Leadership Development: First (or Last) Thing To Cut During Recession?

By Theresa Minton-Eversole Apr 1, 2008
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Tough times call for tough financial measures. And during recessionary times, many companies notoriously start wielding the ax, slashing what they deem to be unnecessary programs. Take leadership development-senior management's distraction with keeping the company solvent doesn't afford time for it, right?

Perhaps. Or maybe a recession is a perfect time to revamp these programs to focus on what they should be designed to do: help corporate leaders become more adept at helping the company make money.

A recession is an opportunity for human resource professionals to increase the credibility of these programs by modifying them to address financial behaviors that directly support the company's goals of cutting expenses and increasing margins, according to a recently released white paper, A Recession's Role in Transforming Leadership Development.

"During a recession, most top management teams fool around with financial engineering, which makes the financials look better, but it doesn't change people's financial behavior," said Ted Prince, founder and CEO of the Gainesville, Fla.-based Perth Leadership Institute, which produced the white paper.

Citing the sub-prime mortgage crisis as an example, he said, "The crisis happened because of bad behaviors, right? It happened because people made mistakes; it was extremely bad behaviors from the CEOs right down through the consumers. What you really need to do in a recession is to take the opportunity to change people's behaviors so that they're helping you when you're in it and they're better [performers] when you come out of it."

Assessing Financial Fitness

"Leadership development's been stuck in a bit of a rut," said Prince, noting that the only new thing that's come about in the past few years is emotional intelligence. "It's good stuff," he said, "but the one thing it doesn't tell you is if someone's going to make money for you."

That's one of the reasons so many people on the business side of the house are so skeptical about leadership development, he said, and a key reason why HR and development experts have to break through this barrier to establish some credibility.

While Prince conceded that tools for measuring or assessing business acumen are scarce, he contends that there are assessments available that measure one's "behavioral propensity to create capital."

There are emerging data coming from many major universities researching the new field of "behavioral finance," which brings together the fields of psychology and finance. In the past, most leadership development approaches have focused on purely psychoanalytical approaches -- like personality testing-but finance and economics professionals disregard psychology, he said.

"Behavioral finance gives you a new lens with which to look at people's financial traits and see how those impact their decision-making from a strictly financial point of view," he explained. "These emerging disciplines are giving us tools and conceptual approaches to look at the behavioral aspects of finance and, therefore, to develop tools for HR and leadership development [professionals] that have never existed until now. It's pretty cutting-edge work."

Prince said such psychometric assessments show what people's innate natural behaviors will lead to in terms of financial and valuation outcomes and will show them what they need to adjust so that they can improve their financial and valuation impact. The assessments can be done for individuals at any level in the company, even teams, to show their behavioral impact on the bottom line.

What's more, Prince said, the results of these assessments often can be used by HR to show the CEO that the company can get significant return on investment in three months-a real eye-opener, particularly during recessionary times.

"If they can't see the immediate financial impact in a three-month period, a lot of CEOs correctly aren't going to [buy in]," said Prince, because investing in the program is going to worsen their financial position initially. "But if you can show them you're going to get immediate market impacts, then it would be silly not to do it."

So what's "it"? Following are ways HR can step up the value and return on investment in leadership development, according to the white paper:

  • Focus on programs that will have fast behavioral impact on cost and margins.
  • Introduce into all programs the concept of an ownership culture.
  • Implement programs to develop business acumen.
  • Integrate business acumen programs with traditional programs.
  • Map business acumen to traditional personality and competency approaches.
  • Emphasize the financial side of programs in internal public relations.
  • Introduce programs that support high-leverage innovation.
  • Emphasize approaches that address leadership agility and organizational learning.

In addition, the paper emphasizes the need to train HR and leadership development professionals in the aspects of business acumen approaches and to position these professionals within their companies as business-focused innovators in their own areas.

Finally, integrate business acumen approaches into talent management and succession planning processes.

Valuation is fundamentally an outcome of human behavior, explained Prince. "That's why you have such a huge difference between Toyota and General Motors. They both produce the same products, but their behaviors are different: One's got profit-making behaviors, good financial behaviors; the other's got good products but bad financial behaviors."

Prince admits that this type of leadership development is not a panacea, however. "I'm not saying that you may not have to do some of these things. It may be that [a company] has gotten itself into so much trouble that it has to take some more expedient, short-term measures. But the record shows that unless you think long term, they're only going to end up hurting you. Fundamentally, you've got to work on people's financial behaviors, and in a recession you've got to do it quickly."

Theresa Minton-Eversole is editor of SHRM Online's Organization and Employee Development content area.

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