Image credit: “Lily” Money.com
Interestingly, despite what is statistically a relatively strong economy overall, many organizations are feeling significant stress while navigating deep challenges and even crises. In fact, some industries such as higher education, manufacturing, agriculture, and many government agencies are in decline, while others are being powerfully disrupted (media, hospitality, transportation) and others are “thriving” while going broke (such as healthcare and heavy industry). The reasons are varied, including everything from demographics to technology to tariffs, but the resulting challenges are the same: despite what are supposedly good times, many organizations (and the people in them) are struggling. One manifestation is the decreasing tenure of executive management as the complexity, ambiguity, and turbulence of operating environments exceeds the experience and capabilities of many leaders. This phenomenon transcends industries and includes nonprofits as well.
One structural issue is the significant and growing uneven distribution of wealth and liquidity across both organizations and individuals. For example, the recent 1.5 trillion dollar federal tax cuts overwhelmingly favored large corporations and wealthy individuals, further increasing liquidity for those beneficiaries without meaningful “downstream” benefits for employees, small business, and less wealthy individuals. In reality, companies by and large spent big on stock buy-backs and put cash in the bank, while making more investments overseas than in the U.S. during the same period! Relatedly, despite claims from the current administration that the cuts would generate increased tax receipts and family income due to economic growth, federal tax receipts have declined by 40% and family income has been flat for most Americans since the tax cuts went into effect. In effect, over a trillion dollars were shifted from public coffers to corporate and private wealth for a small percentage of the population since 2017. And, in 2018, for the first time ever, American billionaires paid a lower effective tax rate (23%) than the average paid by the bottom 50% of tax payers (24.2%). Another example of the growing divide between haves and have-nots can be seen in the nonprofit higher education space where less than two dozen institutions (out of several thousand) control 50% of the nearly $500 billion dollars in endowment assets. For individuals and families, the distribution of wealth is more unequal today than at any time since the early industrial revolution of the late 19th and early 20th centuries, with the top 1% of Americans holding roughly 40% of all the wealth in the country and the bottom 90% combined holding less than a quarter of all wealth.
This deep and structural inequity is a primary reason that many organizations are struggling despite a “strong” economy. Healthcare providers, for examples, are serving more “customers” than at any point in American history, but the average revenue per patient is actually declining due to the number of individuals who do not have insurance or whose insurance is inadequate relative to cost of service (and two thirds of all bankruptcies are caused by medical bills). The growing number of patients on Medicare and Medicaid also results in reduced reimbursement (often well below cost) for providers. In higher education, the average “discount rate” in private institutions is now over 50%, meaning students are paying less than half of the advertised tuition rate—and this is happening in the midst of a seven year decline in enrollment overall. In the private sector of the economy, agriculture (loan failures are up 13% year over year), manufacturing, and heavy industry in particular have been badly hurt by the current tariff wars and the negative effects on GDP and employment are likely to be felt for years due the long-term impact on markets that will likely shift to alternatives rather than be rebuilt to pre-tariff levels. And of significant importance, despite nearly a decade of modest economic growth, wage growth has been stagnant and a majority of workers who were unemployed during the Great Recession are now working for less income than before they lost their jobs, with only the top 20% of earners seeing an increase (6%) over the last decade. Of potentially greater importance, roughly a third (about 57,000,000) workers are now employed in the “gig economy” without benefits, sick or vacation leave, or any kind of job security. In short, the current recovery from the last recession is structurally different than those in the past with very unequal distribution of the benefits and even declines for about half of Americans. As noted by the Institute for Labor and Employment, through the recent recovery, “the general pattern in the labor market has been rising inequality… and stagnating wages for working and middle-class workers.” Unemployment is statistically low, but the economic value of current employment is still below pre-recession levels! One of the greatest impacts of the current situation is simply the effect of uncertainty. Whether it is corporate investment in R&D, small business investment in inventory or consumer spending on discretionary items, the current economy is teetering on top of growing insecurity and fundamental weakness for the majority of Americans.
