Debt crisis

Biz leaders: There's no time for an economic pity party

August 11, 2011: 5:00 AM ET

CEOs are on the spot to respond to the latest spate of economic troubles, but slashing jobs and hoping for the best will just make matters worse for their companies.

Starbucks CEO Howard Schultz

Starbucks CEO Howard Schultz

By Shelley DuBois, writer-reporter

FORTUNE -- Starbucks CEO Howard Schultz has a can-do attitude about his recovery from neck surgery. In a letter to employees sent Monday, he thanked them for their support and assured them that he will heal soon. Schultz then outlined a similar narrative for Starbucks: the company is responding to a real but manageable threat -- the latest economic turmoil -- but everybody is in it together, and Starbucks will wind up on top.

The letter is one CEO's attempt to demonstrate control in the face of economic concerns, which have grown even more concerning since Standard & Poor's downgraded the U.S. credit rating on Friday. The stock market has been see-sawing since the announcement and it took a significant dive yesterday, as investors struggle to wrap their heads around gloomy economic conditions abroad and at home.

Times like these put CEOs like Schultz on the spot. Their decisions matter more during uncertain economic times than just about any other, says Sydney Finkelstein, a professor of management at Dartmouth's Tuck Executive Education school.

But the current malaise is more than just a test of management mettle. Especially for big companies, the decisions that leaders make could have an impact on the economy as a whole.

Just like the rest of us, big business leaders grow conservative and try to shrink spending during tough times, says Adam Galinsky, a professor of ethics and management at Northwestern's Kellogg School of Management. "We also tend to look towards what everyone else is doing to try to find our way. If I'm a company and one of my competitors is slashing jobs, I'm going to slash jobs too."

Job slashing was certainly common during the most recent recession, and some companies have restarted the process now, especially in the banking sector. Just last week, HSBC cut a tenth of its global workforce, about 30,000 jobs.

Sometimes, CEOs are forced to cut because they need to make big changes quickly, but most job cuts are more aggressive than they need to be.

"Business today has cut the workforce pretty much to the bone," says Alexander Horniman, a strategy professor at the University of Virginia's Darden School of Business. Even more cuts could put companies at risk when the economy eventually rebounds. More

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