with that same technology, it can still be quite uncomfortable. This lack of comfort makes it harder for some to open up, connect, trust, and communicate with each other virtually. If you are a leader today, in a virtual setting, you may be struggling to display the same level of authenticity and provide your team with the same sense of safety as you did in person.
  • Interpersonal dynamics are harder to manage. Both for technical reasons and because people are harder to read over video, the appropriate affect, tone, pacing, and facial expressions that we rely on for effective communication in person are more difficult to give and receive virtually, especially in group settings.
  • You can easily lose people’s attention. It’s challenging enough to engage people in a face-to-face meetings, but virtual meetings often come with a plethora of new distractions that you have little control over.
  • New skills are required, from you. Whether it’s managing tech, maintaining strong facilitation skills, or rethinking agendas, virtual is different than in-person. Knowing that is half the battle.

With these factors as a backdrop, ask yourself five questions to ensure you are being the best leader you can be as you manage your team from home.

Am I being strategic enough? 

Strong leaders practice strategic communications in every interaction, be it a full-day meeting, an hour-long meeting, a sales call, a one-on-one check-in, or even an email. But communicating virtually requires even more strategic planning because you can’t rely as much on human connection or charisma to carry you. Before every exchange, take time to think about your purpose, audience, and the context of the exchange. Then write down your objectives, agenda, and the amount of time you want to spend on each item.

It helps to make your objectives broader than usual. For example, what do you want the other person (or people) to feel after you talk? Challenge yourself to up the engagement quotient to make up for the deficit of face-to-face interaction. This means asking more questions during your interactions, checking in with team members to make sure you are aligned, and leaving extra time for those moments to take place during presentations or group meetings.

Have I revamped communication plans for my direct team and the organization at large?

Moving operations virtual means that it’s time to revisit and potentially revamp your communication protocols with direct reports, employees, board members, and any other audiences you regularly work with. For example, you must now think about how you will run your weekly check-ins with team members. Will you hold these meetings by phone, over slack, or schedule a video call? While best practice says video is best, you may need to adjust your approach based on the preferences of individual employees. The same goes for meetings with clients and other stakeholders.

Using a table in a word document or Google Sheet can help you create a comprehensive plan for different types of meetings. Create at least four columns, including one for each of the below items:

  • Mode of communication (i.e. video, phone, slack)
  • Meeting cadence (i.e. weekly, monthly)
  • Meeting agenda (i.e. team building, check-ins)
  • Meeting participants (i.e. managers, board members)

Fill out your table based on how you worked prior to moving virtual, then, revamp the entire plan to adjust to your current situation.

As you begin to “revamp,” challenge everything you considered “best practice” before, from the size of your meetings to the time allotted. Ask: Should a video call  be used for all announcements or can I simply write a status report to update the team? Do I need to schedule more check-ins with my direct reports to make up for the lack of being in person? Does that meeting that took an hour in the office need to last the full 60 minutes online? Should each communication be followed by a detailed email summary to keep everyone on the same page?

Looking at the entire plan will allow you to optimize it.

How might I reset roles and responsibilities to help people to succeed?

Some people thrive while working remotely, while others may feel a lack of motivation or encounter other unforeseen challenges. Though it may not be apparent who is struggling at first, as a leader, it’s your job to check in regularly with team members about how they are coping. During your one-on-ones, ask: “How are things going for you? What challenges are you facing? What do you think you need to be successful? How can I, or the team, help?”

Through these discussions, re-evaluate each person’s strengths and weaknesses. You may find that you need to shift responsibilities around or invest in training sessions for those who feel less comfortable. For example, one of your team members might excel at running meetings in-person, but lack either the technical or facilitation skills to run them remotely. Or you may find that you have an individual who participates actively during in-person meetings, but not as actively in virtual meetings.

Because change — like shifting a role and taking on new work — can bring up sensitivities in people, it’s important to frame any suggestions you make as opportunities for growth. By diagnosing your direct report’s strongest and weakest points, placing them where they can succeed, and providing them with guidance when they are struggling, you will not only help your team be more productive, you will be helping your employees develop. In these conversations, also be sure to ask for their feedback and thoughts with respect to how the team can improve. Remember that respect, authenticity, and caring are foundational to strong leadership.

