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The CEO’s Guide to a Jarring Stock Market

The stats couldn’t be more jarring—a nearly 1,100-point plunge of the Dow Jones Industrial Average in a single day. The rout, combined with the major stock decline just one trading day earlier, wiped away this year’s initial market surge. But with eyes glued on the market, which had huge ups and downs recently, leaders have only one real choice: take the long view.

After enjoying more than two years of stocks going nearly straight up, companies from Iowa to India have been reminded that markets are, indeed, volatile. But whether last week's wipeout (and subsequent partial recovery) was due to worries about an economic decline, impending inflation, investors selling highly-priced assets en masse, or something else, experts say leaders are best served by keeping their focus on their own organization’s operations and unique challenges.

In the short-term, a market drop may have some affect on what merger or acquisition opportunities that could be pursued, but even that’s debatable, says Alan Guarino, vice chairman of Korn Ferry’s Board & CEO Services practice. Otherwise, don’t change strategy based on the stock market’s gyrations. “These are normal and to be expected. Even if it’s a market crash, it’s much more about weathering the storm,” Guarino says.

Indeed, many senior corporate investor relations leaders weren't surprised by the market's downturn. When Korn Ferry surveyed the Fortune 500's investor relations leaders during the last week of January—before the major uptick in volatiliy—55% of the them said the market was "overheated" and was due a correction, says Richard Marshall, managing director for Korn Ferry's Corporate Affairs and Investor Relations practice. 

During market pullbacks—or any crisis—leaders should fall back on their firm’s purpose, the “why” of the business, says Rick Lash, director of Korn Ferry’s Leadership and Talent pracice. “Have these external changes in any way impacted our core purpose and the way we need to be delivering value?” At least with short-term stock market moves, the answer is usually “no.”

That said, leaders may find that they face a newly-worried workforce. After all, workers might have just seen a significant chunk of their company-sponsored retirement account wiped out. When there’s a high-profile event such as a market drop, people tend to fall into thinking traps, Lash says, often believing the worst is going to happen. If that’s the case, a leader can help point out the trap. “Leaders, by helping employees engage their rationale mind (versus emotional) can help them think more accurately and flexibly,” Lash says.

As to how long the market volatility will last, it’s anyone’s guess. The market is down about 7% since it hit an all-time high on January 26. “It will likely be a correction—a 10-20% decline instead of more than 20%, which is a typical bear market,” says Sam Stovall chief investment strategist at independent equity research firm CFRA Research in New York.

Contributors

  • Rick Lash, Ph.D.

    Senior Client Partner

    Bio >
  • Alan Guarino

    Vice Chairman, CEO and Board Services

    Bio >

 

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