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Crisis leadership in economic recession: A three-barrier approach to offset external constraints
BUSHOR-1522; No. of Pages 13 Business Horizons (2018) xxx, xxx—xxx
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Crisis leadership in economic recession: A three-barrier approach to offset external constraints Teresa C. Lacerda ISEG Lisbon School of Economics & Management, Universidade de Lisboa, Lisbon, Portugal
KEYWORDS Corporate management; Economic crisis; Crisis leadership; Leadership traits and behaviors
Abstract An economic recession is a type of crisis originated from external factors that may imperil an organization’s survival depending on the intensity and duration of the crisis. In peripheral European countries, such as Portugal, the recent financial crisis had devastating effects on various business activities. As a result, Portugal represents an important case study in examining how some corporate leaders have handled the economic recession successfully. I interviewed 20 corporate managers to capture their perceptions of the leadership traits and behaviors exhibited by their CEOs in guiding their companies through the recession. In economic recessions, negative constraints do not affect the most effective leaders, who instead erect barriers against the high-pressure conditions to create a supportive, positive work environment. In order to achieve maximum effectiveness, leaders must act as blocking agents against the negative social impacts of the economic crisis, including the fragility of trust in organizational life (i.e., a barrier against distrust), uncertainty of the future (i.e., a barrier against uncertainty), and toxic emotions (i.e., a barrier against toxic emotions). # 2018 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved.
1. Effective leadership in times of crisis Since the onset of the recent financial crisis, several European countries have been affected by an over-
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whelming economic recession. The generally poor economic climate has significantly impacted business confidence, increasing uncertainty and volatility in the markets; anxiety and stressful situations have emerged as the new normal. A new concept of crisis leadership emerged in response to the lack of answers provided by traditional crisis management approaches (Thach, 2012). Recent research suggests that the leadership traits and behaviors upon
https://doi.org/10.1016/j.bushor.2018.08.005 0007-6813/# 2018 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved.
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which followers depend during times of crisis are different from what followers need during times of stability (Haddon, Loughlin, & McNally, 2015; Knights & McCabe, 2015). Furthermore, commonly used leadership frameworks have proven insufficient for capturing leader traits and behaviors in crisis situations (Haddon et al., 2015). This gap in the literature on crisis leadership may be problematic, as many managers hail from countries currently experiencing economic crises. As traditional approaches for crisis management fail to provide an effective way of dealing with current chaos (Klann, 2003), in this article I seek to explore behavioral patterns of leadership in the event of an economic crisis as observed by the direct reports of corporate executives. I also address the following questions:
What are the main characteristics of effective leaders when dealing with an economic crisis?
What effect does a depressive organizational context have on leadership behaviors? Given the importance of these questions, I analyze the observed characteristics displayed by the leaders during an economic crisis and identify specific patterns that led to their success.
2. Crisis leadership in an economic recession: A new approach Kramer and Tyler (1995) defined crisis as a major threat to system survival that provides little time to respond and involves an ill-structured situation with inadequate resources for coping with it. These authors found that a crisis may question the survival of a system, which leads to various organizational outcomes. Kramer and Tyler’s framework suggests that the nature of organizational behaviors exhibited during a crisis results in positive, negative, or developmental outcomes. A crisis threatens an organization’s survival and yields devastating effects that require immediate, urgent attention. Some crises arise from organizational failures, but others stem from external factors that affect the global economy and organizations worldwide (James, Wooten, & Dushek, 2011). Given the pervasiveness of the recent global financial crisis, the effects were felt almost simultaneously in all European countries in 2008 (Sani & Magistro, 2016). Those countries with excessive lending, which based their economic development primarily on demand-led growth models, were more exposed (Sani & Magistro, 2016). For
several peripheral European countries–—Portugal, Italy, Ireland, Cyprus, Greece, and Spain–—the financial crisis culminated in a strong economic recession. This led to the well-known intervention of the IMF, the EU, and the ECB (called the troika) in those fragile economies to implement economic adjustment programs with harsh measures and structural reforms. The intervention resulted in additional restrictions on borrowing, higher taxes, and decreasing consumer purchasing power, which had a drastic effect on corporations. The economic adjustment programs did not yield immediate recovery and many indebted firms went bankrupt, contributing to higher unemployment rates (Guariglia, Spaliara, & Tsoukas, 2016). The concept of crisis leadership has emerged recently in the literature as a strategic process focused on human relations as opposed to crisis management, which is regarded as a more tactical approach (James et al., 2011; Thach, 2012). According to Thach (2012), traditional crisis management based on operational and tactical responses is not sufficient in handling the fallout from an economic crisis given its large scale, greater frequency, and rapid dissemination. To overcome this gap, researchers recommend organizations adopt crisis leadership to lessen the impact of chaos on people (Klann, 2003). Some studies also suggest that what is required from a leader during times of crisis differs from what organizations need during prosperity and calm (Haddon et al., 2015; Hannah, Uhl-Bien, Avolio, & Cavarretta, 2009; Knights & McCabe, 2015; Stern, 2017). Hannah et al. (2009) said that extreme contexts create unique constraints, contingencies, and causalities for leadership. For example, during extreme events, it may be critical for leaders to help organization members define the situation, make sense of events, and find meaning in the crisis (Hannah et al., 2009). In addition, leadership behaviors displayed during a crisis situation are important as not all leaders are best suited for handling a crisis (Bowers, Hall, & Srinivasan, 2017). Based on a crisis response leadership matrix, Bowers et al. (2017) classified the leadership style–—directive, transformational, cognitive, or transactional–—best suited to handle the particular crisis. These authors used a real-world case study and discovered that transactional leaders are less effective in crisis management whereas transformational leaders are much better suited to guide an organization through an external crisis (Bowers et al., 2017). The framework presented by Bowers et al. (2017) represents a first attempt at identifying the best leader for optimal response and recovery in the case of an external crisis. Other studies found that the most prominent leadership
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Crisis leadership in economic recession: A three-barrier approach to offset external constraints style displayed by Greek bank supervisors during the financial crisis was transformational leadership, which had a high impact on job satisfaction among Greek bank employees (Dimitrios & Athanasios, 2015). According to Dimitrios and Athanasios (2015), this leadership style did offset negative and defensive employee attitudes and behaviors, employee turnover, and loss of customers that commonly occur during a period of crisis. Past leadership theories that present leaders as heroic characters who predict the future (e.g., Masters of the Universe) have been unable to examine the effectiveness of leadership in the context of the global financial crisis (Knights & McCabe, 2015). Knights and McCabe (2015) theorized that the deep-rooted belief that heroic leaders with the ability to predict and create the future drive the free market may have even contributed to the financial crisis. In a study using a mixedmethods approach to understand what employees want from leaders in an organizational crisis context, it was found that a commonly-used leadership framework–—the transformational leadership approach–—failed to encapsulate any of the qualitative findings, such as employees’ expectations that a leader would take action quickly while maintaining continuous communication with employees (Haddon et al., 2015).
3. Methodology The global financial crisis hit Portugal’s economy hard, and it represents an important case study in examining how some corporate leaders have successfully handled the economic crisis. In 2009, Portugal entered a deep recession with an average GDP growth rate of 3.0%, followed by a 3-year recession during 2011—2013 (OECD). International capital flows evaporated and weak growth prospects resulted in a loss of market confidence and a sharp rise in interest rates. The unemployment rate reached a peak of 16.5% in 2013, while gross fixed capital formation registered a 5-year negative growth rate. A rampant increase in gross public debt as a percentage of GDP from 80.4% in 2009 to 127.3% in 2014 affected the overall economic climate. In reaction, the Portuguese government implemented harsh measures in terms of public expenditure and revenues in order to comply with the Economic and Financial Assistance Program requirements. Portugal’s entrepreneurs and managers keenly felt the negative effects of the struggling economy. According to OECD indicators, the business confidence index decreased significantly in 2008 and 2011 (to
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levels of 96.4 and 97.7, respectively), reflecting an overall distrust in the economic recovery. The consumer confidence index, based on household plans for major purchases and consumers’ degree of optimism about the economic situation, dropped to 97.9 in 2008 and 96.8 in 2011. Using a qualitative approach, I interviewed 20 corporate managers representing Portuguese firms to understand how they perceived their leaders’ handling of the economic crisis in their respective organizations. Prior research argued that accepted measures of leadership (e.g., charismatic and transformational leadership measures) would be unlikely to capture leadership in a crisis context (Haddon et al., 2015; van Knippenberg & Sitkin, 2013). My study included diverse participants from various industries and job functions in an attempt to comply with the qualitative research method requirements that multiple perspectives be systematically addressed during research inquiries. I drew my sample from a list of organizations belonging to industries that were strongly affected by the economic crisis (Table 1). I sent an email to each organization’s human resource managers with an invitation to participate in the study, requesting access to interview a senior executive. All invited senior executives agreed to participate. The profile of the interviewees is presented in Table 2. The average age of the interviewees was 49 years old, and 60% were female. On average, the interviewees had 9.3 years of tenure in their current job positions and 13.9 years of tenure in their organizations. I chose the period between May and September of 2012 to collect data because I was able to capture
Table 1.
List of invited organizations
Industry
Organizations
Automotive & Transportation
AutoEuropa, TAP
Banking
Banco Santander Totta, Millennium BCP
Consumer Goods
Colgate-Palmolive, Mars, PepsiCo, Soc. Central de Cervejas
Energy
BP, EDP, Efacec
Holdings
Cofina, SONAE
Information Technology
Fujitsu, Microsoft
Pharmaceuticals & Healthcare Products
Alliance Healthcare, Bial, Covidien, Johnson & Johnson, Merck Sharp & Dohme
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T.C. Lacerda Table 2.