Am I keeping my eye on (and communicating about) the big picture?

When you’re working remotely, it’s easy to focus solely on the tactical, to stay glued to your computer, fielding email after email, in an earnest, unorganized fashion. With your to-do list looming in front of you, and no colleagues to pull you out of your head, you may be tempted to stay buried in the weeds. But people rely on leaders for direction, especially during uncertain times. This means, no matter how many small tasks are clogging your calendar, you need to be able to pick your head up and keep one eye on the bigger picture.

Be sure to carve out time to work “on” the business (strategy), as opposed to working “in” the business (operations). Do this by blocking off time on your personal calendar to think about strategy. Or, if your thoughts are clear, schedule a strategy session with your team. Use this time to revisit fundamental questions about the business and organization, like: “Is our value proposition clear to our customers? Are there opportunities for us to improve our business model? Is our team engaged, productive, and inspired to do their best work?”

Keep in mind this idea from Michael Porter’s classic piece, ”What Is Strategy?” He wrote, “New [strategic] positions open up because of change…new needs emerge as societies evolve.” It’s more than likely that the shifts you are experiencing during the Covid-19 crisis will present opportunities for your business, organization, and for you as a leader. In a time when it’s easy to only be focused on defense, it’s up to leaders to go on the offensive and be on the lookout for doors that might be opening.

What more can I do to strengthen our company culture?

I am continually struck by the stories I hear of teams growing even stronger during this time. Many of the most resilient leaders I work with have accomplished this by finding opportunities to align, engage, and inspire their teams around a purpose. Right now, teams need to feel connected, not only to the company’s mission but also to each other.

One way to accomplish this is to regularly set aside time for team members to highlight and share wins delivered either to customers, each other, or to the business itself. If well-crafted, you can tie the “bright spot” sharing to the company’s vision, mission, or values, reiterating the importance or the organization’s purpose and the essential role that everyone plays in achieving it. If meeting time is tight, a slack page, a quick email or another type of non-verbal communication can also be used.

To bring people together, you may also consider prioritizing some team building avenues that were less essential before. Many of our clients have begun conducting virtual social hours, meditation groups, art sharing clubs, team music performances, and fitness challenges. While these options may not be for everyone, they are just a handful of examples we have seen initiate positive team dynamics. Even something as simple as starting a meeting by asking people to bring a video, a meme, or a photo that gives them joy can foster comradery and a needed laugh.

Is there a silver lining to our current business environment? I would say, yes. The leadership skills you are building now will continue to serve you after Covid-19. There is no going back to exactly where we were before. New opportunities will open up — maybe full virtual workforces on a level we’ve never seen. And thanks to an unforeseen time in our history, you’ll be ready for it, with new skills in place to truly lead, whether from home or the office, more effectively than before.

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The U.S. Is Not Headed Toward a New Great Depression

Executive Summary

There is no doubt that the intensity of the coronavirus shock — the depth and speed of the fall in output — is unparalleled and frightening. And it will leave a structural macroeconomic legacy if economies don’t return fully to their old growth trajectory or rates. But it’s a long way from a macroeconomic shock — even a severe one — to a structural regime break, such as a depression or a debt crisis. The authors map four paths that lead to a structural regime break, using historical examples to illustrate each, and explain why they believe each scenario is unlikely for the U.S. right now.

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There is no doubt that the coronavirus is driving a macroeconomic meltdown around the world. In the U.S. and elsewhere, heavy job losses will likely drive unemployment figures to levels not seen since the Great Depression. Fiscal efforts to contain the crisis are pushing deficits to levels last seen during World War II. Both developments have spurred fears and commentary that the crisis is spiraling into either a depression or a debt crisis.

But is it too soon for such pessimism? The intensity of this shock isn’t in question — the depth and speed of the fall in output is unparalleled and frightening. And coronavirus will also leave a structural macroeconomic legacy if economies don’t return fully to their old growth trajectory or rates. But it’s a long way from a macroeconomic shock — even a severe one — to a structural regime break, such as a depression or a debt crisis.

