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Studies Show Companies that Invest in their Leaders Fare Better Before and After Periods of Economic Instability
By AIIR Consulting | April 28, 2025
In turbulent economic times, leadership is not a cost — it’s a competitive edge. And, studies show that organizations that strategically invested in leadership during past downturns outperformed their peers in both sales and profit growth before and, importantly, after the crisis. Yet paradoxically, when leadership investment is most critical, it’s often first on the chopping block.
Key Takeaways
- Studies show that companies making the deepest early talent cuts struggled to regain market position after an economic crisis
- Firms that maintained robust leadership selection and development, on the other hand, weathered downturns better, recovered faster, and outperformed their peers over the long haul
- Selection and development budgets are often first on the chopping block because only 25% of companies believe their leadership development delivers value
- Success requires rigorous partner vetting, outcome-driven program design, and data-based measurement
Navigating Economic Uncertainty: Lessons from Past Crises
2025 has emerged as one of the most turbulent years for global markets in recent history. Recently enacted policies have heightened tensions around international trade, currency markets have shown significant volatility, and bond yields have reached multi-year extremes.
Against this backdrop, the International Monetary Fund reduced its growth forecast for 2025, and increased its projected risk of a recession from 25% to 40%. And, more than 60% of global executives predicted a stormy economic outlook through 2027.
While it is impossible to know the accuracy of these predictions, it’s clear that many organizations are struggling to respond to the moment. We know, having gone through similar crises in 2007 and 2020, that some will instinctively react to uncertainty with conservatism and across-the-board cost cutting.
However, we also know that this response could be a misstep. In the wake of the 2007 financial crisis, the Harvard Business Review published a study of 4,700 public companies during three global recessions in the periods between 1980-2002. Companies that made the first and deepest cuts were the least likely to succeed post-recession, and many failed to recover their pre-recession value. Companies that invested too aggressively fared similarly badly.
The 9% of companies that came out of each slowdown stronger than they went in were those that mastered “the delicate balance between cutting costs to survive today and investing to grow tomorrow.” At the end of each recession, these companies not only outperformed their own pre-recession financial metrics, but bested their rivals by at least 10% in terms of sales and profit growth.
Leadership is the Ultimate Competitive Advantage in Uncertainty
Leadership is an organization’s ultimate leverage point. An organization’s leaders amplify — or undermine — every investment: talent acquisition, culture, innovation, customer experience, and operational excellence. Which is why selecting the right leaders and providing them the development and support necessary to succeed is absolutely critical to remain competitive during and after this period of uncertainty.
Research bears this out. A longitudinal study of 359 companies published in the Journal of Applied Psychology examined the relationship between selection, development, and financial performance before, during, and after the 2007 financial crisis. As seen in the figures below, firms with more rigorous selection and leadership development practices not only performed better pre-recession, but recovered faster and outperformed their competitors when the recession was over. This study controlled for external variables, allowing the researchers to pinpoint the effect of these investments even after accounting for factors like company size, industry, and location.
The Paradox of Leadership Investment: Most Critical When Most At Risk
The data are clear, in the years before the financial crisis, leadership selection and development contributed to profit growth by enhancing productivity and creating resource slack that helped firms weather the storm. In the years after the crisis, investing in building a bench of high-quality leaders helped firms adapt and prosper.
Yet, we know that it is precisely in the moments that organizations need to invest in their leaders the most that leadership selection and development budgets are most likely to be cut.
Why? Without clear return on investment — a survey by Josh Bersin showed just 25% of companies think their leadership development is delivering value to the company — it is easy for organizations to view selection, coaching, and development as expendable rather than essential.
This disconnect between what leadership development could deliver and what it often does deliver creates a dangerous vulnerability for organizations facing economic headwinds. The issue isn’t that leadership development lacks potential value — it’s that too many programs are implemented without the strategic focus and measurement discipline needed to demonstrate that value in business terms.
In today’s high-stakes environment, no organization can afford waste — but neither can they afford underinvestment in their leadership bench. The path forward isn’t choosing between efficiency and development. It’s investing smarter. To maximize return on leadership investments while controlling costs, organizations should follow three essential principles:
- Vet Your Partners Rigorously. Look for proven methodologies, industry expertise, and robust impact measurement tools.
- Insist on Outcome-Driven Design. Programs must be tied to real business outcomes — strategy execution, cultural transformation, revenue acceleration.
- Measure What Matters. Work with providers who can demonstrate ROI with data — not just anecdotes.
Into the Unknown
In the days, weeks, and months to come, the impact of today’s economic currents will unfold in ways we cannot imagine. The uncertainty of the present makes it exceptionally difficult to look ahead. But as past crises have shown us, looking ahead is more important now than ever. And companies that do will emerge better and more competitive than they were before.
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