Profile of interviewees and size of transcripts
Date & Time
Name
Interviewee
Gender
Age
17/05 17:00
ELP
Executive Director
Female
51
22/05 13:00
CL
Executive Director
Male
50
24/05 17:00
AP
Human Resources Director
Female
47
28/05 16:00
JMS
Human Resources Director
Male
55
29/05 19:00
APR
Executive Director
Female
45
01/06 15:00
MB
Human Resources Director
Female
55
04/06 14:00
AMD
Member of the Board
Female
66
15/06 15:00
IB
Human Resources Director
Female
44
29/06 15:00
NMC
Member of the Board
Male
52
02/07 17:00
IV
Human Resources Director
Female
54
04/07 15:00
IH
Human Resources Director
Female
41
05/07 15:00
AA
Managing Director
Female
51
06/07 11:00
AF
Sales Director
Female
48
10/07 15:00
IM
HR Director Iberia
Male
52
16/07 12:00
PG
Human Resources Director
Female
49
17/07 16:30
ACL
PR & Sustainability Director
Female
47
19/07 10:00
FM
Executive Director
Male
51
19/07 12:00
MAF
Publishing Director
Male
40
25/07 16:00
PVS
Sales Director Iberia
Male
40
07/09 10:30
NFP
Marketing & Sales Director
Male
38
the perceptions of corporate managers during the economic crisis, as it corresponds to the period during which the second wave of the recession hit the economy (between 2009 and 2013). The inperson interviews conducted at the interviewees’ offices in Lisbon and Porto were face-to-face, informal, open-ended, and carried out in a conversational style following an interview protocol. The purpose of using such techniques was to collect relevant perspectives by asking the corporate managers to talk about leadership through the identification of specific leaders from their personal experiences. The data collected during this stage included interview transcripts, field notes from observations, and a variety of records and reporting documents that were subjected to content analysis. This stage included three processes: collection, coding, and data analysis. All of the in-depth interviews were recorded. I performed a systematic analysis of the content and an interpretative analysis of the latent content, including interview transcripts and other data, using NVivo, a software program that uses a coding system organized around different topics and themes. Following an interpretivist tradition, I assume that through reading the source material, one can capture the essence of the interviewee’s answers
(Miles & Huberman, 1994). In considering a corporate manager’s perspective, I conducted an analysis based on sense making, grounding the analysis in categories by moving through successive stages of meaning, from the ordinary to the abstract, in order to generate and develop a theoretical framework of leadership in crisis situations. The content analysis involved several steps. First, I organized and prepared the data for analysis (e.g., transcribing interviews, scanning material, typing field notes). Next, I read all the data and assigned them to the corresponding categories. I conducted a detailed analysis with a coding process (i.e., the material was organized into categories and was then labeled). After the categorization process was complete, I used a narrative passage to present the findings, ultimately producing an interpretation of the data derived from a comparison of the findings that emerged from the interviewees’ verbatim comments. Table 3 shows the data structure.
4. Findings Several interesting themes emerged from the interviews which provided unexpected insights into corporate managers’ perceptions of leadership during times of economic crisis (detailed information in
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Crisis leadership in economic recession: A three-barrier approach to offset external constraints Table 3.
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Data structure Code examples
Categories
Grouping the categories
Team members support each other in adverse situations.
Leaders rely on team members to achieve their goals.
Collaborative leadership
Leaders engage the team members asking for their opinions.
Continuous communication effort to encourage the team members.
Clear, simple, and honest speech about the main problems.
Reinforce communication
Leaders listen to the opinion of others even if it diverges from their own.
Build a strong link with the team as a barrier against distrust
Formality raises obstacles that may paralyze the organizations.
Leaders develop close relationships with their team members to understand their abilities, problems, and needs.
Proximal relationship
Leaders motivate team members to bring new ideas.
Leaders engage team members through non-monetary rewards.
Engagement and motivation
In adverse situations, thinking out-ofthe-box is more important.
Leaders create the future for the organization.
Even in difficult situations, the leader knows where the organization is heading.
Vision and future orientation
Leaders are open-minded and don't see the crisis as a fatality.
Leaders are as agile as possible to take advantage of the market opportunities.
Leaders implement well-designed and realistic strategies.
Leaders manage to align their team
Strategic implementation and alignment
members in the same direction.
Boldly pursue their vision as a barrier against uncertainty
In turbulent times, leaders are aware that the same methods used in the past will no longer work, so they must reinvent every day.
Creative thinking and innovation
Leaders can challenge their team members in the face of chaos.
In a crisis, leaders must decide quickly. The decision chain is different in adverse contexts.
Leaders have the courage to make difficult decisions.
Problem-solving and decisionmaking
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Table 3 (Continued )
Code examples
Categories
Grouping the categories
In adverse contexts, the leader's boldness or lack of it is more visible.
Leaders have high self-esteem in the sense that they are not afraid to make risky and controversial decisions.
Self-confidence
Leaders are not insecure and are not afraid to make mistakes.
Leaders have high emotional control in adverse contexts.
Leaders have an important role in
Emotional control
sharing ways to solve problems without stressing out the organization.
In a depressive context, positive leadership has an important role.
Leaders energize their team members
Positive attitude
because they have the ability to go beyond the professional sphere.
Convey emotional stability and positivism as a barrier against toxic emotions
Despite the urgency, leaders try to keep their team members calm and focused on the best way to achieve their goals.
Leaders try to give their team members
Calm down the team
the best direction in order to tranquilize them.
Leaders speak openly with their team members sharing the main problems of the organization.
In a crisis, it is important to have an
Open and transparent
open and transparent culture where people can share worries, problems, and creative solutions.
Appendix). Through my questionnaire and interview responses, corporate managers indicated that the leaders successfully handling their firms during the economic recession were building a strong link with the team as a barrier against distrust (e.g., collaborative approach, reinforce communication, increase engagement); were pursuing their vision as a barrier against uncertainty (e.g., future orientation, strategic implementation and alignment, rapid decision making); and had emotional stability and positivity against toxic emotions (e.g., high emotional control, positive attitude, calm the team). The following sections provide a detailed look at each of the three themes that emerged from the research.
4.1. Leaders build a strong link with the team as a barrier against distrust The interview data revealed a more complex and interesting frame for crisis leadership behavior. Corporate managers indicated that successful
leaders develop a strong link with the team at the same time they are working as a barrier against the levels of interpersonal distrust felt in a depressive economy. In the case of a company that saw an 18% decrease in sales, managers started to question everything, namely the company’s strategy. However, the leader in question was able to convey additional trust to organization members, particularly when they needed most to be reassured. The dominant theme emerging from my interviews–—leaders build a strong link with the team against distrust–—is detailed below. 4.1.1. Collaborative leadership Several of my interviewees were direct reports of the leader in charge during the early days of the economic crisis. They indicated that the leaders to whom they reported exhibited collaborative leadership styles, actively involving their team members and requesting opinions and suggestions to solve
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Crisis leadership in economic recession: A three-barrier approach to offset external constraints problems. In these adverse situations, leaders relied on their team members to reach organizational goals, engaging the team members to express their opinions and find the best solutions for upcoming problems, all while supporting each other. 4.1.2. Reinforce communication Managers indicated that their leaders engaged in a continuous communication effort to encourage their team members to pursue the organization’s vision, increasing the levels of interpersonal trust among corporate members. Often, these leaders reinforced their communication when dealing with critical situations by consciously developing a culture of active listening organization-wide. These leaders use clear and simple language and employ honest speech when discussing the main problems facing their organizations; they listen to others’ opinions, including those opinions that diverge from their own. 4.1.3. Proximal relationship In adverse contexts, formality raises obstacles that may jeopardize the organizations’ survival. Leaders value interpersonal relationships, show concern and care deeply for their team members’ well-being, make them feel comfortable, and build trust among their team members. As such, these leaders develop close, informal relationships with their team members in order to better understand their abilities, problems, and needs. As expressed by these corporate members, this proximity during periods of crisis served to reassure the team members, increase job satisfaction, and improve performance. 4.1.4. Engagement and motivation More effective leaders encourage their team members to propose new ideas for resolving the organization’s problems. These leaders had the ability to influence or persuade others to behave in a specific manner through role modeling, building their self-confidence, and creating challenging goals. In adverse economic situations, innovative, outside-the-box thinking drives success for the organization. When faced with challenging situations, leaders engage their team members by using intrinsic rewarding mechanisms (i.e., nonmonetary rewards) to increase motivation.