Price stability is the parameter to watch — it’s the key to a favorable macroeconomic regime. A break such as a depression or a debt crisis is marked by a shift to extreme deflation or inflation, respectively, and thus a breakdown of the normal functioning of the economy. Over the last 30 years, the U.S. economy has enjoyed falling, low, and stable inflation, which in turn, has driven low interest rates, longer business cycles, and high asset valuations. But if price stability falters, there would be massive consequences for the real and financial economies.

So, knowing that, how worried should we be?

The Four Paths to a Structural Regime Break

Policy and politics are what stand between a severe crisis and a structural regime break. Persistently inadequate policy responses — rooted either in an inability or a political unwillingness — are what fail to stop the negative trajectory of a crisis-ridden economy. We’ve mapped four paths that lead to a structural regime break, using historical examples to illustrate each.

1. Policy Error

The first path to a depression occurs when politicians and policymakers conceptually struggle to diagnose and remedy the problem. The Great Depression is a classic example — it was an epic policy failure, which facilitated not only the depth of the crisis but also its length and legacy. Two conceptual misunderstandings were involved:

  • Monetary policy error and banking crisis: Limited oversight of the banking system, tight monetary policy, and bank runs resulted in thousands of bank failures and enormous losses to depositors between 1929 and 1933. The collapsing banking system crippled the flow of credit to firms and households. Even though the Federal Reserve was created in 1913, ostensibly to fight such crises, it stood by as the banking system collapsed, believing that monetary policy was on easy footing. In reality, it was stuck in a conceptual error.
  • Fiscal policy error and austerity: Politicians also stood by and watched the economy bleed out for much too long. The New Deal came too late to prevent the depression, and it was too little to reverse its impact. And when fiscal policy tightened again in 1937-38, the economy collapsed again. Eventually, World War II decisively ended the Great Depression by massively boosting aggregate demand, and even returning economic output to its pre-depression trend.

The result of these policy mistakes was severe deflation (collapse in the price level) by well over 20%. This meant that while unemployment was at very high levels, the nominal value of many assets fell sharply, while the real burden of most debts rose sharply — leaving household and firms struggling to regain their footing.

2. Political Willingness

The second path from a deep crisis to a depression happens when the economic diagnosis is clear, and the remedies are known, but politicians stand in the path of solution. It’s a problem of willingness, more than understanding and mindsets.

To illustrate this risk, we don’t have to look far: A lack of political will drove the U.S. economy dangerously close to a deflationary depression in 2008, when the U.S. Congress could not agree on a path forward in the global financial crisis.

By late 2008, bank capital losses were piling up, leading to a credit crunch that was crippling the economy. With a rickety banking system, the risk of a path to a deflationary depression was real — as underlined by collapsing inflation expectations in the depth of the crisis.

The most dangerous moment came on Sept. 29, 2008, when the House of Representatives voted down TARP, the $700 billion rescue package to recapitalize (or bail out) banks. The ensuing market collapse helped change the political price of standing in TARP’s way, and a few days later, on Oct. 3, the bill was passed.

Effectively, political willingness came together in the last minute to prevent a structural regime break and contained the structural legacy to a U-shaped shock. While the U.S. economy regained its growth rate after a few years, it never found its way back to pre-crisis growth path, which is the definition of a U-shaped shock.

3. Policy Dependence

A third potential path from severe crisis to a depression is when policy makers do not have the operational autonomy, authority, or fiscal resources to act. This happens in countries or territories that lack monetary sovereignty, or central bank autonomy — in other words, in times of crisis they can’t use the central bank to ensure a healthy flow of credit even if their currency is stable. Internal depression — price and wage deflation — is the only way for such economies to rebalance and satisfy the constraints of monetary dependence.

Perhaps the best example of such dependence is Greece’s relationship with the European Central Bank in the context of the global financial crisis. Unable to use the ECB for access to financing, Greece had to enter a depression that came with severe deflationary pressures.

4. Policy Rejection

The fourth path differs from the previous three in that it leads to a debt crisis, rather than a depression. In this case, policy makers know what to do, have the political will, yet they can’t raise the real resources to do anything, as the markets reject their actions. This is distinct from the other three paths in that instead of deflation, it leads to high inflation.

