How CEOs can lead in a recession and come out stronger: 5 powerful strategies from corner-office veterans

Battle-tested business leaders from CVS, Southwest Airlines, Honeywell and other Fortune 500 companies share their best ideas for navigating a downturn.
December 1, 2022, 10:30 AM UTC
Photo illustration of Karen Lynch, Michael O'Leary and Bob Gamgort.
Illustration by Nazario Graziano; Lynch: Saul Martinez; O’Leary: Lorraine O’Sullivan—Reuters; Gamgort: Michael Nagle—Bloomberg/Getty Images; Planes: Nicolas Economou—NurPhoto/Getty Images (2); K-Cups: Courtesy of Keurig Dr Pepper

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Frank Bisignano has been a CEO for almost 10 years and a top-ranking financial executive for three decades. He survived the dotcom crash at Citigroup. He helped steer JPMorgan Chase through the tumult of the Great Recession—managing the megabank’s acquisition of the dumpster fire that was Washington Mutual, no less. And he led his own company, fintech and payments platform Fiserv (2021 revenues: $16.2 billion), through the insanity of the COVID pandemic.

Still, he sees today’s business climate, where recession is now viewed as a virtual certainty, as perhaps the most difficult he’s ever confronted. “We have lots of experience with economic challenges, and they come in all shapes and sizes,” Bisignano told Fortune recently. “But this is inflation like no other. You not only have the cost of goods rising at the fastest rate in decades, you have much less availability of supplies, and a workforce dynamic like you’ve never seen before.” (Yes, “quiet quitting” is an issue in fintech too.) “And they’re all hitting at the same time.” 

But Bisignano has another experience on his résumé that helps him put things in perspective. On Sept. 11, 2001, Bisignano, then Citigroup’s chief administrative officer in charge of technology and infrastructure, including all real estate holdings, was seated at a staff meeting on the top floor of the bank’s office tower at 388 Greenwich St.—less than a mile from the World Trade Center’s Twin Towers. “I close my eyes and see it all,” Bisignano recalls. “We hear this gigantic boom. I go back to my office to see the giant hole in the west tower, and people jumping from the windows. I’m thinking, ‘We have 16,000 people in Lower Manhattan, more than any other company. How do I protect them?’ ” Bisignano ordered the evacuation of Citi’s huge trading operation at 7 World Trade Center—at one point standing in the street brandishing a megaphone and yelling, “We’re going north!” 

The takeaway: In a time of crisis, take care of your people. And almost two decades later, Bisignano built on that lesson when the global pandemic put his workforce under unprecedented strain. Bisignano gave Fiserv’s 4,000 on-site frontline employees (who staff call centers and data centers, and print credit cards for clients) a temporary 25% pay raise, eventually replaced by a 10% permanent increase. Fast-forward to the present, when countless businesses are squeezed by labor shortages, and that investment is paying off: “Lots of people don’t have a full hourly workforce, and we do,” says Bisignano. If recession strikes in the near future, he adds, that employee loyalty “puts us in position to come out of the downturn faster and stronger than our competitors.” 

No question, it’s a tough time to be a leader. Most top experts agree that a downturn is coming; the question is how deep it will go and how long it will last. JPMorgan Chase CEO Jamie Dimon sees a major pullback by mid-2023, but can’t predict if it will be “mild or quite hard.” In a recent interview with Fortune, former Treasury Secretary Larry Summers—who presciently warned in early 2021 that the Fed’s easy money policies would stoke inflation—asserted that a severe, demand-crushing downturn, complete with higher unemployment, is likely needed to achieve the Fed’s goal of bringing price increases down to the 2% annual trajectory it favors. 

Little wonder that CEO confidence, as measured by the Conference Board, has dropped to its lowest point since the dismal days of 2008. But given today’s darkening outlook, the best antidote to anxiety in the C-suite isn’t forward-looking indicators, earnings projections, or guesswork about whether our landing will be hard or soft. It’s learning from what CEOs such as Bisignano have done to surmount crises in the past. Such lessons won’t guarantee a painless recession—but they can help companies mitigate and minimize losses, and bounce back stronger when the economy improves.

