The Covid-19 pandemic has required leaders to make decisions under considerable pressure. Many CEOs have been acting as the “chief crisis officer” as they work to ensure their firm’s survival and to manage the physical, mental, and social well-being of their employees.
Because there is no road map for a crisis like Covid-19, CEOs have had to manage largely by relying on their existing skills and personality traits. We wanted to understand which decision-making biases they were bringing to the table and how those have impacted their decision-making.
Because China was weeks ahead of the rest of the world in experiencing Covid-19, we surveyed the CEOs of more than 500 Chinese firms during February and March of 2020. We focused on three areas: CEO background and firm characteristics, how CEOs responded to Covid-19’s spread, and their expectations for the post-pandemic future. Our research revealed three pairs of opposing biases. In what follows, we explain the managerial implications and offer ways for leaders to combat each.
1. “The glass is half full” versus “the glass is half empty.”
Optimists (52%) and pessimists (48%) were almost equally represented among the CEOs in our study.
The optimists were mainly founders and business owners. Founders’ strong ties to their personal networks kept them confident that they could maintain and leverage business opportunities during the downturn. For example, the founding CEO of a leading architectural-lighting design firm said that thanks to “our brand, long-term customer relationships, and mutual trust, we gain our clients’ commitment to keep business projects going. … We stand for quality, and it’s not the first time that our growth depends on how we behave in a tough business environment.” Most of the pessimists worked in B2C markets. Shaped by consumer sentiment about economic uncertainty in China, they were mainly concerned about a drop in market demand and precautionary savings.
Each trait has managerial implications. Optimistic CEOs tend to develop positive psychological states, such as confidence, hope, and resilience, in themselves and their teams. But positivity can be counterproductive if leaders neglect the severity of a crisis and lose touch with the concerns of employees, clients, or business partners.
For their part, overly pessimistic CEOs run the risk of creating a climate of fear and anxiety, which can lead to employee disengagement. Leaders need to be realistic about the challenges facing their firm while also motivating employees to meet them.
As a check against your natural bias — whether you’re an optimist or a pessimist — we recommend adopting an open, approachable leadership style. That will help you obtain feedback on whether your style conveys the right message for your team.
2. Costs versus people.
Crises prompt firms to cut costs, hoard cash, and tighten controls. The logic is simple: When markets and future revenues are difficult to predict, margin-expansion strategies are a safe bet. But those measures have a direct impact on employee well-being, motivation, job satisfaction, and job security.
Female and generalist CEOs with transferable skills and competences across industries and functional domains were more aware of the pandemic’s deteriorating effects on employment conditions and attitudes. They actively tried to address employee dissatisfaction and low commitment. The female CEO of China’s leading online mutual insurance company emphasized that “people and innovation are key for our business. These success factors don’t change during Covid-19 and won’t change in the future. I did not hesitate to invest in our employees’ training and development … and recruited skilled managers from other companies. These people will help us grow once the pandemic is over.”
Ultimately, CEOs cannot afford to focus on either costs or people at the expense of the other. Both negative operating returns and demotivated employees could cause your firm to fail. Instead of asking, “How can we decrease costs?” try asking, “How can we continue to compete?” By doing so, you can avoid a vicious cycle with negative consequences for productivity, creativity, and innovation.
3. Short-term versus long-term thinking.
Knee-jerk reactions are a major risk during a crisis. CEOs who are overly focused on the short-term may take actions that could harm future business. Those who are overly focused on the long term may fail to address short-term business needs essential for survival.
Most of the CEOs in our survey showed a bias toward long-term thinking, particularly in B2B markets. As the CEO of the biggest Chinese office real estate management company explained, this orientation stems from B2B markets’ “high entry barriers,” which force leaders “to handle our business partners’ properties in their best interest.” There were exceptions: CEOs in B2C markets, who understandably were occupied with short-term retrenchment measures as consumer behavior rapidly changed. But even some in that group were looking ahead to new business models. For example, the founding CEO of a Chinese consumer products firm described how her organization was seeking to strengthen its market position by connecting online-offline offerings to its customers after the pandemic.
CEOs with a short-term bias need to be mindful of their activities’ potential long-term impact on the firm’s competences, brand, and stakeholders. CEOs with a tendency toward long-term thinking risk underweighting the pandemic’s impact on profitability. Having a counterpart who can function as a voice of reason can help those leaders avoid unrealistic goals and maintain short-term accountability.
During a crisis, leaders need to stay objective and rational. That’s often easier said than done, especially when you’re making important decisions with limited time and resources. Knowing which decision-making biases you bring to the table — and how to combat them — will help you better manage future crises.