Further Reading

Think Argentina at various points in time, the Asian financial crisis of 1997, the Latin American debt crisis of the 1980s, and, further back, Weimar Germany: In all of these instances, policy makers were unable to raise the real resources to finance their spending because debt and currency markets reject it.

When looking at debt crisis risks, commentators too often are preoccupied with debt levels, but this is a misunderstanding of debt crises. They happen — and do not happen — at all levels of debt-to-GDP. Other factors, including anchored inflation expectations, negative risk-rate correlations (when risk goes up, rates go down), global demand for the currency in question, as well as the difference between nominal interest and growth rates all influence an economy’s ability to finance itself more than the debt-to-GDP ratio.

Why the U.S. Is Unlikely to be Headed Towards a Structural Regime Break

Though the path from the crisis we’re in now to either depression or debt crisis is not impossible, it’s not easy or natural, if we examine each of the four paths in regards to the current situation:

  • Policy Error — The policy challenge of coronavirus is enormous, but what is on display is the opposite of the inaction of the Great Depression. On the monetary side, the first signs of stress in the banking system — in the repo and commercial paper markets — were met with timely and sizable monetary policy action. On the fiscal side, it didn’t take long — certainly by Washington standards — to pass the $2 trillion CARES Act to provide funds to counteract the wave of liquidity and capital problems for the real economy (households and firms). Beyond any specific policy action, we are seeing a mindset in which policy makers will keep throwing policy innovations at the problem until something sticks — quite the opposite of the 1930s.
  • Political Willingness — It certainly is possible that political calculus gets in the way of averting a structural breakdown, but not very plausible because the political costs are high. To be sure there are two risks involved: 1) The unwillingness to craft a piece of legislation, perhaps because of differences in analysis, beliefs, or dogma; and 2) the failure to pass legislation because one side sees greater political gain in obstruction. While the TARP fiasco reminds us that both risks are real and shouldn’t be dismissed, crises tend to lubricate deal making, and the costs of political obstruction are particularly high, even in a hyper-partisan election year.
  • Policy Dependence — This path is not applicable in the U.S. because of monetary sovereignty. The Federal Reserve will always facilitate fiscal policy in a time of low and stable inflation and a healthy currency.
  • Policy Rejection — A debt crisis seems improbable for the U.S.: Inflation expectations are very well anchored (and, if anything, too low). The rate-risk correlation is very solid, where in risk-off periods (moment when investors are less tolerant of risk and prices of risk assets like stocks fall) bond prices rally (yields fall). The USD reserve currency status is deeply entrenched as the rest of the world needs to hold U.S. safe assets (and don’t wish to see their currencies appreciate). And nominal interest rates are generally lower than nominal growth (r – g < 0). All of these factors make for favorable financing conditions. Can coronavirus damage all that and deliver a crisis where markets refuse to purchase U.S. debt? It’s possible, but very implausible, and it would be a long and painful process. A break in the inflation regime plays out over several years.

Why, then, are we seeing fears of a break take hold?

We think at least part of the answer is the extreme intensity of the coronavirus shock. The depth and speed of output contraction threatens to influence perceptions and risk assessment in other dimensions of this shock, such as the structural legacy (the shape of the recovery) and the risks of structural regime break.

While these fears are understandable, the analytical errors resulting from them could have significant consequences in terms of setting false expectations and encouraging inappropriate plans. A few principles of intellectual discipline may help leaders avoid these analytical traps:

  • Beware implicit and explicit equivalences to historical events. If describing the future, be aware of historical benchmarks. Meanwhile, if using historical benchmarks, be aware of their drivers and relevance to the present day.
  • Be wary of single data points and the inferences that can be drawn from them. Is there a passing resemblance or causal equivalence? Record outcomes in any data set always make great headlines, particularly in financial and economic reports, but the overall context determines their true significance.
  • Step back when fear is dominating the thought process and when extrapolating from high-intensity events. Even the worst ever in one dimension doesn’t mean the worst along all dimensions.
  • Be cognizant of what your scenarios imply: A depression-driven regime break also means large-scale deflation. A debt crisis regime break also means a weak currency and high inflation. Are these corollary conditions consistent and do they fit the facts?

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