How to lead in lean times

Cutting your own pay

One trend overseas is the number of chief executives taking pay cuts. Rick Wagoner reduced his salary to $1 a year, although that did not stop the White House forcing him out as chief executive of General Motors.

Similarly, Starbucks chief executive Howard Schultz is earning less than $4 a month in his base salary, even though his pay package includes compensation in shares. Do leaders here have to do the same thing? Do they need to work longer hours and make other personal sacrifices?

Caldwell says that is probably not necessary in companies where everyone works hard and where staff have not been laid off.

But Wilson says its might send an important message. “Everybody knows the CEO could take a 20% pay cut and we know they would still live in the same house, but it sends an enormously positive signal to staff, particularly when you’re asking people to save up to that amount in their own salaries.”

Never forget cashflow 

Cashflow is more important to a company’s health than accounting profits. If nothing else, the recession has turned that into the new mantra. That means work has to be done in boom times to reduce debt and ensure cash still comes in when the market turns. Bakers Delight, for example, has little debt. IBA Health keeps its debt level manageable.

Heron, an ex-banker, says the Australian Institute of Management used the boom time to position the company with solid cashflow. It paid off its debt, reorganised its business of education, membership and events, and turned a $5000 profit in 2004 into a $2.76 million profit last year.

“That’s what leadership is about” Heron says. “You start off by saying: ‘I know there will be a downturn; I don’t know the severity of the downturn, but if I can bank my downturn and position myself, it will be better’.”

Or as JB Hi-Fi’s Richard Uechtritz says: “What we are doing is exactly the same whether it’s in a boom or a flat market. The principles of good retailing are exactly the same.”