American Airlines finally plummeted into bankruptcy last week, eight years after workers’ wage concessions seemed to have helped parent AMR plot a route out of disaster. Managers hadn’t wrung enough from the work force in 2003, some claimed. The staff hadn’t pulled their weight since, said others. Many concurred that the “discipline” of bankruptcy would have been good for American.
Even taking into account the virtues of the U.S. bankruptcy regime and the poor record of aviation industrial relations, this is a counsel of despair. Managers should not simply reach for the “reset” button as soon as trouble hits.
But, as the AMR tale illustrates, it is hard to persuade people to make sacrifices and even harder to judge whether those sacrifices will be sufficient. How can employers – and governments – convince people to give up benefits, wages and jobs in their collective self-interest?
The common assumption – fuelled by journalists, avid for tales of management heroism – is that blunt home truths told by straight-talking bosses will win the day. But honesty alone is rarely persuasive enough.
Take AMR’s rival United Airlines. In 2001, just after the 9/11 attacks – a palpable crisis for the whole airline industry – Jim Goodwin, United’s chairman, warned that the group would “perish” if it didn’t cut costs further. The unions accused him of alarmism (some colleagues had, of course, died in the terror attacks). He had to step down. But United filed for Chapter 11 protection a year later.
When staff are fearful and the future uncertain, managers must back honesty about the gravity of the company’s situation with tireless consultation and tactful communication. Stephen Elop, Nokia’s chief executive, shocked outsiders with his famous “burning platform” memo in February, warning employees the mobile phone maker was staring into the abyss. But – at least as Mr. Elop explained it to me at the time – his staff knew what to expect, because he had consulted them in advance: “On its own, you think, oh boy, that [memo]would be a wake-up call … But what people haven’t seen is the steady pattern of communications and the highlighting of the issues.”
Honesty is indispensable, but the more important management virtue in a crisis is trust. In 2003, AMR appeared to have won the fragile confidence of staff. But within days, the accord was jeopardized when it emerged that CEO Don Carty had agreed to special retention bonuses and benefits for senior colleagues. He lost his job; American’s managers lost what little trust they had gained. In hindsight, the lingering sense that executives and employees were not, after all, “in this together” undercut the airline’s longer-term stability.
Honesty, trust, communication and shared sacrifice count for little if managers cannot then frame a successful strategy. When Aaron Feuerstein, the owner of Malden Mills, manufacturer of Polartec fleece, heroically rebuilt his U.S. factory after a fire in 1995 and rehired most of his local work force, he won their loyalty and media acclaim. But he overinvested in plants and underestimated the threat from Asian competitors. Malden Mills ended in Chapter 11 six years later – despite his faithful workers’ offer of last-ditch concessions.
As governments in Greece and Italy have just discovered, voters who judge their politicians incapable of managing the country will never agree to self-sacrifice and austerity. It is no coincidence that Germany has the best recent record of employee self-sacrifice. Its tradition of worker-employer consultation, combined with government-subsidized short-time working, and general faith in both managerial and political competence encouraged pragmatic unions to agree to cuts in working hours as global economic prospects worsened. The concessions helped many German companies survive the severe downturn of 2008 and restore production swiftly when demand returned in late 2009.
Survival is not a feel-good state. For every Bavarian tool maker sharing the benefit of timely staff concessions, there are 100 companies whose stressed-out managers and put-upon employees are struggling to achieve more with less. They – like their political counterparts from Rome to London – fear having to make or endure a second round of cuts. Here’s the honest truth: When fierce macroeconomic crosswinds are blowing, even good communication, employer-employee trust, shared sacrifice and smart management cannot guarantee a soft landing.