4.2. Leaders boldly pursue their vision as a barrier against uncertainty According to the managers interviewed, the sense of urgency felt by these leaders does not shift their
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focus of attention from the medium and long term to the short term. Instead, they continue to pursue their vision with determination as revealed by the interviews. As such, these leaders provide a clear vision and direction for the future as a way to reduce followers’ feelings of uncertainty (Rast & Hogg, 2017). There was another theme emerging from the interviews: “leaders boldly pursue their vision against uncertainty.” This theme is explored below. 4.2.1. Vision and future orientation Managers referenced the role leaders play in navigating firms through extreme situations. They note that, even when faced with adversity, leaders have a roadmap to direct the organization forward (e.g., the ship may be sinking, but the team will find alternative ways to get to their destination). The managers who reported to open-minded leaders did not see the crisis as a fatality and focused instead on life and goals post-crisis. These leaders did not lose their sense of direction; they prepared the team for any anticipated danger and were courageous enough to pursue that direction. 4.2.2. Strategic implementation and alignment Managers indicated that effective leaders found the best way to implement projects in a specific context. The implementation included presenting welldesigned, realistic, and executable strategies to the teams. Despite all the difficulties, their leaders managed to align and redirect team members to focus on the organization’s goals. In addition, these leaders are agile and move quickly, taking advantage of the market opportunities. 4.2.3. Creative thinking and innovation Several interviewees recounted their experiences during situations when their leaders encouraged team members to participate in creative thinking–—an important exercise for solving complex problems–—since, in turbulent times, leaders must reinvent themselves and think creatively when tried and true solutions fail to resolve new problems. At such times, leaders must foster an innovative environment that permeates the whole organization, and they must challenge their team members in the face of chaos. 4.2.4. Problem solving and decision making In narrative after narrative, the interviewees elaborated on their leaders’ ability to find the best solutions. Managers indicated that the best leaders encourage their team members to be proactive (e.g., “don’t bring me the problem, bring me the
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8 solution, or several of them”). Successful leaders evaluated and analyzed critical situations, and committed quickly to the best approach after considering all options. These leaders did not hesitate to make difficult decisions when required. Managers also reported that during adverse situations, the chain of decision making differs from noncritical situations so that leaders can make critical decisions more quickly. Every day, these leaders are tested and must find new solutions. Old problemsolving formulas no longer work in a rapidly changing workplace environment.
4.3. Leaders convey emotional stability and positivity as a barrier against toxic emotions The emotional response conveyed by these leaders in times of crisis has an important role in setting the collective emotional state of group members. As pointed out by the managers, these leaders use their own emotional tone to influence the followers’ emotions in such a way that affects their future behaviors. Emotional contagion may be the psychological mechanism through which these leaders influence their team members’ emotions and behaviors (Bono & Ilies, 2006). An overview of the managers’ insights is detailed below.
T.C. Lacerda 4.3.3. Positive attitude In a depressive context, positive leadership can infuse teams with energy. One manager reported that his leader’s positive attitude went well beyond the professional sphere to refocus on the external environment; by making a conscious effort to keep his own problems from affecting the environment at work or impacting his interactions with the team, he contributed to the positive atmosphere within the workplace. In bringing positive energy to the workplace, these leaders set the example and showed how to be less self-centered and much more outward facing 4.3.4. Calm down the team These leaders are more likely to achieve an organization’s goals when they keep their team members calm and focused. To cultivate an optimistic mindset, these leaders identify and guide their teams in a positive direction. One manager revealed that he discussed plans with his executive director to reassure the team that there were no planned personnel cuts. 4.3.5. Open and transparent Several managers mentioned their leaders’ openness and transparency when dealing with critical situations. Frequently, these leaders spoke openly with their team members to share the main problems that the company faced. This culture encouraged everyone to share worries, problems, and, most importantly, creative solutions.
4.3.1. Self-confidence Managers reported that during adverse situations, their leaders displayed high self-esteem that enabled them to make risky or controversial decisions. These leaders had a strong belief in their capabilities to be successful, as well as self-perceptions of competence in their knowledge, skills, and abilities. This boldness was more visible to the team members in those situations, which worked as a way to differentiate their perceptions of effective leaders from noneffective ones.
5. Crisis leadership as a barrier to the negative social impacts of the economic crisis
4.3.2. Emotional control The interviewees indicated that their leaders consistently maintained a high level of emotional control, especially when facing difficult situations. During the economic crisis, which led to a cascade of other problems within employees’ personal lives that potentially affected their performance at work, the leaders tried to remain calm and offer advice. By actively listening to their employees, leaders showed that they cared and helped their team members solve personal problems without stressing the whole organization. Through this emotional control, these leaders set the emotional tone and avoided negative emotional contagion among team members.
The results of this research contribute additional insights to the field of leadership and call attention to additional practical implications for leadership development. Specifically, the findings revealed a paradox. On one hand, an economic crisis has certain social impacts on organizational life: an increasing level of interpersonal distrust, greater uncertainty in the future, and a rise in toxic emotions (Antonakakis, Gupta, & André, 2015; Haddon et al., 2015; Roth, 2009; Thiel, Griffith, & Connelly, 2015; Tonkiss, 2009; Wagner, 2014). On the other hand, my qualitative findings indicate that leaders’ actions in handling an economic crisis can work as a barrier against negative social impacts on their organizations.
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Crisis leadership in economic recession: A three-barrier approach to offset external constraints The financial crisis damaged the levels of trust that citizens place in the political and economic system and in its institutions (Roth, 2009). Data show a significant fall in the level of citizens’ confidence in EU institutions (i.e., the Council of the European Union, the European Parliament, and the European Commission) expressed as the share of positive opinions–—people who declare that they tend to trust–—about the institutions. For example, this indicator for the European Commission decreased sharply from 50% in 2007 to 38% in 2014 and was 35% in 2013 (Eurostat, 2017). In Portugal, this indicator decreased from 59% to 43% during the same period, bottoming out at 31% in 2013. The economic crisis was so profound that it turned into a crisis of public confidence, affecting all three types of trust: confidence in government, business, and other people (Uslaner, 2010). There is a broad consensus among researchers that a positive relationship exists between social trust and economic prosperity, particularly within levels of interpersonal trust (i.e., trust in others) shaped by individuals’ perceptions of the economy (Tonkiss, 2009). As Tonkiss (2009) stated, individuals in prosperous economies are more likely to convey interpersonal trust and systemic trust (i.e., trust in political and economic institutions) than in depressive economies. However, my findings show that despite the overall lower levels of systemic and interpersonal trust among Portuguese individuals, corporate leaders work to provide a barrier against these levels of distrust in their organizations. The managers’ perception is that their corporate leaders hold a special role in crisis situations. They instill trust among their corporate members, avoiding influence from external negative emotions or perceptions. The leader becomes a source of guidance by using communication skills, creating a proximal relationship, and developing a collaborative leadership to provide support during stressful and distrustful periods (Collins & Feeney, 2000). The economic policy uncertainty reached unprecedented levels, reflecting turmoil in the system and the severity of the economic recession (Antonakakis et al., 2015). The U.K. economy faced a series of shocks resulting from the largest ever financial crisis, the Euro-area debt crisis, and the U.K.’s fiscal consolidation program (Haddow, Hare, Hooley, & Shakir, 2013). This macroeconomic uncertainty directly affected all households and companies, which became more uncertain about the current and future climate. According to Haddow et al. (2013), the largest increases in uncertainty occurred during the economic recessions of 1990 and 2008. This evolution of uncertainty mirrored other European economies. In Portugal, the
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economic uncertainty index rose sharply in 2008, receded somewhat from 2009 to 2010, picked up again in November 2011, and remained high during 2012 and 2013 (Gunnemann, 2014). Again, my findings show that in spite of the economic uncertainty that faced the Portuguese business landscape, corporate leaders shielded their teams and organizations by continuing to pursue their visions boldly despite the obstacles while encouraging corporate members to focus on the goals rather than the crisis. The leaders exhibited tenacity as they persisted in taking measures to achieve their organization’s goal during difficult situations and each one was consistently referred to as the person who “never gives up” (Mulvaney, 2016). The financial crisis was viewed as both a personal and national threat to many (Wagner, 2014). A study carried out in Britain between 2005 and 2010 indicated that British citizens experienced fear and anger in reaction to a negative stimulus (i.e., the financial crisis; Wagner, 2014). The study suggested that, at the organizational level, employees have deeply-held expectations in crisis situations and experience heightened levels of stress and emotions, including anger and feelings of uncertainty (Thiel et al., 2015). In my study, however, I found that corporate leaders have a high level of emotional control and maintain a leading role in managing corporate members’ emotions. Managers reported that these leaders use their own positive attitudes both to energize their team members and as a mechanism for dealing with anxiety, anger, and fear. Under stressful conditions, corporate members tend to react more favorably to the suppression of negative emotions because they view it as the path to certainty and stability (Thiel et al., 2015). From a managerial perspective, the research findings demonstrate the importance of understanding how adverse contexts can influence leaders’ behaviors and the consequences of the process that results from the interaction between the leaders and the external context. Furthermore, corporations can use the results from this study to inform the leadership concept–—effective leadership for guiding corporations through adverse situations–—used in leadership training and development programs. Corporate HR departments can identify the skills and competencies for development in all leaders, in order to achieve the ideal concept. One possible application might be to conduct individual evaluations and 360-degree feedback instruments to assess the current skills and gaps and then design training and development programs to address and close those gaps. In parallel, leadership is a dynamic and interactive process in which the leader encourages and
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influences followers to achieve organizational goals. During a crisis situation, which often results in unplanned and unexpected events, the leader must shape his/her followers’ behaviors to accommodate the new challenges. Corporations that create and integrate development programs for leaders and followers can improve the overall culture of effectiveness corporation-wide. Corporations could, for example, introduce current practices such as informality (i.e., encourage everyone to address each other by their first name), focus on employee well-being, and encourage open and transparent communication to develop closer working relationships throughout the entire organizational hierarchy. This study does not simply bring another framework for leadership development in the event of an economic crisis. I discussed how leadership behaviors exhibited during an economic crisis may result in positive organizational outcomes. By identifying these leaders that are best suited for handling a crisis, corporations could have development programs and initiatives to prepare all the extant leaders in the organization for the event of a crisis. For example, corporations might consider the use of role modeling and mentoring programs whereby they match the best and more experienced leaders with other leaders to influence their set of behaviors. During a crisis, the role model and mentor could inform and advise the other leader when he or she has overstepped (i.e., lost emotional control, focused on the short term, failed to reinforce communication) and placed the organization in peril.
