The Long Road

Listening to an interview with former President Clinton last night reminded me of the collateral damage associated with the loss of paper wealth. Government actions may be able to stabilize the economy over the next year but unfortunately consumer and business behavior is now irrevocably damaged for the next two years at least. The reason this is so is that the evaporation of paper wealth is now having an impact on personal decision-making. Consumers are deferring purchases and business are protecting hard won people capital by cutting back on expenditures in advertising and other variable expenses.

Significant government investments in infrastructure will begin to have an impact but only slowly. So for example the California state investment in high speed rail will benefit and jobs will be created but not quickly enough to produce significant change for the next 24 months. Many otherwise healthy employers will inevitably be forced to reduce staff or at the very least freeze hiring resulting in slower growth and a longer turn around picture.

My good friend Jamie Hale at WW just conducted an interesting study on workforce planning as a reasoned response to the challenging environment. When combined with employer investments in their best people, development of their skills and maintenance of their morale; cost cutting becomes a scalpel not a hatchet. Investments in people will be critical to coming out of this poised for success.

Days of Reckoning

The market continues its volatility and Washington DC as always appears to be far removed from the day to day experiences of business people on the west coast. One action that would reduce the impact of the volatility for going concerns is increasing the measurement period for analyzing pension liabilities. Congress has yet to act.

In the meantime most employers are running operationally sound businesses with depressed stock prices. The weaker competitors are being consumed by the stronger ones. Talented employees are staying put with much longer-term expectations associated with their working careers. As the downturn grinds on more will fall by the wayside and the best will be picked up by strong competitors. Dislocations like this are always difficult but organizations with the strength to survive and the wisdom to treat their employees well will come out in a much stronger position a year from now. An effective approach to managing talent will be a key to success.