We’ve no idea how to deal with recession, say UK bosses

Business is becoming increasingly concerned over the health of the UK economy, with senior management fearing they lack the experience to cope with a major slowdown, according to research by Pentacle, The Virtual Business School. 

The survey of over 200 business people finds that 69 per cent of executives believe that the UK is now heading into a recession or serious downturn. 

Only 3 per cent believe an economic recession in the UK is now highly unlikely. 
 
The research also casts doubt on the capacity of businesses to cope in an adverse economic climate. 

A majority of executives estimate that under a quarter of the senior staff at their own firm held key senior positions at the time of the last UK recession in the early 1990s. 

64 per cent believe that the UK economy has been booming for so long that many senior bosses have little or no experience of how to deal with a downturn. 

62 per cent think that business leaders have been valued for their vision, positive culture and risk-taking, leaving them with little experience of being more tactical and exercising caution in a difficult economic climate. 
 
More worryingly still, those in the know – the CEOs and those at Board level – estimate the number of business leaders with experience of handling a downturn is considerably smaller. 

Half of this so-called “C-suite” believe only one in ten senior managers held equivalent positions at the time of the last UK recession.

They are also more downbeat on the capabilities of UK management to survive a downturn more broadly. 

71 per cent of them believe that the economy has boomed for so long that UK management lacks experience of a less benign economic climate.  
 
Professor Eddie Obeng, Director of Pentacle the Virtual Business School and a former Executive Director at Ashridge Management College, comments: “After a long economic cycle with nearly 15 years of growth, most of those at the top of business today are used to vigorous expansion, ambitious projects and taking major risks, all with unwavering confidence.  A strong economy has often protected them from the impact of bad decisions”. 
 
“For the Googles of this world, the closest they have been to a recession is post 9/11 – a much more contained economic crisis than the global tightening we are now witnessing. The question is whether these same bold leaders have the expertise to adapt to much more challenging conditions”.

“With most British workers questioning the ability of bosses to be “more tactical and exercise caution” on this side of the pond, you have to wonder about the effectiveness of management to deal with a downturn. A steep learning curve is coming.”
 
74 per cent of junior staff confess that insecurity, distraction and “fear of the chop” may damage struggling businesses further, as workers vie to impress those at the top.

Perhaps somewhat foolishly, only half of their senior colleagues predict such a scenario could occur, even though 71 per cent admit that as soon as the downturn hits the bottom line there will be a knee jerk reaction of “panic firing” from the top. 
 
83 per cent of executives argue that senior management should invest in strong internal communications in a downturn, yet only one in five believe that they will actually do so. 

Similarly 56 per cent believe that businesses should actively remunerate key staff, but only 26 per cent think this will happen.  

The research reveals a widespread view that cost-cutting will be the top priority, with 95 per cent believing that reviewing headcount will be the prime focus.  
 
Professor Obeng comments: “On the whole, staff appear to be quite clued-up on the agenda of senior management and the watchful eye that will be kept on financials when things get tough. Yet interestingly, two-thirds still argue that curbing business plans and investment should be a low priority for management.

“The very nature of a downturn – from staff insecurity to effective financial control – means that priorities must change with business plans being reviewed, for the security of the business and its employees”.
 
“Management needs to identify the essential priorities for the business – those that are achievable, do not require unnecessary investment and will produce swift returns. Cost-benefit analysis has an important role to play here in the shaping of strategy as it forces companies to think much more critically about their condition and the needs of the market. Businesses need to focus solely on the things that will have the most robust financial impact.” 
 
Whilst the Government blunders from Northern Rock to the “non-dom” uproar, the survey highlights severe criticism from business of the Government’s handling of the economy. 
 
81 per cent of executives – and even 76 per cent of those working within Government – believe the Government was running too large a budget deficit at the height of the boom, making it difficult to give the economy fiscal stimulus in hard times.

65 per cent go as far as to claim it would be better if a downturn had materialised earlier, to check the excesses of the credit boom.

On the upside, 69 per cent believe the Bank of England and Government still have the financial and economic ability to alleviate the current turmoil.
 
The Government should perhaps remain concerned, however.

Whilst business is split 50:50 on whether the emerging downturn will be a brief dip or poses a more significant threat, 65 per cent of those working in financial services believe the downturn will be more serious.

The nature of the credit crisis has seen the financial sector, which accounts for about a tenth of UK GDP, the most badly affected sector to date.
 
Professor Obeng comments: “The business community is clearly concerned about the Government’s handling of the economy in response to both the credit squeeze and Northern Rock. With the last run on a bank having been a century ago, we should not be surprised that the Treasury had no ready management experience to draw on when dealing with such a large financial crisis”.

“With Northern Rock clocking up a liability equivalent to the cost of four Olympic Games or two Iraq wars, one would hope that business leaders will recognise the need to show a little bit more foresight and control with their own bottom-line”.

“It is encouraging that the financial services have already recognised the risks of the current climate but it is important this attitude spreads to other sectors of the economy. The challenge is to run a much tighter ship now that the party – of explosive global growth – is coming to an end.”

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