6. Summary An economic crisis may have a devastating effect on organizations. While the external constraints most likely affect organizational performance, the increasing levels of distrust, uncertainty, and toxic
Topics Collaborative Leadership
emotions create additional anxiety and stressful conditions that have negative ramifications. Given the results of this study, organizations can prepare their leaders for upcoming economic crises that occur more frequently, with higher intensity, and with rapid dissemination. According to the behavioral patterns perceived in the most effective leaders that handled the Portuguese economic crisis, organizations can identify the best person to lead the organization through a crisis and develop all the other leaders to be prepared for these challenges. This study exemplifies what is required of a leader during times of economic crisis, supporting the idea that not all leaders are best suited to handle such a situation. Understanding how crisis leadership unfolds and applying the key learning points from this study will enable organizations to prepare in advance for an economic crisis. To sum up, the key learning points from this study imply that leaders are identified and develop according to the following behavioral frame:
Supporting and having a collaborative approach, reinforcing communication, developing close relationships, and engaging and motivating organization members in order to create a barrier against interpersonal distrust;
Developing a future orientation, implementing and aligning the strategy, fostering a creative environment, and accelerating the decisionmaking chain in order to create a barrier against uncertainty; and
Displaying self-confidence and emotional control, exhibiting a positive attitude, reassuring the team, and using an open and transparent communication in order to create a barrier against toxic emotions.
Appendix. Verbatim comments
Verbatim comments “The leadership style that we currently need, not only for the company, but also for any company, are leaderships that know that they cannot do everything on their own, and who recognized that they are in a world turned upside down, and that what is the truth today, is not anymore tomorrow.” (IM, male, 52 years old) “Participative leadership styles that encourage people to express their opinions, and instead of merely being part of the problem or of complaining, they are part of the solution, and they make suggestion proposals.” (MB, female, 55 years old)
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(Continued )
Topics Reinforce Communication
Verbatim comments “I think it's more important than ever for the leader to communicate, as we're doing difficult things, and people need to realize that that's part of the way that we can improve. And it has to be affirmative, you cannot go forward based on excuses and your reputation–—you have to do what you have to do, and you have to communicate it the best you can, like it or not, ‘but let's go forward’.” (PG, female, 49 years old) “The way he communicated, how he influenced people to make them do things, how he encouraged them, how he developed them, the ethics he put into the way he did things. It's funny, because we could all be stressed, and he kept that calm reassuring us and increasing our trust.” (JMS, male, 55 years old) “I forgot to mention one thing that I think is more and more a success factor Proximal Relationship in terms of leadership, and that is informality. People tell me from time to time that in these difficult times, the more traditional way of running a business creates obstacles that paralyze successful survival. The perception of ease of access also passes through informality. This is not compatible with the philosophy of the ‘doctors’ and ‘engineers’, as this status is no longer of interest. What matters is the skills set.” (AF, female, 48 years old) “It was a relationship of trust. If I came up to him and told him I had a problem, he was interested, wanted to know and wanted to help.” (JMS, male, 55 years old) “Sure, as long-term EBITDA is at risk, then we have to turn to the other question, Engagement and Motivation which is: motivated, engaged people, people who feel valued, motivated, rewarded, etc., who are happy and fulfilled by what they do.” (NFP, male, 38 years old) “He knew where he was going, and basically dealt with the organization from a Vision and Future Orientation solid point of view, as our boat could have sunk, but we were sure that our lifeboat was in good condition, whereas the others were not. For to ensure that the boat doesn’t sink, he was prepared to give his life, although many would not, and it is this example that ensures that doesn’t happen.” (NFP, male, 38 years old) “It was all very well planned, and he was very strict with complying with dates Strategic Implementation and Alignment and goals. He had a monthly reporting system with costs, results, and deviations. It was easy to follow the company's evolution against the major goals. The planning system worked well to guide the whole company towards the short, medium, and long-term goals.” (AMD, female, 66 years old) Creative Thinking and Innovation “The leader has to be able to see how we are going to get out of it, and that we are going to come out more innovated, giving the client what they hadn’t even thought about. We have to exceed our customers' expectations and exceeding customers' expectations is a case of innovating, bringing innovative products to the market, products that the consumer has never even thought of, which are necessary, or which make a difference. For now, in these times of the crisis that we are experiencing, does it make sense to look there? It makes sense, as we are not forecasting these sales for today, but rather for tomorrow. If we cannot move ahead with our own brands through innovation, then we are lost, which is why more and more companies such as C. are investing in innovation centers and the skills needed to bring added value with innovative products where our own brands cannot succeed.” (IM, male, 52 years old) “Only yesterday we were talking about it, and about how things have changed Problem solving and Decision making with regards to the management within organizations, and that nowadays with the way we make decisions we can arrive at the same outcome, but the chain of decision that we follow today is completely different from the one we followed 3 or 4 years ago. For those, who fall into the temptation of applying problemsolving formulas that are identical to those that were used 1, 2, or 3 years ago, the probability of failure is enormous. What a manager or a decision-maker has to always think about–—is that every day they will be tested, every day they will have to re-invent, every day they will have to think about new things. I think that at this stage, the panic is so well installed, that uncertainty and insecurity affect those who are currently in decision-making roles.” (IB, female, 44 years old)
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(Continued )
Topics Self-confidence
Emotional Control
Positive Attitude
Calm down the Team
Open and Transparent
Verbatim comments “He was a self-confident person, who believed in his own abilities. We were discussing pricing, and he gave us some examples from things that he had done in the past. But one could see the pride that he had in these examples, which were examples of millions of dollars in this case, and they were good examples for what we were discussing at the time. Therefore, by saying ‘this is possible, because I have already done it," he also showed that it would be possible for us to do the same, although with some nuances, obviously.’ (PVS, male, 40 years old) “I admired him for his emotional control, as I saw things that I knew were going on around him, which he didn’t let the team know about, and that's an important thing, because if we are worried and don’t really know what to do, then if we show this to the team, this means that there are 10, or 20, or 30 who are worrying. This is the ability that he had.” (AP, female, 47 years old) “In the contexts that we are living in now, where we have a depressed country, we also have organizations that are depressed. The leader and positive leadership play a crucial role. Clearly, we are talking about inspiring and positive leadership. The leader today has to be a positive leader, as the overriding situation is so black. To be a leader is to be able to transmit energy to people–—a positive energy–—and we have to stop being within the professional sphere, and we have to get on with the staff. Bringing positive energy to the workplace is a critical thing, and today the leader has to be much less selfcentered and much more outward-facing, otherwise we will begin to focus too much on ourselves and our problems and our things and forget those around us. We also act out those messages that leaders can get across, inciting their staff to be optimistic.” (AP, female, 47 years old) “We were discussing what the MD was going to say at the meeting at the beginning of the year, whether he should, or should not say that no cut of personnel was planned. And then we decided that we should tell people that it was not planned, and that this is not the plan, which does not mean that it will not happen, as everything can change. But we decided that it was important to mention this, as it would reassure people.” (MB, female, 55 years old) “I think back on the many things that he did, and I think that he managed to do all he did, in difficult circumstances, with a very difficult population, as he showed openness, which is to say, he believed in what he wanted, but also realized that to achieve this, he had to be involved and had to listen.” (AP, female, 47 years old)
References Antonakakis, N., Gupta, R., & André, C. (2015). Dynamic comovements between economic policy uncertainty and housing market returns. Journal of Real Estate Portfolio Management, 21(1), 53—60. Bono, J. E., & Ilies, R. (2006). Charisma, positive emotions, and mood contagion. Leadership Quarterly, 17(4), 317—334. Bowers, M. R., Hall, J. R., & Srinivasan, M. M. (2017). Organizational culture and leadership style: The missing combination for selecting the right leader for effective crisis management. Business Horizons, 60(4), 551—563. Collins, N. L., & Feeney, B. C. (2000). A safe haven: An attachment theory perspective on support seeking and caregiving in intimate relationships. Journal of Personality and Social Psychology, 78(6), 1053—1073. Dimitrios, B., & Athanasios, K. (2015). Leadership style, job satisfaction, and organizational culture in the Greek banking organization. Journal of Management Research, 15(2), 101— 110.