Battle-tested: Former Honeywell CEO David Cote is the rare leader to have navigated both double-digit inflation and two recessions over the course of his managerial career.
Lynsey Weatherspoon

With that in mind, Fortune opened the playbooks of great current and former corporate leaders—including longtime Honeywell CEO David Cote, Southwest Airlines’ Gary Kelly, CVS’s Karen Lynch, and Ryanair’s Michael O’Leary—to learn how they weathered (and even triumphed in) periods of extreme adversity. Drawing from their experiences, we’ve assembled a crisis preparation guide with lessons for leaders in any business. 

The overriding message was best expressed by Cote in a recent phone conversation: “When you’re in a recession, it seems to your managers that it will never end,” he said. “What matters is getting over that illusion by having an aggressive plan to exit the recession—so that you can soar out while your competitors are stuck.” 

1. Raise your prices—and spend your cash

Inflation is a vexing puzzler for CEOs, since for most leaders in the U.S. it’s a totally new challenge. We haven’t seen anything like the current jumps in the consumer price index since the oil crunch of the late 1970s and early 1980s. But Cote, Honeywell’s CEO from 2002 to 2017, spent 23 years prior to that at General Electric, including a stint heading the appliance unit. That gave him the chance to observe how GE handled rocketing prices, both in the U.S. and in developing nations—and gives him clear insights about how CEOs should manage the scourge today.

Cote says CEOs should adopt a two-pronged approach. The first: Continue to drive productivity, but recognize that your top priority has shifted to raising prices in anticipation of inflation. It’s crucial to lift prices ahead of the increases you expect from suppliers, and add a big cushion in case your forecast is wrong. “If you’re pricing today for costs tomorrow, you need to be aggressive in your inflation assumptions,” says Cote.

“What matters is having an aggressive plan to exit the recession—so that you can soar out while your competitors are stuck.”

David Cote, CEO, Honeywell

A present-day star pupil on this point is McDonald’s. On its Q2 conference call, CFO Kevin Ozan estimated inflation running at 12% to 14% for food and paper and 10% for labor. But so far, the fast-food chain has successfully recouped those increases by making small, frequent upcharges to its menu. 

The second blow CEOs must minimize: inflation’s corrosive effect on your cash holdings, whose value plummets as inflation gets worse. The solution, says Cote, is to either return all that liquidity to shareholders, or find places to invest where the returns beat inflation—including acquisitions. “That happened in the late 1970s at GE,” recalls Cote. During that time the company studied fields that did better than any others in an inflationary environment, and found that commodities topped the list. CEO Reg Jones, Jack Welch’s predecessor, purchased a mining concern in Australia called Utah International that provided protection against inflation. Utah was a strong money-spinner while GE owned it from 1976 to 1983. When inflation eased, GE sold it—and banked a profit on the sale. 

2. Seize the opportunities that crises create

Karen Lynch took charge of CVS Health in February 2021. With COVID-19 ravaging the nation, the timing might have seemed grim. But Lynch viewed the pandemic not as a big obstacle but as an opening to showcase her plan to democratize the way Americans shop for health care. “We’ll be far more than the corner drugstore,” Lynch told Fortune at the time. 

The pandemic caused a major cultural change: It made consumers demand more convenient health care and seek more frequent, and more nearby, access to treatment and monitoring. Lynch put CVS at the heart of the pandemic as a COVID-prevention hub. Through late 2022, CVS estimates, it will have delivered 87 million vaccine doses and administered 49 million COVID tests at its outlets. And many of the tens of millions who flocked to CVS for those jabs realized that they could get a cholesterol screening or full physical right on-site; they didn’t have to wait a month or more for a doctor’s appointment, then drive 20 minutes to the physician’s office. 

“The pandemic really put us on the map as a health care company,” Lynch told me. CVS has remodeled over 950 of its more than 9,000 stores as HealthHUBs that offer chronic disease management and, in some locations, counseling from mental health professionals. By year’s end, Lynch aims to clinch a deal to acquire a large primary-care provider featuring a network of physicians’ offices. In the four quarters through September, the company’s free cash flow was $19.5 billion, nearly double the 2019 figure. Since Lynch took charge, CVS’s share price has jumped 40%, adding $38 billion in market cap. 

