A Psychological Recession Hits Business


November 6, 2007

by Marshall Goldsmith

Judy Bardwick is a longtime friend and one of the smartest people I know. She has always challenged conventional wisdom and I consider her to be not only a great management thinker, but also a great thinker about life. Her latest book, One Foot Out the Door: How to Combat the Psychological Recession That Is Hurting American Business, discusses important challenges faced by U.S. companies. Here are edited excerpts of a recent chat we had.

In One Foot Out the Door, you claim that as many as two-thirds of U.S. employees are victims of a “psychological recession.” What is this condition and why has it become so widespread? 

A psychological recession means people are feeling economically and psychologically vulnerable and unprotected now and with regard to the future. Once established, this negative mindset reinforces people’s view that the world is a risky place in which they have little or no control. And the media’s focus on bad news makes it worse. There’s widespread fear in the population, and it is more powerful than what the facts indicate.

This assault on our traditional optimism is closely tied to the loss of job, health, and pension security, to Iraq and Afghanistan, soaring energy prices, and other specific situations or conditions. But the basic source of this bleak view is the feeling that, despite hard work and education, no one has control over

Why do people’s feelings about the economy matter more than the facts? 

There are hundreds of studies that find a clear and powerful relationship between energized, enthusiastic, involved employees and positive financial outcomes. When people feel they’re treated well, that they’re respected and trusted and much is expected of them, they voluntarily work better and harder. The reverse is also true. Very simply, which organization will do better: the one in which employees say, “There’s nothing in this for me,” or the one where you hear, “This is a great place to work”?

When people feel devalued, there is very high turnover as people look elsewhere for more positive situations, productivity is characteristically low, and there is no innovation. When people are perceived as a cost and not a resource, they don’t do their best and they don’t stay.

How do bad management practices perpetuate the psychological recession and exacerbate its toll on a company? 

Bad managers frequently feel free to vent negative messages while withholding any recognition, which reinforces employees’ sense they are insignificant. Bad managers don’t relate effectively to subordinates, they are not trusted, they don’t communicate, they are neither liked nor respected.

Most managers don’t connect with and engage their subordinates. The Gallup Organization collected a database of 4.5 million employees in 12 industries from 2002 to 2005 and found 20% of employees are engaged, 60% are not engaged, and 20% are actively disengaged. This means that in the majority of organizations about 60% of employees work only enough to keep their jobs and another 20% would hurt the organization if they could. No organization can succeed for long when 80% of their employees are not engaged.

What can managers do about this problem of the psychological recession and the behavior of bad managers? What specific strategies work to change employees’ attitudes and improve their productivity? 

Some poor managers are trainable, and with coaching or mentoring can change to more effective behavior. If bad managers do not perceive their shortcomings, it may be necessary to reassign them to other professional jobs that don’t involve supervising others.

In general, employees want to feel they are assets; that their organization needs, respects, and rewards them for their contribution. When managers enable employees to have these positive feelings, a psychological recession will be replaced by positive feelings and a sense of optimism.

You advocate “customization” of working conditions and rewards as the best way to motivate employees. Is tailoring incentives to each individual’s priorities a realistic goal for managers of dozens, if not hundreds, of different employees? 

Customizing is much easier than it first appears. The actual number of things that people really want at any one time always falls into a small number of clusters.

Around 1986 to 1995, for example, people wanted challenge, success, autonomy, and money. From 1995 to 2001 during the dot-com boom and the soaring stock market, people wanted money and autonomy. Now there are three new priorities: to have both my work and my family flourish, to like and respect my colleagues and bosses, and to have meaning in both my life and my work.

How can U.S. business leaders sustain competitive advantage on a global scale? 

Many people are afraid of the competition from countries in Asia, but most don’t realize that the most critical variable for success now and in the future is innovation. Some countries that may compete with us do not encourage different views; they may see them as a challenge to their power. As a result, people in these societies become good at memorizing and doing what is already accepted. But they can’t create significant innovations because challenging authority is unthinkable, so they are not skilled in seeing and thinking differently. Innovation also requires widespread trust that you won’t be punished because you have a different view.

Americans need to remember that in our very brief history we have been extraordinarily successful because we initiate and innovate, and that is the result of core American values. We believe in freedom of thought, respect for individuals, and a flat playing field. We believe you are what you achieve and everyone is owed the opportunity to try. We believe that failure is not permanent and those who fail should get up and try again. It will never be easy to graft these values onto cultures whose histories and values are very different.

Judy, thanks for your thoughts. I have written in this column about some of my positive experiences working in Asia (BusinessWeek.com, 5/30/07). After my positive remarks about working in India (BusinessWeek.com, 8/28/07), I had many e-mails from our Indian readers saying that their culture does not encourage challenge as much as it should. It is great to hear your positive game plan for U.S. companies. How can our readers contact you? 

I can be reached at jmbwick@san.rr.com.