Managing Disappointment

Apple and others are posting earnings shortfalls but still are keeping their stock prices up. How leaders build confidence in investors and employees.

The economy has been doing so well that sales and profit disappointments have been few and far between for the last few years. But welcome to a new year and a new reality.

This week alone has seen high-profile disappointments from firms as diverse as semiconductor companies to washing-machine manufacturers. The biggest name, Apple, which on Tuesday posted a quarterly decline in both revenue and profit, projected that sales for next quarter would fall short of Wall Street expectations. That disappointment came after the firm had already slashed its revenue forecast late last year.

CEOs and their top lieutenants are finding themselves having to explain what they’re going to do not only to skeptical investors but also to curious employees—and experts say a one-size-fits-all approach won’t work. “You have to tailor the message carefully to each different type of stakeholder. It’s why you need agile leaders, to be able to flex across these stakeholders,” says Jamen Graves, a Korn Ferry senior client partner who specializes in the tech sector.

It’s a situation that many more leaders may find themselves having to face. A growing number of economists believe that global growth is slowing down. The continued trade strife between the United States and China could depress sales even further. It isn’t always macroeconomic forces that spur the disappointments, either. A bad product launch, a change in customer tastes, a price war, or a slew of company-specific issues can take an unexpected bite out of sales, profits, or both.

Investors, Graves says, always want to know if things are going to get worse. He advises corporate leaders to show investors that they’re cognizant of a problem and that they are addressing it. “Be emotionally neutral,” Graves recommends. For its part, Apple's share price rose after executives explained how new services can help boost future sales. 

But experts say the communication shouldn’t stop with shareholders. Employees will also want to know whether an earnings disappointment is a sign that the company is in real trouble. One of the worst things to do, according to experts, is to tell employees to “work harder.” At companies that have had long, successful winning streaks, employees almost certainly have already been working hard.

A better approach, Graves says, is to move from a management mindset to a leadership mindset. “Stop talking about metrics and tap into an employee’s discretionary effort and the reason why they are there,” he says. Remind employees about the great projects they are working on and that while the stock price may fluctuate wildly over a short period of time, the company’s prospects do not. “Remind them that they’re there to impact the world. You will rally the troops,” Graves says.