Analyze This

By Kerry J. Sulkowicz
Featured on Business Week
03.12.2009

Given the excesses that preceded it, it’s no surprise that the current crisis is generating a backlash against lavish spending. The danger for CEOs? Embracing frugality for frugality’s sake.

There are obvious virtues to the cultural shift away from exorbitant or ostentatious spending. It’s not a bad thing for business leaders, in particular, to be more circumspect about displays of their personal wealth – and to be prudent about large-scale corporate purchases. But it’s one thing to restrain the impulse to buy a new Bentley or book a company retreat at an ultra-luxe resort. It’s another to hold off on purchasing or investing in things that are affordable – or necessary – out of shame or because of societal pressure.

I’ve been seeing such inhibitions against routine spending in some of the CEOs and entrepreneurs I advise. Feeling vulnerable because of the prevailing public sentiment against profligate or reckless business leaders, they’re postponing purchases that would seem to make sense – everything from clothes to other companies.

One client confessed that while he needed a new suit, he was embarrassed about being seen in the fitting room of the upscale retail shop that carries the brand he wears. Another is sitting on a merger idea, fearing that his board will look askance at what might have earlier been seen as a prudent strategic acquisition. Still another is putting on hold a key senior manager hire, worried that it will trigger resentment among other executives, who were told that budgets will be tight this year.

How to overcome such inhibitions? By realizing that a paranoid, guilt-ridden, and ultimately false frugality doesn’t make any sense. Simply refusing to spend, in the hope that this is the safe thing to do, is hardly inspired leadership. And inspired leadership is what’s needed in tough times.

My advice: Use the scrutiny you’re under to highlight your decision- making process. Acknowledging that the zeitgeist favors retrenching, explain to the board why the acquisition you’re considering is nonetheless a wise step. Talk to your management team about the importance of filling that key post, even amid a company freeze on raises that has them worried. Then, while your courage is up, decide about that new suit.