Surprisingly, the current period of economic growth has come with the kind of stress, unease, and anxiety that are usually associated with recessions! Although there are certainly sectors of the economy, companies, organizations and individuals that are thriving, there is a surprising collective morass underlying society in general and the economy in particular. In fact, the American Psychological Association says that Americans of all ages and backgrounds are more stressed out now than at any time since the APA has been tracking societal stress levels. While the causes also include mass shootings, divisive politics, climate change, and fears about healthcare, for example, the economy is also a leading factor with calls to the FarmAid Hotline, for example, increasing nearly 110% from 2016 to 2018.
How does this uncertainty affect organizations?
When faced with complexity, ambiguity and even volatility, which many organizations are facing now, rather than embracing risk and an entrepreneurial spirit, many are choosing to circle the wagons and go back to basics. In other words, at the worst possible time, organizations are driven by fear to do more of what they’ve always done rather than encourage experimentation and innovation. Despite over a trillion dollars in tax breaks, companies did not materially invest in R&D or expansion. They paid themselves in equity and put money in the bank. Unfortunately, there also continues to be a focus on short-term results rather than long-term sustainability, with primarily transactional rather than transformational thinking and a tendency to centralize control rather than empower people broadly across organizations. While this is not unusual behavior in times of fear and uncertainty, it is the wrong behavior for surviving and thriving.
As an example, not long ago I was conversing with a board chair and I asked her what she was prepared to do if necessary to save the organization if it came to that. Her response was that making changes to the core business was “off limits.” While her passion for what had historically been central to the operation was admirable, the idea that riding the ship to the bottom of the ocean was preferable to redesigning the ship to keep it afloat was emblematic of how many organizations are facing (or avoiding) the realities of today’s turbulent environments.
The current challenges also explain why the average tenure of executive level leaders is declining, turnover is high, and organizational instability is growing. It is important to remember that even if external operating environments are volatile internal organizational environments do not have to be. However, those environments (and cultures) have to support things like teamwork, risk-taking, innovation, and long term thinking—and, of course, they need leaders who think that way too!
So, you are not imagining things. Despite nearly a decade of economic growth, organizations and individuals are highly stressed, buffeted by uncertainty and foundational problems with distribution of liquidity and wealth, tariff wars, unstable and declining markets, stagnant, and in many cases declining wages, job-insecurity (despite low unemployment), and a destabilizing macro political environment as well! While you cannot control the external environment, you can mitigate the deleterious effects of a stressful reality by prioritizing your own health and well-being and by carefully evaluating what matters to you in your professional life. For example, we often exacerbate stress by choosing to work in an environment that pays more, but that does not align with our values. Or, we take a promotion or new job so that we can increase our status, but at the expense of working more nights and weekends. And maybe more importantly, because so much of our time, effort, and energy are expended in the workplace, we probably ought to give careful thought to choosing environments that sustain, honor, and fulfill us as human beings even if that requires other “sacrifices.” It is both astonishing and dispiriting to realize how much of our lives we often dedicate to work that we don’t actually believe in and in environments that are subtractive to us as human beings! The challenges of the current reality are real and significant, but if we focus on what genuinely matters to us and we are willing to make appropriate compromises, we can, in fact, create better professional situations for ourselves.
Recent research by the Federal Reserve confirms deep weakness in the economic “recovery,” particularly as it relates to economic vulnerability for a substantial percentage of Americans.
- Forty percent of American adults don’t have enough savings to cover a $400 emergency expense such as an unexpected medical bill, car problem or home repair.
- Forty-three percent of households can’t afford the basics to live, meaning they aren’t earning enough to cover the combined costs of housing, food, child care, health care, transportation and a cellphone, according to the United Way study. Researchers looked at the data by county to adjust for lower costs in some parts of the country.
- More than a quarter of adults skipped necessary medical care last year because they couldn’t afford it.
- Twenty-two percent of adults aren’t able to pay all of their bills every month.
- Only 38 percent of non-retired Americans think their retirement savings is “on track.”
- Only 65 percent of African Americans and 66 percent of Hispanics say they are “doing okay” financially vs. 77 percent of whites.