Eurostat. (2017). Level of citizens’ confidence in EU institutions. European Commission. Available at http://ec.europa.eu/ eurostat/web/products-datasets/-/sdg_16_60 Guariglia, A., Spaliara, M.-E., & Tsoukas, S. (2016). To what extent does the interest burden affect firm survival? Evidence from a panel of UK firms during the recent financial crisis. Oxford Bulletin of Economics and Statistics, 78(4), 576—594. Gunnemann, J. (2014). The impact of economic policy uncertainty: New evidence from Europe. Available at https:// sites.google.com/site/juliusgunnemann/research Haddon, A., Loughlin, C., & McNally, C. (2015). Leadership in a time of financial crisis: What do we want from our leaders? Leadership and Organization Development Journal, 36(5), 612—627. Haddow, A., Hare, C., Hooley, J., & Shakir, T. (2013, June 13). Macroeconomic uncertainty: What is it, how can we measure it, and why does it matter? Bank of England Quarterly Bulletin. Available at https://www.bankofengland.co.uk/ quarterly-bulletin/2013/q2/macroeconomic-uncertaintywhat-is-it-how-can-we-measure-it-and-why-does-it-matter
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Sani, G. M. D., & Magistro, B. (2016). Increasingly unequal? The economic crisis, social inequalities, and trust in the European Parliament in 20 European countries. European Journal of Political Research, 55(2), 246—264. Stern, E. K. (2017). Crisis, leadership, and extreme contexts. In M. Holenweger, M. Jager, & F. Kernic (Eds.), Leadership in extreme situations: Advanced sciences and technologies for security applications (pp. 41—59). Cham, Switzerland: Springer. Thach, L. (2012). Managerial perceptions of crisis leadership in public and private organizations: An interview study in the United States. International Journal of Management, 29(2), 712—725. Thiel, C., Griffith, J., & Connelly, S. (2015). Leader—follower interpersonal emotion management. Journal of Leadership and Organizational Studies, 22(1), 5—20. Tonkiss, F. (2009). Trust, confidence, and economic crisis. Intereconomics, 44(4), 196—202. Uslaner, E. M. (2010). Trust and the economic crisis of 2008. Corporate Reputation Review, 13(2), 110—123. van Knippenberg, D., & Sitkin, S. B. (2013). A critical assessment of charismatic–—transformational leadership research: Back to the drawing board? The Academy of Management Annals, 7 (1), 1—60. Wagner, M. (2014). Fear and anger in Great Britain: Blame assignment and emotional reactions to the financial crisis. Political Behavior, 36(3), 683—703.
Available online at www.sciencedirect.com
ScienceDirect www.elsevier.com/locate/bushor
Crisis leadership in economic recession: A three-barrier approach to offset external constraints Teresa C. Lacerda ISEG Lisbon School of Economics & Management, Universidade de Lisboa, Lisbon, Portugal
KEYWORDS Corporate management; Economic crisis; Crisis leadership; Leadership traits and behaviors
Abstract An economic recession is a type of crisis originated from external factors that may imperil an organization’s survival depending on the intensity and duration of the crisis. In peripheral European countries, such as Portugal, the recent financial crisis had devastating effects on various business activities. As a result, Portugal represents an important case study in examining how some corporate leaders have handled the economic recession successfully. I interviewed 20 corporate managers to capture their perceptions of the leadership traits and behaviors exhibited by their CEOs in guiding their companies through the recession. In economic recessions, negative constraints do not affect the most effective leaders, who instead erect barriers against the high-pressure conditions to create a supportive, positive work environment. In order to achieve maximum effectiveness, leaders must act as blocking agents against the negative social impacts of the economic crisis, including the fragility of trust in organizational life (i.e., a barrier against distrust), uncertainty of the future (i.e., a barrier against uncertainty), and toxic emotions (i.e., a barrier against toxic emotions). # 2018 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved.
1. Effective leadership in times of crisis Since the onset of the recent financial crisis, several European countries have been affected by an over-
E-mail address: [email protected]
whelming economic recession. The generally poor economic climate has significantly impacted business confidence, increasing uncertainty and volatility in the markets; anxiety and stressful situations have emerged as the new normal. A new concept of crisis leadership emerged in response to the lack of answers provided by traditional crisis management approaches (Thach, 2012). Recent research suggests that the leadership traits and behaviors upon
https://doi.org/10.1016/j.bushor.2018.08.005 0007-6813/# 2018 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved.
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which followers depend during times of crisis are different from what followers need during times of stability (Haddon, Loughlin, & McNally, 2015; Knights & McCabe, 2015). Furthermore, commonly used leadership frameworks have proven insufficient for capturing leader traits and behaviors in crisis situations (Haddon et al., 2015). This gap in the literature on crisis leadership may be problematic, as many managers hail from countries currently experiencing economic crises. As traditional approaches for crisis management fail to provide an effective way of dealing with current chaos (Klann, 2003), in this article I seek to explore behavioral patterns of leadership in the event of an economic crisis as observed by the direct reports of corporate executives. I also address the following questions:
What are the main characteristics of effective leaders when dealing with an economic crisis?
What effect does a depressive organizational context have on leadership behaviors? Given the importance of these questions, I analyze the observed characteristics displayed by the leaders during an economic crisis and identify specific patterns that led to their success.
2. Crisis leadership in an economic recession: A new approach Kramer and Tyler (1995) defined crisis as a major threat to system survival that provides little time to respond and involves an ill-structured situation with inadequate resources for coping with it. These authors found that a crisis may question the survival of a system, which leads to various organizational outcomes. Kramer and Tyler’s framework suggests that the nature of organizational behaviors exhibited during a crisis results in positive, negative, or developmental outcomes. A crisis threatens an organization’s survival and yields devastating effects that require immediate, urgent attention. Some crises arise from organizational failures, but others stem from external factors that affect the global economy and organizations worldwide (James, Wooten, & Dushek, 2011). Given the pervasiveness of the recent global financial crisis, the effects were felt almost simultaneously in all European countries in 2008 (Sani & Magistro, 2016). Those countries with excessive lending, which based their economic development primarily on demand-led growth models, were more exposed (Sani & Magistro, 2016). For
several peripheral European countries–—Portugal, Italy, Ireland, Cyprus, Greece, and Spain–—the financial crisis culminated in a strong economic recession. This led to the well-known intervention of the IMF, the EU, and the ECB (called the troika) in those fragile economies to implement economic adjustment programs with harsh measures and structural reforms. The intervention resulted in additional restrictions on borrowing, higher taxes, and decreasing consumer purchasing power, which had a drastic effect on corporations. The economic adjustment programs did not yield immediate recovery and many indebted firms went bankrupt, contributing to higher unemployment rates (Guariglia, Spaliara, & Tsoukas, 2016). The concept of crisis leadership has emerged recently in the literature as a strategic process focused on human relations as opposed to crisis management, which is regarded as a more tactical approach (James et al., 2011; Thach, 2012). According to Thach (2012), traditional crisis management based on operational and tactical responses is not sufficient in handling the fallout from an economic crisis given its large scale, greater frequency, and rapid dissemination. To overcome this gap, researchers recommend organizations adopt crisis leadership to lessen the impact of chaos on people (Klann, 2003). Some studies also suggest that what is required from a leader during times of crisis differs from what organizations need during prosperity and calm (Haddon et al., 2015; Hannah, Uhl-Bien, Avolio, & Cavarretta, 2009; Knights & McCabe, 2015; Stern, 2017). Hannah et al. (2009) said that extreme contexts create unique constraints, contingencies, and causalities for leadership. For example, during extreme events, it may be critical for leaders to help organization members define the situation, make sense of events, and find meaning in the crisis (Hannah et al., 2009). In addition, leadership behaviors displayed during a crisis situation are important as not all leaders are best suited for handling a crisis (Bowers, Hall, & Srinivasan, 2017). Based on a crisis response leadership matrix, Bowers et al. (2017) classified the leadership style–—directive, transformational, cognitive, or transactional–—best suited to handle the particular crisis. These authors used a real-world case study and discovered that transactional leaders are less effective in crisis management whereas transformational leaders are much better suited to guide an organization through an external crisis (Bowers et al., 2017). The framework presented by Bowers et al. (2017) represents a first attempt at identifying the best leader for optimal response and recovery in the case of an external crisis. Other studies found that the most prominent leadership
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Crisis leadership in economic recession: A three-barrier approach to offset external constraints style displayed by Greek bank supervisors during the financial crisis was transformational leadership, which had a high impact on job satisfaction among Greek bank employees (Dimitrios & Athanasios, 2015). According to Dimitrios and Athanasios (2015), this leadership style did offset negative and defensive employee attitudes and behaviors, employee turnover, and loss of customers that commonly occur during a period of crisis. Past leadership theories that present leaders as heroic characters who predict the future (e.g., Masters of the Universe) have been unable to examine the effectiveness of leadership in the context of the global financial crisis (Knights & McCabe, 2015). Knights and McCabe (2015) theorized that the deep-rooted belief that heroic leaders with the ability to predict and create the future drive the free market may have even contributed to the financial crisis. In a study using a mixedmethods approach to understand what employees want from leaders in an organizational crisis context, it was found that a commonly-used leadership framework–—the transformational leadership approach–—failed to encapsulate any of the qualitative findings, such as employees’ expectations that a leader would take action quickly while maintaining continuous communication with employees (Haddon et al., 2015).