In a similar vein, Keurig Dr Pepper used the pandemic to become a formidable challenger to the two cola giants. The architect of KDP’s rise was CEO Bob Gamgort. (Gamgort left that post to become executive chairman this July but returned as CEO Nov. 10 when his successor stepped down after violating KDP’s code of conduct.) “We didn’t think the world would return to normal,” Gamgort told me. “We forged a blueprint to make disruption our friend.” Gamgort got his first view of where consumers were headed in early March 2020, courtesy of “connected panels” attached to 10,000 Keurig coffee brewers in customers’ homes. “We saw minute-by-minute data showing people were leaving cities and sheltering in place, and that coffee consumption was going through the roof,” he recalls. 

Gamgort also used coffee trends to successfully call what was coming in the “cold” side of the business. The volumes of coffee folks were downing at home suggested that they weren’t stopping to buy drinks at stores, gas stations, or restaurants the way they normally would. Gamgort immediately foresaw that families would stockpile soda at home—most likely in cans, because cans keep it fresher than bottles do. U.S. canmakers had curbed output during COVID’s height. But after the Mexican government declared beer a nonessential product, that country’s canmakers were swamped with unused capacity. Gamgort told them KDP would take all the cans they could supply. “Competitors ran out of cans,” he says. “We got the cans.” KDP ramped up production of cardboard-bound 12-ounce cans. And when sales of classics such as Canada Dry and A&W root beer exploded, KDP could quickly boost production in those new bestsellers.

Today its combined dollar sales of K-Cups and brewers are running over 15% higher than pre-COVID. In carbonated soft drinks, it has gained a potent 1.3 points in dollar market share over its 2019 average to 24.2% through the first 10 months of 2022, according to data from Brett Cooper of research firm Consumer Edge. Since the start of 2020, KDP’s stock has gained 31%, waxing the S&P at 22%, and beating Coca-Cola’s 13.6% gain, though slightly trailing PepsiCo at 33%.

3. Say no to layoffs

Prior to the Great Recession, widespread layoffs were part of almost every big company’s playbook for a downturn. “In 2008, I decided I just couldn’t take that typical path,” Cote recalls of his days at Honeywell. “I thought we needed to preserve our industrial base for the upswing, and that huge layoffs would destroy it.”

Instead, Cote turned to furloughs. Furloughs keep people on staff while they stop working or work less; affected workers usually receive reduced benefits, lower pay, or both—knowing that a job awaits them when the economy improves.

Honeywell did lay off 3,000 through reductions that had already been planned before the Great Recession. But Cote kept the rest of the 125,000-person workforce employed even as rivals were axing headcount. Employees accepted furloughs without pay for four weeks a year, and Cote secured further savings by scrapping managers’ bonuses, including his own, and reducing the 401(k) match. 

Today, Cote marvels at the number of companies that turned to furloughs during COVID’s peak. “When we used them, they were extremely rare in the Fortune 500,” he told me. “CEOs thought you’d get 100% of the employees mad at you instead of the 10% you fired. We found that view was wrong.” Among the giants that used furloughs to navigate the pandemic were Disney, Hormel Foods, Raytheon, La-Z-Boy—and Honeywell. 

Furloughing has been particularly powerful at airlines, where demand whipsaws as the economy fluctuates. Ryanair’s Michael O’Leary embraced the contrarian strategy in the spring of 2020, when the pandemic crushed demand for travel and drove some other budget airlines out of business. He reckoned that his competitors’ retreat opened a wide corridor for Ryanair to expand when the good times rolled once again.

The centerpiece of O’Leary’s strategy: furloughing, rather than laying off, almost all of his 17,000 pilots and cabin crew. O’Leary did extract big cuts in labor costs, to better position Ryanair for the raging fare wars he anticipated as the recovery progressed. But as Eddie Wilson, head of Ryanair’s largest subsidiary, described the playbook to Fortune at the time: “We need to hold on to our people so we can ramp up quickly and gain market share when the market rebounds.” 

“We need to hold on to our people so we can ramp up quickly and gain market share when the market rebounds.”

