The first thing Janet Yellen would like you to know about leading in a crisis is that if you wait until a crisis arrives to prepare, you’re already too late.
As the former Chair and Vice Chair of the Federal Reserve, Yellen helped guide the U.S. economy through one of the most tumultuous periods in global economic uncertainty following the 2008 global financial crisis. She was at the table when the central bank lent out more than $4 trillion to prop up failing financial institutions and bring the world back from the precipice of an all-out depression.
What did Yellen learn from those experiences about leading in a crisis? Preparation is paramount, particularly when it comes to what you say and how you say it.
“I learned that preparation was very important,” Yellen told the recent World Business Forum (WBF) in New York City. “That I always needed to think very carefully beforehand about what my message was and what I wanted to say.”
Preparation was a major theme of her address to the WBF, which drew hundreds of business leaders from around the world. Yellen said she hopes that both governments and businesses are preparing for the next global economic slowdown.
Yellen admitted that she did not know for sure that there would be another severe recession, but the pace of economic growth in the United States and elsewhere has slowed considerably. Some countries, like Germany, have actually slipped into recession.
Although this does not mean that one of the longest periods of sustained economic growth will come to an end, it is a reminder to leaders of all kinds to start preparing for the worst. “There is good reason to worry,” she added.
Yellen learned the importance of preparation the hard way during her first press conference after taking over at the Fed. “I made a mistake and answered a question that I never should have answered. And as the press conference was taking place, the Dow dropped by about 300 points. It brought home to me that I needed to be exceptionally careful.”
The importance of a great team
Honing and staying on message is not the only way that Yellen prepared for a crisis. She also put a lot of effort into building a team that featured smart and resilient people who could work in a data-rich environment and freely share their ideas and theories without the fear of group think.
Yellen said there was a special comfort that came from having put deliberate work into building a great team. “I knew that I was not in this alone,” she said.
“The world is very uncertain. Economic forecasting, economic development is a treacherous business and there are always surprises… My colleagues and I knew that it was on us to figure out what to do to make this the Great Recession rather than the Great Depression.”
Emphasize the importance of rapid responses to crises
Yellen said it was standard practice for policy makers at the Fed to “study problems to death” to ensure that they were making the right decisions. In the global financial crisis, however, the Fed had only days or hours to make multibillion-dollar decisions.
Yellen said her team demonstrated a capacity to stow its traditionally conservative approach to problem solving and accept more risk because the situation demanded it. “We had many agonizing decisions to make,” she recalled.
Adopt a firefighter’s mindset
Yellen made sure her team knew that the steady and deliberate work of leaders at the Fed was public service, and they were “motivated to serve the organization and make sacrifices.”
She put a strong emphasis on work-life balance for her team in non-crises times but with the proviso that once the crisis hit, the team had to launch into action.
Yellen said she stressed to her team that their role in a crisis was not unlike being a firefighter facing a five-alarm blaze. Firefighters typically spend a lot of time sitting around their fire houses, relaxing and preparing for a call to come in.
At the same time, “firefighters know that when the blaze starts, you have to put [work-life balance] aside and sacrifice your personal desires and goals for the sake of the organization,” she said.
Leaders cannot build an organizational culture that emphasizes rapid responses, personal sacrifices and professionalism “when the crisis is upon you,” Yellen said. However, if you focus on being prepared, assemble a team that can make personal sacrifices and provide firm and steady leadership, you will know that you have done your best.
As Yellen put it, “Preparing and doing your best, that’s all a human being can do.”