This too shall pass (Guest commentary)

Why one HR professional thinks the economy is going to recover sooner
By David Wexler
|Canadian HR Reporter|Last Updated: 04/05/2009

Most people these days are feeling at least a slight bit panicky with regards to financial markets. You may work in the industry and have options and shares that are listing badly. You may be a participant in a defined benefit pension plan that is underfunded or a defined contribution plan that is under-performing. Or you may be someone with financial needs who is being hurt by current economic conditions.

Who could have predicted this? Certainly not mainstream economists. As recently as 10 months ago, many of them were calling for continued robust capital markets and a Canadian dollar that would remain above the American greenback. Certainly not corporate executives, who were investing in expanding their businesses and buying up competitors at (as we now know) unsustainable price-earnings ratio valuations as recently as last autumn.

Too slow to call the now-upon-us recession, many experts are now trying to outdo their peers by forecasting worse and worse scenarios, with newspapers (that long ago figured out that bad news outsells good news on any given day) thoughtfully sharing this, adding to the public’s general unease.

So, what should we believe? The oft-repeated mantra by financial experts is all recessions end and markets eventually recover. As to whether this will happen in 2009 or in 2010, the time frame keeps shifting, though the consensus now appears to be sometime in 2010.

Now, I am not an economist. Rather, like many of you, I am an HR professional. That said, there’s a lot that we in HR can forecast, based on what we know of human capital and, especially, that subset known as the leadership cohort.

5 reasons for optimism

Based on the observations of leaders over many years and in many organizations, here is what is happening and here is why this, more than anything else, portends much better times ahead for the economy, sooner than the pundits might expect:

1. Given time, business leaders will make a fairly accurate call on the business conditions in which they operate, doing a strengths, weaknesses, opportunities and threats (SWOT) analysis and updating forecasts on revenues, operating expenses and necessary capital investments and financing needs to align with current and projected market conditions.

2. Having been burnt by a recession that has proven to be longer, broader and deeper than predicted, business leaders will build in a buffer, allowing for an even worse (than envisioned by a worst-case scenario) outcome, without the organization missing its revenue and operating profit targets.

3. When, as will occur over time, the business overshoots its revenue and operating profit targets — since its revised forecasts will have turned out to be too conservative — the business will have extra capital at its disposal.

4. The organization will initially bank that extra capital (which will be viewed positively by the financial markets) but slowly begin to deploy the capital as it seeks a competitive advantage.

5. Since organizations are either growing or shrinking (and cannot stand still), the very defining nature of organizations will drive them once again towards growth.

So while no one can predict when the recession will end, seeds are being planted by leaders everywhere that will restart the economy and restore investor confidence.

As HR professionals, who work closely with and understand how leadership functions, we know this and can bank on this. Better times lie ahead.

David Wexler is a Toronto-based HR professional. He can be reached at dwwexler@gmail.com or (416) 569-5526.

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