Eddie Wilson, Ryanair

And that’s what happened. O’Leary grabbed slots dumped by competitors at a number of airports, and won bargain rental deals for gate capacity that would have sat idle in rough times. Ryanair got into Venice’s Marco Polo airport and introduced service to Zagreb, while expanding in such markets as Marseille, Turin, and Málaga. Today its market share in Europe for all air travel is running at 18%, versus 13.3% pre-pandemic. This August, it flew 16.9 million customers, compared with 14.9 million in August 2019. 

Similarly, the pandemic provided a rare opening to Southwest, another company that furloughed rather than fired, under then-CEO Gary Kelly. In late 2020, Kelly began a campaign to introduce service at no fewer than 18 new destinations in a year. His reasoning: Revenues from those flights would help offset such fixed costs as airplane rentals and gate fees, while keeping many of its pilots and ground crews working. For years, Southwest had wanted to add flights at Chicago’s O’Hare in addition to its dominant position at Midway. When United and American cut flights, they freed gates at O’Hare, and Kelly pounced. He also secured gates for the first time at Miami International.

Southwest was serving markets that sold $63 billion in tickets as of 2021. Thanks to Kelly’s strategy, it started flying to airports that garner $14 billion more. The expansion during COVID “greatly increases the pond we fish in,” says Kelly, who retired as CEO in February 2022 but remains chairman. This year, Southwest’s surge in leisure travel, augmented by the addition of all those new venues, has more than offset the drop-off in business passengers—in numbers if not in dollars—lifting Southwest’s traffic back to 2019 levels.

4. Lock in suppliers for later

Another plank in David Cote’s Honeywell comeback platform: Get first dibs on supplies. In preparation for a recovery, he says, “I wanted to be first in line to get the components from suppliers needed to fill that jump in orders, to be treated not equally, but better. So the question was, what do I do with suppliers so they treat me better than competitors?”

His solution was making upfront payments for materials to be delivered when the upswing started. “I’d buy 10,000 parts at $50 each for a total of $500,000, and pay $100,000 right now for materials to be coming in the recovery,” Cote recalls. “That gives [suppliers] cash and helps you lock in supplies later on.” Securing such commitments was especially valuable in two of Honeywell’s biggest businesses: aerospace and controls. In orders for spare parts in aerospace, he points out, “snapbacks are very robust.” Indeed, when sales took off in 2012 and 2013, Cote’s plan flummoxed flat-footed competitors and lifted sales of aerospace spare parts 30% over pre-crisis levels.

5. Take care of your best people

Dave Rennyson is the founder and chief executive of SuccessKPI, a software-as-a-service company that works for call centers. And his 31 years in software and telecom, including a stint at Verizon, have given him some insights about how to keep, and get the best performance from, top lieutenants in rocky times. 

Rennyson notes that his organization’s stars are also its most self-critical and anxious group. “They worry at a higher rate,” he says. Who were the most critical of the Williams sisters? he asks. “It’s Venus and Serena, of course!” The number one move is to make those top managers feel valued, so they know that their jobs are safe. “They’re thinking, ‘I’m an A player, I can’t be on a ship that’s going down,’ ” he explains. “Once you take the basic worry off the plate, they’ll come to you and say, ‘What more can I do to help?’ ”

Rennyson adds that the CEO needs to engage in constant dialogue with employees. “The problems happen when you don’t have consensus on where you’re headed,” he says. “That’s what I used to see all the time in big telecom companies. They’d let people go and not explain that no new layoffs [were coming], and the rumor mill would start going.” Alignment among your top reports is the best protection against buzzing rumors. “Clarity is the number one tool in times of change,” he adds. 

Cote, for his part, touts the impact of an inspirational message. “Don’t underestimate the power of hope,” he told me. “When people are in the middle of a hurricane, they can’t envision that the situation will ever be different. My people often thought that way in the Great Recession. I’d say, ‘There’s a reason they call it recession and they don’t call it a party. ’Cause it sucks. But it will end. And when it ends, we’ll be best positioned for taking advantage of the recession, and not letting it take advantage of us.’ ”

Hearing a veteran of adversity say this won’t go on forever enlivens people, adds Cote: “They take the attitude that they’re working harder and making less—but that when it’s over we’ll kick ass.” 

This article appears in the December 2022/January 2023 issue of Fortune with the headline, “How the best leaders survive the worst of times.”