3. Methodology The global financial crisis hit Portugal’s economy hard, and it represents an important case study in examining how some corporate leaders have successfully handled the economic crisis. In 2009, Portugal entered a deep recession with an average GDP growth rate of 3.0%, followed by a 3-year recession during 2011—2013 (OECD). International capital flows evaporated and weak growth prospects resulted in a loss of market confidence and a sharp rise in interest rates. The unemployment rate reached a peak of 16.5% in 2013, while gross fixed capital formation registered a 5-year negative growth rate. A rampant increase in gross public debt as a percentage of GDP from 80.4% in 2009 to 127.3% in 2014 affected the overall economic climate. In reaction, the Portuguese government implemented harsh measures in terms of public expenditure and revenues in order to comply with the Economic and Financial Assistance Program requirements. Portugal’s entrepreneurs and managers keenly felt the negative effects of the struggling economy. According to OECD indicators, the business confidence index decreased significantly in 2008 and 2011 (to
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levels of 96.4 and 97.7, respectively), reflecting an overall distrust in the economic recovery. The consumer confidence index, based on household plans for major purchases and consumers’ degree of optimism about the economic situation, dropped to 97.9 in 2008 and 96.8 in 2011. Using a qualitative approach, I interviewed 20 corporate managers representing Portuguese firms to understand how they perceived their leaders’ handling of the economic crisis in their respective organizations. Prior research argued that accepted measures of leadership (e.g., charismatic and transformational leadership measures) would be unlikely to capture leadership in a crisis context (Haddon et al., 2015; van Knippenberg & Sitkin, 2013). My study included diverse participants from various industries and job functions in an attempt to comply with the qualitative research method requirements that multiple perspectives be systematically addressed during research inquiries. I drew my sample from a list of organizations belonging to industries that were strongly affected by the economic crisis (Table 1). I sent an email to each organization’s human resource managers with an invitation to participate in the study, requesting access to interview a senior executive. All invited senior executives agreed to participate. The profile of the interviewees is presented in Table 2. The average age of the interviewees was 49 years old, and 60% were female. On average, the interviewees had 9.3 years of tenure in their current job positions and 13.9 years of tenure in their organizations. I chose the period between May and September of 2012 to collect data because I was able to capture
Table 1.
List of invited organizations
Industry
Organizations
Automotive & Transportation
AutoEuropa, TAP
Banking
Banco Santander Totta, Millennium BCP
Consumer Goods
Colgate-Palmolive, Mars, PepsiCo, Soc. Central de Cervejas
Energy
BP, EDP, Efacec
Holdings
Cofina, SONAE
Information Technology
Fujitsu, Microsoft
Pharmaceuticals & Healthcare Products
Alliance Healthcare, Bial, Covidien, Johnson & Johnson, Merck Sharp & Dohme
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T.C. Lacerda Table 2.
Profile of interviewees and size of transcripts
Date & Time
Name
Interviewee
Gender
Age
17/05 17:00
ELP
Executive Director
Female
51
22/05 13:00
CL
Executive Director
Male
50
24/05 17:00
AP
Human Resources Director
Female
47
28/05 16:00
JMS
Human Resources Director
Male
55
29/05 19:00
APR
Executive Director
Female
45
01/06 15:00
MB
Human Resources Director
Female
55
04/06 14:00
AMD
Member of the Board
Female
66
15/06 15:00
IB
Human Resources Director
Female
44
29/06 15:00
NMC
Member of the Board
Male
52
02/07 17:00
IV
Human Resources Director
Female
54
04/07 15:00
IH
Human Resources Director
Female
41
05/07 15:00
AA
Managing Director
Female
51
06/07 11:00
AF
Sales Director
Female
48
10/07 15:00
IM
HR Director Iberia
Male
52
16/07 12:00
PG
Human Resources Director
Female
49
17/07 16:30
ACL
PR & Sustainability Director
Female
47
19/07 10:00
FM
Executive Director
Male
51
19/07 12:00
MAF
Publishing Director
Male
40
25/07 16:00
PVS
Sales Director Iberia
Male
40
07/09 10:30
NFP
Marketing & Sales Director
Male
38
the perceptions of corporate managers during the economic crisis, as it corresponds to the period during which the second wave of the recession hit the economy (between 2009 and 2013). The inperson interviews conducted at the interviewees’ offices in Lisbon and Porto were face-to-face, informal, open-ended, and carried out in a conversational style following an interview protocol. The purpose of using such techniques was to collect relevant perspectives by asking the corporate managers to talk about leadership through the identification of specific leaders from their personal experiences. The data collected during this stage included interview transcripts, field notes from observations, and a variety of records and reporting documents that were subjected to content analysis. This stage included three processes: collection, coding, and data analysis. All of the in-depth interviews were recorded. I performed a systematic analysis of the content and an interpretative analysis of the latent content, including interview transcripts and other data, using NVivo, a software program that uses a coding system organized around different topics and themes. Following an interpretivist tradition, I assume that through reading the source material, one can capture the essence of the interviewee’s answers
(Miles & Huberman, 1994). In considering a corporate manager’s perspective, I conducted an analysis based on sense making, grounding the analysis in categories by moving through successive stages of meaning, from the ordinary to the abstract, in order to generate and develop a theoretical framework of leadership in crisis situations. The content analysis involved several steps. First, I organized and prepared the data for analysis (e.g., transcribing interviews, scanning material, typing field notes). Next, I read all the data and assigned them to the corresponding categories. I conducted a detailed analysis with a coding process (i.e., the material was organized into categories and was then labeled). After the categorization process was complete, I used a narrative passage to present the findings, ultimately producing an interpretation of the data derived from a comparison of the findings that emerged from the interviewees’ verbatim comments. Table 3 shows the data structure.
4. Findings Several interesting themes emerged from the interviews which provided unexpected insights into corporate managers’ perceptions of leadership during times of economic crisis (detailed information in
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Crisis leadership in economic recession: A three-barrier approach to offset external constraints Table 3.
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Data structure Code examples
Categories
Grouping the categories
Team members support each other in adverse situations.
Leaders rely on team members to achieve their goals.
Collaborative leadership
Leaders engage the team members asking for their opinions.
Continuous communication effort to encourage the team members.
Clear, simple, and honest speech about the main problems.
Reinforce communication
Leaders listen to the opinion of others even if it diverges from their own.
Build a strong link with the team as a barrier against distrust
Formality raises obstacles that may paralyze the organizations.
Leaders develop close relationships with their team members to understand their abilities, problems, and needs.
Proximal relationship
Leaders motivate team members to bring new ideas.
Leaders engage team members through non-monetary rewards.
Engagement and motivation
In adverse situations, thinking out-ofthe-box is more important.
Leaders create the future for the organization.
Even in difficult situations, the leader knows where the organization is heading.
Vision and future orientation
Leaders are open-minded and don't see the crisis as a fatality.
Leaders are as agile as possible to take advantage of the market opportunities.
Leaders implement well-designed and realistic strategies.
Leaders manage to align their team
Strategic implementation and alignment
members in the same direction.
Boldly pursue their vision as a barrier against uncertainty
In turbulent times, leaders are aware that the same methods used in the past will no longer work, so they must reinvent every day.
Creative thinking and innovation
Leaders can challenge their team members in the face of chaos.
In a crisis, leaders must decide quickly. The decision chain is different in adverse contexts.
Leaders have the courage to make difficult decisions.
Problem-solving and decisionmaking
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Table 3 (Continued )
Code examples
Categories
Grouping the categories
In adverse contexts, the leader's boldness or lack of it is more visible.
Leaders have high self-esteem in the sense that they are not afraid to make risky and controversial decisions.
Self-confidence
Leaders are not insecure and are not afraid to make mistakes.
Leaders have high emotional control in adverse contexts.
Leaders have an important role in
Emotional control
sharing ways to solve problems without stressing out the organization.
In a depressive context, positive leadership has an important role.
Leaders energize their team members
Positive attitude
because they have the ability to go beyond the professional sphere.
Convey emotional stability and positivism as a barrier against toxic emotions
Despite the urgency, leaders try to keep their team members calm and focused on the best way to achieve their goals.
Leaders try to give their team members
Calm down the team
the best direction in order to tranquilize them.
Leaders speak openly with their team members sharing the main problems of the organization.
In a crisis, it is important to have an
Open and transparent
open and transparent culture where people can share worries, problems, and creative solutions.
Appendix). Through my questionnaire and interview responses, corporate managers indicated that the leaders successfully handling their firms during the economic recession were building a strong link with the team as a barrier against distrust (e.g., collaborative approach, reinforce communication, increase engagement); were pursuing their vision as a barrier against uncertainty (e.g., future orientation, strategic implementation and alignment, rapid decision making); and had emotional stability and positivity against toxic emotions (e.g., high emotional control, positive attitude, calm the team). The following sections provide a detailed look at each of the three themes that emerged from the research.
4.1. Leaders build a strong link with the team as a barrier against distrust The interview data revealed a more complex and interesting frame for crisis leadership behavior. Corporate managers indicated that successful
leaders develop a strong link with the team at the same time they are working as a barrier against the levels of interpersonal distrust felt in a depressive economy. In the case of a company that saw an 18% decrease in sales, managers started to question everything, namely the company’s strategy. However, the leader in question was able to convey additional trust to organization members, particularly when they needed most to be reassured. The dominant theme emerging from my interviews–—leaders build a strong link with the team against distrust–—is detailed below. 4.1.1. Collaborative leadership Several of my interviewees were direct reports of the leader in charge during the early days of the economic crisis. They indicated that the leaders to whom they reported exhibited collaborative leadership styles, actively involving their team members and requesting opinions and suggestions to solve
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Crisis leadership in economic recession: A three-barrier approach to offset external constraints problems. In these adverse situations, leaders relied on their team members to reach organizational goals, engaging the team members to express their opinions and find the best solutions for upcoming problems, all while supporting each other. 4.1.2. Reinforce communication Managers indicated that their leaders engaged in a continuous communication effort to encourage their team members to pursue the organization’s vision, increasing the levels of interpersonal trust among corporate members. Often, these leaders reinforced their communication when dealing with critical situations by consciously developing a culture of active listening organization-wide. These leaders use clear and simple language and employ honest speech when discussing the main problems facing their organizations; they listen to others’ opinions, including those opinions that diverge from their own. 4.1.3. Proximal relationship In adverse contexts, formality raises obstacles that may jeopardize the organizations’ survival. Leaders value interpersonal relationships, show concern and care deeply for their team members’ well-being, make them feel comfortable, and build trust among their team members. As such, these leaders develop close, informal relationships with their team members in order to better understand their abilities, problems, and needs. As expressed by these corporate members, this proximity during periods of crisis served to reassure the team members, increase job satisfaction, and improve performance. 4.1.4. Engagement and motivation More effective leaders encourage their team members to propose new ideas for resolving the organization’s problems. These leaders had the ability to influence or persuade others to behave in a specific manner through role modeling, building their self-confidence, and creating challenging goals. In adverse economic situations, innovative, outside-the-box thinking drives success for the organization. When faced with challenging situations, leaders engage their team members by using intrinsic rewarding mechanisms (i.e., nonmonetary rewards) to increase motivation.
