Preparing for the (Economic) Fall

The leaves are starting to turn, and not just the ones on the trees.

The current economic recovery is nearly double the statistical average of about 5 years. Over this long expansion, closing in on 10 years in duration, U.S. GDP has grown by about 40%. But federal government indebtedness has more than doubled to $20 trillion, and state and local indebtedness could push that number to as much as $30 trillion. Add in unfunded pensions and healthcare costs, and who knows how high the number could go.

Meanwhile, consumer debt is at an all-time high—nearly $13 trillion. All this indebtedness is in a low interest rate environment. Imagine if rates were double or triple current levels—that simply would not be sustainable!

Corporate growth is anemic. Spinoffs are increasing (which is sometimes seen as a sign of market tops), and the stock market is at all-time highs. The S&P 500 has been trading around 18 times earnings estimates, well above the long-term average of 15 times.

This is not to predict imminent doom-and-gloom. But at some point, people and markets hit the mortality table.

While senior leaders obviously can’t control the “seasons,” they better prepare when they notice the “leaves” starting to turn and fall. Just as individuals must face the reality of needing to engage in estate planning and update their wills, so companies must prepare for cycles coming to an end.

The problem with a long expansion cycle, though, is people become complacent. They act as if summer will last forever.

I’m having the same feeling I had as a CEO in 2006. I see people are spending more and more—consumer confidence is soaring. They are oblivious to the signs of “fall.”

As Carlos Slim—entrepreneur, investor, and one of the richest people in the world—once told me, “Maintain austerity in good times…and thus avoid bitterly drastic adjustments in times of crisis.” In other words, save during “summer” so you can invest in “winter.”

Nobody can predict winter, but you certainly must prepare for it, which for organizations means making sure contingency plans are in place. For example, reviewing the revenue and cost levers to pull; setting up acquisition targets; raising money when you don’t need it, and so forth.

For many companies, “summer” and “winter” also reflect internal attitudes. During expansion and continual growth, everyone’s focus is naturally drawn outward: Where will the next opportunity appear? Invest more, spend more, hire more. During contraction and slow or absent growth, everyone’s focus is inward: How do we pull ourselves out of this and find our way forward? What went wrong; what should we do differently?

Actually, the seasonal attitudes should be reversed. It’s the leader’s job to challenge convention and fight complacency, to get people looking inward during the good times and outward during the challenging ones.

As leadership guru Warren Bennis once told me, “You can’t predict tomorrow if you don’t accurately perceive today’s reality.” Sage advice for any leader, regardless of the season.

Gary Burnison is the CEO of Korn Ferry and author of the upcoming book, "Lose the Resume, Land the Job.”