Thought Leadership

In a recession, will “culture” matter to executives?

This post originally appeared on Jessica Kriegel’s LinkedIn. To subscribe to her every-Friday newsletter, also on LinkedIn, go right here.

The cynical answer to the question in the headline is: “No, we need to focus on keeping the lights on.”

The real answer to the question in the headline is: “Absolutely. The best companies care more about culture during a recession.”

The true answer inside most organizations is probably somewhere in the middle.

First, let’s frame this up a little bit. No one seems to be sure if we are currently in a recession, and technically — two straight quarters of downward GDP — we are not in one. But some, including Fannie Mae, think we might be headed for one in Q3 or Q4.

Then you get into various semantic discussions about “soft landings” and “mild recessions” and “recessionary environment but not a recession,” and while those are fun to analyze at some level, they don’t matter as much for this discussion.

If we enter into even what feels like a recession, organizations do begin to behave differently. You see more belt-tightening and more layoffs. We’ve already seen that in Big Tech since the fall of last year. You see a deep executive focus on repeatable and consistent actions and making sure the ship is steady. It can seem, in those situations, that culture isn’t important. We’re just keeping the lights on, right?

Wrong.

There’s actually a few relevant culture items you can (and should) focus on during a recession. Your ability to handle them properly will say a lot about how you emerge from a downturn.

Layoffs

This is the big one. When organizations fear a recession, they usually start chopping roles and endeavor to operate with a skeleton staff for 2-3 quarters or more before they can ramp up #hiring again. Some industries and verticals are theoretically “recession-proof” (less than we think) and don’t do this, but many industries do end up laying off a lot of people.

Just earlier this week, the prediction was 1M+ jobs at risk if we hit true recession.

One big question we get at CULTURE PARTNERS — and I’ve gotten personally too — is whether it’s possible to do humane layoffs.

It is possible, but it takes work, compassion, and self-awareness. McDonald’s did a good job with it earlier this year: the CEO had taken two pay cuts beforehand, they announced the layoffs months in advance and encouraged people to look for other jobs, and when the layoffs neared, they sent everyone home to potentially receive their termination in the comfort of their own home with the opportunity to process it in their own way.

Most importantly, however, is that layoffs don’t help you thrive in or post-recession. Research out of the Harvard Business Review looked at 4000 companies that navigated through the last three recessions. The top 9% of companies that were thriving 3 years post-recession DID NOT engage in layoffs. They stayed the course, led with equanimity and came out ahead with a dedicated and loyal workforce.

Experiences

No one loves belt-tightening and the “do more with less” dynamic. But in the context of culture, remember that a company’s culture begins with experiences:

The people who stay in-house will have a different experience around working there during a downturn. You need to be leaning into that, and asking them questions such as:

  • How can we support you more?
  • What colleagues and roles do you miss? Could we hire some of them part-time or freelance?
  • What are you thinking about your own next steps?
  • What are your ideas for bonding the team in a downturn?
  • Any strategies you believe we should pursue?

Involve the remaining employees in the downturn and process and strategy for pulling out of the skid. Give them that experience of being involved and belonging to the bigger picture of the organization’s future. That will drive their beliefs about the org, and as things steady, you can emerge with a better culture ready for new blood too.

But what about focusing on keeping the lights on?

This is a point of confusion for some. You can actually both “keep the lights on” AND “build a culture” at the same time. It’s possible, and thousands of companies do it every day.

We are about to release some research on the financial impact of a culture vs. strategy focus. Our findings were surprising in that strategy had little impact on revenue growth, both on its own and also when connected to culture. However, when examined separately from strategy, culture did have a significant impact on revenue growth. Additionally, we found that the specific culture variables associated with people-driven cultures outperformed the variables connected to more detail-driven cultures. In fact, detail-driven cultures were negatively related to revenue growth.

This work, and some previous work by McKinsey & Company, speaks to the idea that separating the concept of “focusing on the financials” and “focusing on culture” is a poor choice. Culture, when done right, drives the financials. That’s even more true in a downturn.

See, it is true during a recession that employees potentially have less options — but it’s also true that some work might dry up, even for those remaining on staff. If the experience of working there is a negative one, those employees might not be leaving today, but they’re at home working on side projects, building websites, talking to friends at other companies, etc. When the economic landscape rises up a bit, they’re off to start something new, collaborate with an old colleague, or whatever else. The amount of new businesses that emerge from recessions is huge — remember 2008? — and if you don’t try to shepherd your culture, you may not lose people tomorrow, but you will lose them.

So, in short answer, culture still matters during a recession.

It can feel like culture shouldn’t be the focus during a recession — “must keep the lights on, must lay off people to make my quarter,” etc. — but paradoxically to some, it’s the time to double down on caring about, listening to, showing empathy for, and constantly engaging with your people.

What’s your take: does culture matter in a recession?

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