4.2. Leaders boldly pursue their vision as a barrier against uncertainty According to the managers interviewed, the sense of urgency felt by these leaders does not shift their
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focus of attention from the medium and long term to the short term. Instead, they continue to pursue their vision with determination as revealed by the interviews. As such, these leaders provide a clear vision and direction for the future as a way to reduce followers’ feelings of uncertainty (Rast & Hogg, 2017). There was another theme emerging from the interviews: “leaders boldly pursue their vision against uncertainty.” This theme is explored below. 4.2.1. Vision and future orientation Managers referenced the role leaders play in navigating firms through extreme situations. They note that, even when faced with adversity, leaders have a roadmap to direct the organization forward (e.g., the ship may be sinking, but the team will find alternative ways to get to their destination). The managers who reported to open-minded leaders did not see the crisis as a fatality and focused instead on life and goals post-crisis. These leaders did not lose their sense of direction; they prepared the team for any anticipated danger and were courageous enough to pursue that direction. 4.2.2. Strategic implementation and alignment Managers indicated that effective leaders found the best way to implement projects in a specific context. The implementation included presenting welldesigned, realistic, and executable strategies to the teams. Despite all the difficulties, their leaders managed to align and redirect team members to focus on the organization’s goals. In addition, these leaders are agile and move quickly, taking advantage of the market opportunities. 4.2.3. Creative thinking and innovation Several interviewees recounted their experiences during situations when their leaders encouraged team members to participate in creative thinking–—an important exercise for solving complex problems–—since, in turbulent times, leaders must reinvent themselves and think creatively when tried and true solutions fail to resolve new problems. At such times, leaders must foster an innovative environment that permeates the whole organization, and they must challenge their team members in the face of chaos. 4.2.4. Problem solving and decision making In narrative after narrative, the interviewees elaborated on their leaders’ ability to find the best solutions. Managers indicated that the best leaders encourage their team members to be proactive (e.g., “don’t bring me the problem, bring me the
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8 solution, or several of them”). Successful leaders evaluated and analyzed critical situations, and committed quickly to the best approach after considering all options. These leaders did not hesitate to make difficult decisions when required. Managers also reported that during adverse situations, the chain of decision making differs from noncritical situations so that leaders can make critical decisions more quickly. Every day, these leaders are tested and must find new solutions. Old problemsolving formulas no longer work in a rapidly changing workplace environment.
4.3. Leaders convey emotional stability and positivity as a barrier against toxic emotions The emotional response conveyed by these leaders in times of crisis has an important role in setting the collective emotional state of group members. As pointed out by the managers, these leaders use their own emotional tone to influence the followers’ emotions in such a way that affects their future behaviors. Emotional contagion may be the psychological mechanism through which these leaders influence their team members’ emotions and behaviors (Bono & Ilies, 2006). An overview of the managers’ insights is detailed below.
T.C. Lacerda 4.3.3. Positive attitude In a depressive context, positive leadership can infuse teams with energy. One manager reported that his leader’s positive attitude went well beyond the professional sphere to refocus on the external environment; by making a conscious effort to keep his own problems from affecting the environment at work or impacting his interactions with the team, he contributed to the positive atmosphere within the workplace. In bringing positive energy to the workplace, these leaders set the example and showed how to be less self-centered and much more outward facing 4.3.4. Calm down the team These leaders are more likely to achieve an organization’s goals when they keep their team members calm and focused. To cultivate an optimistic mindset, these leaders identify and guide their teams in a positive direction. One manager revealed that he discussed plans with his executive director to reassure the team that there were no planned personnel cuts. 4.3.5. Open and transparent Several managers mentioned their leaders’ openness and transparency when dealing with critical situations. Frequently, these leaders spoke openly with their team members to share the main problems that the company faced. This culture encouraged everyone to share worries, problems, and, most importantly, creative solutions.
4.3.1. Self-confidence Managers reported that during adverse situations, their leaders displayed high self-esteem that enabled them to make risky or controversial decisions. These leaders had a strong belief in their capabilities to be successful, as well as self-perceptions of competence in their knowledge, skills, and abilities. This boldness was more visible to the team members in those situations, which worked as a way to differentiate their perceptions of effective leaders from noneffective ones.
5. Crisis leadership as a barrier to the negative social impacts of the economic crisis
4.3.2. Emotional control The interviewees indicated that their leaders consistently maintained a high level of emotional control, especially when facing difficult situations. During the economic crisis, which led to a cascade of other problems within employees’ personal lives that potentially affected their performance at work, the leaders tried to remain calm and offer advice. By actively listening to their employees, leaders showed that they cared and helped their team members solve personal problems without stressing the whole organization. Through this emotional control, these leaders set the emotional tone and avoided negative emotional contagion among team members.
The results of this research contribute additional insights to the field of leadership and call attention to additional practical implications for leadership development. Specifically, the findings revealed a paradox. On one hand, an economic crisis has certain social impacts on organizational life: an increasing level of interpersonal distrust, greater uncertainty in the future, and a rise in toxic emotions (Antonakakis, Gupta, & André, 2015; Haddon et al., 2015; Roth, 2009; Thiel, Griffith, & Connelly, 2015; Tonkiss, 2009; Wagner, 2014). On the other hand, my qualitative findings indicate that leaders’ actions in handling an economic crisis can work as a barrier against negative social impacts on their organizations.
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Crisis leadership in economic recession: A three-barrier approach to offset external constraints The financial crisis damaged the levels of trust that citizens place in the political and economic system and in its institutions (Roth, 2009). Data show a significant fall in the level of citizens’ confidence in EU institutions (i.e., the Council of the European Union, the European Parliament, and the European Commission) expressed as the share of positive opinions–—people who declare that they tend to trust–—about the institutions. For example, this indicator for the European Commission decreased sharply from 50% in 2007 to 38% in 2014 and was 35% in 2013 (Eurostat, 2017). In Portugal, this indicator decreased from 59% to 43% during the same period, bottoming out at 31% in 2013. The economic crisis was so profound that it turned into a crisis of public confidence, affecting all three types of trust: confidence in government, business, and other people (Uslaner, 2010). There is a broad consensus among researchers that a positive relationship exists between social trust and economic prosperity, particularly within levels of interpersonal trust (i.e., trust in others) shaped by individuals’ perceptions of the economy (Tonkiss, 2009). As Tonkiss (2009) stated, individuals in prosperous economies are more likely to convey interpersonal trust and systemic trust (i.e., trust in political and economic institutions) than in depressive economies. However, my findings show that despite the overall lower levels of systemic and interpersonal trust among Portuguese individuals, corporate leaders work to provide a barrier against these levels of distrust in their organizations. The managers’ perception is that their corporate leaders hold a special role in crisis situations. They instill trust among their corporate members, avoiding influence from external negative emotions or perceptions. The leader becomes a source of guidance by using communication skills, creating a proximal relationship, and developing a collaborative leadership to provide support during stressful and distrustful periods (Collins & Feeney, 2000). The economic policy uncertainty reached unprecedented levels, reflecting turmoil in the system and the severity of the economic recession (Antonakakis et al., 2015). The U.K. economy faced a series of shocks resulting from the largest ever financial crisis, the Euro-area debt crisis, and the U.K.’s fiscal consolidation program (Haddow, Hare, Hooley, & Shakir, 2013). This macroeconomic uncertainty directly affected all households and companies, which became more uncertain about the current and future climate. According to Haddow et al. (2013), the largest increases in uncertainty occurred during the economic recessions of 1990 and 2008. This evolution of uncertainty mirrored other European economies. In Portugal, the
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economic uncertainty index rose sharply in 2008, receded somewhat from 2009 to 2010, picked up again in November 2011, and remained high during 2012 and 2013 (Gunnemann, 2014). Again, my findings show that in spite of the economic uncertainty that faced the Portuguese business landscape, corporate leaders shielded their teams and organizations by continuing to pursue their visions boldly despite the obstacles while encouraging corporate members to focus on the goals rather than the crisis. The leaders exhibited tenacity as they persisted in taking measures to achieve their organization’s goal during difficult situations and each one was consistently referred to as the person who “never gives up” (Mulvaney, 2016). The financial crisis was viewed as both a personal and national threat to many (Wagner, 2014). A study carried out in Britain between 2005 and 2010 indicated that British citizens experienced fear and anger in reaction to a negative stimulus (i.e., the financial crisis; Wagner, 2014). The study suggested that, at the organizational level, employees have deeply-held expectations in crisis situations and experience heightened levels of stress and emotions, including anger and feelings of uncertainty (Thiel et al., 2015). In my study, however, I found that corporate leaders have a high level of emotional control and maintain a leading role in managing corporate members’ emotions. Managers reported that these leaders use their own positive attitudes both to energize their team members and as a mechanism for dealing with anxiety, anger, and fear. Under stressful conditions, corporate members tend to react more favorably to the suppression of negative emotions because they view it as the path to certainty and stability (Thiel et al., 2015). From a managerial perspective, the research findings demonstrate the importance of understanding how adverse contexts can influence leaders’ behaviors and the consequences of the process that results from the interaction between the leaders and the external context. Furthermore, corporations can use the results from this study to inform the leadership concept–—effective leadership for guiding corporations through adverse situations–—used in leadership training and development programs. Corporate HR departments can identify the skills and competencies for development in all leaders, in order to achieve the ideal concept. One possible application might be to conduct individual evaluations and 360-degree feedback instruments to assess the current skills and gaps and then design training and development programs to address and close those gaps. In parallel, leadership is a dynamic and interactive process in which the leader encourages and
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influences followers to achieve organizational goals. During a crisis situation, which often results in unplanned and unexpected events, the leader must shape his/her followers’ behaviors to accommodate the new challenges. Corporations that create and integrate development programs for leaders and followers can improve the overall culture of effectiveness corporation-wide. Corporations could, for example, introduce current practices such as informality (i.e., encourage everyone to address each other by their first name), focus on employee well-being, and encourage open and transparent communication to develop closer working relationships throughout the entire organizational hierarchy. This study does not simply bring another framework for leadership development in the event of an economic crisis. I discussed how leadership behaviors exhibited during an economic crisis may result in positive organizational outcomes. By identifying these leaders that are best suited for handling a crisis, corporations could have development programs and initiatives to prepare all the extant leaders in the organization for the event of a crisis. For example, corporations might consider the use of role modeling and mentoring programs whereby they match the best and more experienced leaders with other leaders to influence their set of behaviors. During a crisis, the role model and mentor could inform and advise the other leader when he or she has overstepped (i.e., lost emotional control, focused on the short term, failed to reinforce communication) and placed the organization in peril.
