The global financial markets have been on a roller coaster ride for the last several months, primarily due to sovereign debt issues in Greece and Italy. Observations of the leaders and populace in these countries illustrate two important lessons.

The first lesson is to have the courage to initiate the difficult conversations frequently required as a leader. In this case the conversation is about austerity. Greek Prime Minister George Papandreou has failed to clearly communicate to the general public the ramifications of their situation and the sacrifices all parties must take. While we don’t know that improved communication would have prevented the ensuing riots, it wouldn’t have hurt. Instead, Papandreou vacillated from issue to issue and hid behind the idea of a referendum vote to the general population, abdicating his leadership role. In the end his unwillingness to continue leading in a straightforward fashion cost him his job as Prime Minister.

Italy’s long-time, flamboyant Prime Minister, Silvio Berlusconi, has probably spent more time the last several decades defending himself against scandals than leading the country forward or handling Italy’s economic malaise. Similar to Greece, Italy is unable to continue to service its debt. Furthermore, Berlusconi has been unwilling to clearly articulate the country’s current economic situation, the sacrifices all parties must make to move forward, and a path to economic health.

I continually see similar situations inside organizations. The most frequent lapse is the inability or unwillingness for managers to counsel subordinates and give honest, less-than-stellar, performance appraisals. Few of us like to tell someone they are deficient in some way, but it is necessary in order to create a high performance team. Key elements are to be clear and fair. Explain the specific issue, provide a global context, and state specifically what you would like to see and how it will help the team perform better.

The second lesson we can learn from the recent sovereign debt issues is that it is very simple to give something but very difficult to take it away. The riots in Greece are a prime example. Protesters are upset with reduced pensions, lost jobs, and other government cutbacks. Had Greek leaders acted responsibly and provided only what it could afford, the current austerity measures would not have been necessary. The psychology behind this is quite simple, we become happy when we get something, but more unhappy when we lose it than we were at the outset.

Concepts:
• Gather the courage to have the difficult conversations
• You will generate more unhappiness when you take back something you have given

Keywords: leadership, communication, difficult conversations, loss aversion

References:
• Darling, J., & Nurmi, R. (1995). Downsizing the multinational firm: Key variables for excellence. Leadership & Organization Development Journal, 16(5): 22-28.
• Mishra, K. E., Spreitzer, G. M., & Mishra, A. K. (1998). Preserving employee morale during downsizing. Sloan Management Review, 39(2): 83-95.
• Munger, C. (1995, June). The psychology of human misjudgment. Lecture given at Harvard University.
• Tversky, A., & Kahneman, D. (1991). Loss aversion in riskless choice: A reference-dependent model. The Quarterly Journal of Economics, 106(4), 1039-1061.