Caution urged on recession talk

by 19 Aug 2008

AUSTRALIAN COMPANIES should be careful not to respond to the current economic climate by pursuing savage costcutting and downsizing, according to Kevin Panozza, former CEO of SalesForce, which has won three national best employer awards.

Panozza said he feared that the negative attitudes of some companies might push the economy towards recession. “In a downturn such as this, companies should be focusing on growing their business and building market share, so when the economic upswing happens they will be well positioned.

“This can be achieved through improving their capability to acquire and retain customers. An essential requirement for a healthy company to stay that way is a high level of employee engagement,” he said.

Speaking at a recent Australian Institute of Management (AIM) event in Melbourne, Panozza said that as soon as companies lose confidence in the business environment and their competiveness, employees lose confidence in the company and leave. “And, let me tell you, the best employees leave first.”

John Bateson, global CEO for psychometric testing firm SHL, also warned business leaders against talking themselves into a recession.

“What’s worrying me at the moment is I think we’re wishing ourselves into a recession by talking about it. But I’m not seeing it yet and I’d rather not, to be honest,” he said.

“If they’re not careful, business leaders end up saying they better not make that investment ‘Because we’re in a recession’, and because they don’t make the investment we are in a recession. So, it’s self-fulfilling.”

While financial services was experiencing more turmoil than other sectors, this did not mean the rest of the economy is in a hole, Bateson said.

“There are businesses in the financial services sector which are directly affected by the credit crunch and they are trying to manage their businesses in a different way. That ranges to me from the all-American model of laying off 27,000 people in one go, to a much more constrained model of not recruiting too many people in the short-term,” he said.

Other industries and sectors which are driven by oil or commodity prices – such as car manufacturing, airlines and transport – are desperately trying to come up with a new model to cope with increasing cost of fuel, he said.

“Then behind that is the wave of a general slowdown in the economies around the world, which hasn’t really hit yet,” according to Bateson.

“We’re seeing clients react to the first two, but so far I’m not seeing clients reacting yet to what would be regarded as a recession, wherever it is.”

The usual knee-jerk reaction from business in times of economic uncertainty is to impose a headcount freeze and arbitrary cut in employee numbers, Bateson said.

“This just signals that the senior management doesn’t really know what else to do. This sends a signal to the organisation that its leaders aren’t in control of it, which is a very wrong thing to do,” he said.

“It might sound like a good idea at the time, but working inside the existing processes is much better.”

In such times, Bateson said it was important for businesses to understand where their talent is. “If you don’t have a picture in your head of where your talent is, you better build one pretty fast,” he said.

“You don’t want to keep everybody. If you’re going to have to lose somebody, you better make sure you lose the wrong ones.”

There has to be some kind of due process in equity, said Bateson, which means that the people who end up leaving the business should be seen to be the ones that ought to be leaving.


Most Read