6. Summary An economic crisis may have a devastating effect on organizations. While the external constraints most likely affect organizational performance, the increasing levels of distrust, uncertainty, and toxic
Topics Collaborative Leadership
emotions create additional anxiety and stressful conditions that have negative ramifications. Given the results of this study, organizations can prepare their leaders for upcoming economic crises that occur more frequently, with higher intensity, and with rapid dissemination. According to the behavioral patterns perceived in the most effective leaders that handled the Portuguese economic crisis, organizations can identify the best person to lead the organization through a crisis and develop all the other leaders to be prepared for these challenges. This study exemplifies what is required of a leader during times of economic crisis, supporting the idea that not all leaders are best suited to handle such a situation. Understanding how crisis leadership unfolds and applying the key learning points from this study will enable organizations to prepare in advance for an economic crisis. To sum up, the key learning points from this study imply that leaders are identified and develop according to the following behavioral frame:
Supporting and having a collaborative approach, reinforcing communication, developing close relationships, and engaging and motivating organization members in order to create a barrier against interpersonal distrust;
Developing a future orientation, implementing and aligning the strategy, fostering a creative environment, and accelerating the decisionmaking chain in order to create a barrier against uncertainty; and
Displaying self-confidence and emotional control, exhibiting a positive attitude, reassuring the team, and using an open and transparent communication in order to create a barrier against toxic emotions.
Appendix. Verbatim comments
Verbatim comments “The leadership style that we currently need, not only for the company, but also for any company, are leaderships that know that they cannot do everything on their own, and who recognized that they are in a world turned upside down, and that what is the truth today, is not anymore tomorrow.” (IM, male, 52 years old) “Participative leadership styles that encourage people to express their opinions, and instead of merely being part of the problem or of complaining, they are part of the solution, and they make suggestion proposals.” (MB, female, 55 years old)
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Crisis leadership in economic recession: A three-barrier approach to offset external constraints
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(Continued )
Topics Reinforce Communication
Verbatim comments “I think it's more important than ever for the leader to communicate, as we're doing difficult things, and people need to realize that that's part of the way that we can improve. And it has to be affirmative, you cannot go forward based on excuses and your reputation–—you have to do what you have to do, and you have to communicate it the best you can, like it or not, ‘but let's go forward’.” (PG, female, 49 years old) “The way he communicated, how he influenced people to make them do things, how he encouraged them, how he developed them, the ethics he put into the way he did things. It's funny, because we could all be stressed, and he kept that calm reassuring us and increasing our trust.” (JMS, male, 55 years old) “I forgot to mention one thing that I think is more and more a success factor Proximal Relationship in terms of leadership, and that is informality. People tell me from time to time that in these difficult times, the more traditional way of running a business creates obstacles that paralyze successful survival. The perception of ease of access also passes through informality. This is not compatible with the philosophy of the ‘doctors’ and ‘engineers’, as this status is no longer of interest. What matters is the skills set.” (AF, female, 48 years old) “It was a relationship of trust. If I came up to him and told him I had a problem, he was interested, wanted to know and wanted to help.” (JMS, male, 55 years old) “Sure, as long-term EBITDA is at risk, then we have to turn to the other question, Engagement and Motivation which is: motivated, engaged people, people who feel valued, motivated, rewarded, etc., who are happy and fulfilled by what they do.” (NFP, male, 38 years old) “He knew where he was going, and basically dealt with the organization from a Vision and Future Orientation solid point of view, as our boat could have sunk, but we were sure that our lifeboat was in good condition, whereas the others were not. For to ensure that the boat doesn’t sink, he was prepared to give his life, although many would not, and it is this example that ensures that doesn’t happen.” (NFP, male, 38 years old) “It was all very well planned, and he was very strict with complying with dates Strategic Implementation and Alignment and goals. He had a monthly reporting system with costs, results, and deviations. It was easy to follow the company's evolution against the major goals. The planning system worked well to guide the whole company towards the short, medium, and long-term goals.” (AMD, female, 66 years old) Creative Thinking and Innovation “The leader has to be able to see how we are going to get out of it, and that we are going to come out more innovated, giving the client what they hadn’t even thought about. We have to exceed our customers' expectations and exceeding customers' expectations is a case of innovating, bringing innovative products to the market, products that the consumer has never even thought of, which are necessary, or which make a difference. For now, in these times of the crisis that we are experiencing, does it make sense to look there? It makes sense, as we are not forecasting these sales for today, but rather for tomorrow. If we cannot move ahead with our own brands through innovation, then we are lost, which is why more and more companies such as C. are investing in innovation centers and the skills needed to bring added value with innovative products where our own brands cannot succeed.” (IM, male, 52 years old) “Only yesterday we were talking about it, and about how things have changed Problem solving and Decision making with regards to the management within organizations, and that nowadays with the way we make decisions we can arrive at the same outcome, but the chain of decision that we follow today is completely different from the one we followed 3 or 4 years ago. For those, who fall into the temptation of applying problemsolving formulas that are identical to those that were used 1, 2, or 3 years ago, the probability of failure is enormous. What a manager or a decision-maker has to always think about–—is that every day they will be tested, every day they will have to re-invent, every day they will have to think about new things. I think that at this stage, the panic is so well installed, that uncertainty and insecurity affect those who are currently in decision-making roles.” (IB, female, 44 years old)
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(Continued )
Topics Self-confidence
Emotional Control
Positive Attitude
Calm down the Team
Open and Transparent
Verbatim comments “He was a self-confident person, who believed in his own abilities. We were discussing pricing, and he gave us some examples from things that he had done in the past. But one could see the pride that he had in these examples, which were examples of millions of dollars in this case, and they were good examples for what we were discussing at the time. Therefore, by saying ‘this is possible, because I have already done it," he also showed that it would be possible for us to do the same, although with some nuances, obviously.’ (PVS, male, 40 years old) “I admired him for his emotional control, as I saw things that I knew were going on around him, which he didn’t let the team know about, and that's an important thing, because if we are worried and don’t really know what to do, then if we show this to the team, this means that there are 10, or 20, or 30 who are worrying. This is the ability that he had.” (AP, female, 47 years old) “In the contexts that we are living in now, where we have a depressed country, we also have organizations that are depressed. The leader and positive leadership play a crucial role. Clearly, we are talking about inspiring and positive leadership. The leader today has to be a positive leader, as the overriding situation is so black. To be a leader is to be able to transmit energy to people–—a positive energy–—and we have to stop being within the professional sphere, and we have to get on with the staff. Bringing positive energy to the workplace is a critical thing, and today the leader has to be much less selfcentered and much more outward-facing, otherwise we will begin to focus too much on ourselves and our problems and our things and forget those around us. We also act out those messages that leaders can get across, inciting their staff to be optimistic.” (AP, female, 47 years old) “We were discussing what the MD was going to say at the meeting at the beginning of the year, whether he should, or should not say that no cut of personnel was planned. And then we decided that we should tell people that it was not planned, and that this is not the plan, which does not mean that it will not happen, as everything can change. But we decided that it was important to mention this, as it would reassure people.” (MB, female, 55 years old) “I think back on the many things that he did, and I think that he managed to do all he did, in difficult circumstances, with a very difficult population, as he showed openness, which is to say, he believed in what he wanted, but also realized that to achieve this, he had to be involved and had to listen.” (AP, female, 47 years old)
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