According to a recent AP News report, the S&P 500 has tumbled more than 12% so far this year. At the same time, US markets are being outpaced in Europe, Asia and elsewhere, suggesting a softening in confidence in the US market as a safe place to invest. Today’s global financial volatility, along with growing uncertainty about the threat of a recession, is prompting business leaders to reexamine investment and strategic growth initiatives with an eye towards weathering a potential financial downturn. When leaders seek opportunities to belt-tighten, often the goal of achieving better quarterly results comes at a cost that can stifle productivity and compromise the talent pool of an organization for years.
Two recent clients are wrestling with this dilemma, and both depend on parts and products shipped from China to fill customer orders. The leadership of the larger company has begun across-the-board budget reductions as a hedge to impending profit cuts due to tariffs. Lee, a seasoned product manager in one of their key divisions, spent the last year staffing his department, trimming unnecessary positions and successfully launching essential projects.
“I’ve worked hard to find the best talent in the industry and cull out any unnecessary positions,” he shared. “Now leadership is arbitrarily asking everyone to cut staff by 10%. If I comply, I’ll be slicing into muscle, not fat, and word will get out in the industry that this is how we treat employees. I’ll have a hell of a time recruiting people in the future.”
In the smaller of the two companies, leaders are focused on building a culture in which individuals thrive. They’re a scrappy startup with a workforce primarily comprised of Millennials and Generation Z employees. Those employees stuck with the company through COVID and found new ways of working that allowed the business to survive at a vulnerable time in its evolution. In the early months of the pandemic, members of the executive team even delayed their own compensation to be sure they could pay employees on time and keep their health care benefits intact. So, their approach to navigating this new financial threat is deeply informed by the past. Here’s what they’ve learned:
1. Be honest about the challenge
In nearly every quarter, a business can point to a challenge or threat that may impact earnings. In the eyes of employees, raising concerns about such challenges without context is akin to crying wolf. The company learned that employees paid more attention when leaders were transparent about the priority, scope and scale of the issue and honest about the urgency of resolving it.
2. Include the best thinkers from the front line
Many of the leaders in the smaller organization began their careers in a large industry. They’d become accustomed to top-down decision making, where business challenges were discussed at the executive level and mandates were drizzled down to people on the front line. But the talented employees of the small organization wanted input, not mandates. So, leaders reframed their approach and included those closest to the problem and their best thinkers in co-creating solutions, regardless of their position on the organization chart. They realized that identifying efficiency opportunities was easier when people most familiar with the issue were at the table.
3. Lean into development
One landmark Gallup study revealed that 87% of Millennials want development opportunities at work. While leaders typically think of training as low-hanging fruit when it comes to budget cuts, the small company realized that reducing investment in people development would be a mistake, especially given its workforce demographics. They wanted employees to feel engaged and like they mattered, so training and development budgets remained intact. As the CEO told me, “Human capital is what generates revenue. We need to continue to grow our people.”
4. Leaders sacrifice first
As they did during COVID, senior leadership has committed to deferring bonuses and pay raises for themselves to ensure sufficient funds are available to compensate employees. They have communicated this to the larger organization, reassuring employees that the company is putting them first. In this big bucks, big stakes game, those earning the most get rewarded last.
5. Everyone needs to win
An overarching theme of the small company’s culture is respect and teamwork, not only for individual employees but also for partners, vendors and other external stakeholders. These values are being tested as tariff-generated revenue challenges prompt renegotiation of contracts with suppliers. As one senior leader shared, “We have to look for win-wins with our all of our external partners, so we negotiate with that goal in mind. Winning at the table today doesn’t work if we drive a supplier out of business that we’ll need tomorrow.”
Is your organization prepared to retain talent through the challenging months ahead?
This article was first published in SmartBriefs, April 2025.