×

Beware of ‘false positives’ in this market

As CEOs look ahead, they may be dazed and confused by the flashing lights — red, green, and yellow.

The stock market, after suffering its worst-ever start of a new year, has rallied about 15 percent since its February low, with the Dow closing above 18,000 for the first time since last July. That looks like a green light, right?

Not so fast.

Businessman working staring out, flashing lights
Shannon Fagan | Getty Images

Gold, traditionally a safe haven for investors, has rallied about 16 percent since the end of last year. If investors are that worried about geopolitics and the economy, that's a red light that cannot be ignored.

If that weren't enough, cautionary yellow lights were set off again by the International Monetary Fund, warning that the world economy is at risk of stalling. The IMF cut its global growth forecast by 0.2 percentage points to 3.2 percent (3 percent growth globally is a technical recession).

In making its fourth straight reduction in its global outlook in a year, the IMF cited China's economic slowdown, lower commodity prices that have hurt emerging and developing economies, and the Federal Reserve's initial moves to raise interest rates. Meanwhile, Europe and Japan remain low-growth zones.

CEOs don't need to be economists to recognize the tempest in these tea leaves. Amid today's conflicting economic signals, the outlook is increasingly unclear. When confusion abounds, negativity reigns.

More than ever, leaders need the twin skills of anticipating and navigating to chart a course through uncertainty and into what could very well be less-than-optimal global conditions.

Anticipating starts with the reality of the "here and now" and uses intuition and intellect to project the next leg of the journey. As the late leadership guru Warren Bennis once told me, the future that is anticipated is based in the reality of today. Accurately perceiving the present is key to extrapolating meaning for tomorrow.

No matter how clear or concise the vision, however, anticipating is never an exact science. Changes in conditions, terrain, and climate (economic and geopolitical) require navigation in real time. Strategic thinking is far less about planning in the calm than it is about decision-making and course correcting as storm clouds loom. In other words, anticipate the course ahead, but navigate to avoid collisions, overcome obstacles, and capture opportunities.

How else can corporate leaders deal with today's conflicted reality? Low U.S. unemployment at 5 percent may be a classic green light. But that can't outshine the consensus among economists for elevated risk of a recession in the next 12 months.

In these confusing conditions leaders need more than a "Plan B" for corporate strategies — they need to devise "Plan C" (and maybe D and E) as well, because in uncertain times clarity is only found in the rearview mirror. And, the cautionary objects may be far closer than they appear — a lesson painfully learned in the Great Recession of 2008-2009.

In 2007, the economy and the financial markets appeared to be steaming ahead. No one seemed overly concerned about skyrocketing housing prices and lax mortgage lending practices in the U.S., and a high degree of leverage in the financial system. The broadly held consensus was for smooth sailing — until the iceberg was struck. The post-mortem blames poor economic surveillance.

Given that the average length of an economic cycle is just over five years, the current expansion is already long in the tooth. That doesn't necessarily signal running for cover immediately. But it does point to the increasing importance of awareness and remaining agile — like a chess master who thinks several moves ahead.

Whether the lights flash green, red, or yellow — or a confusing combination of all three — leaders must engage the observation capabilities of the entire organization. Anticipation, after all, is not the purview of the C-suite alone. In world-class organizations, anticipating is a "team sport," as leaders empower those who are closest to the front lines and the clues and answers to be found in the market. Rather than relying on their own observation alone, leaders actively seek out the perspective of others to tap their perceptions of reality.

Brought together, anticipating and navigating foster a culture of curiosity in which people are encouraged to notice the early evidence of change. Looking ahead, they are empowered to ask "why not" about both problems and opportunities, instead of merely wondering "why." As the culture orients toward the belief that the only real failure is failing to fail, people more readily experiment with the new and different.

From where we stand, the warning lights are not likely to stop flashing any time soon. The bigger danger, however, is to become blinded by the glare of green lights that signal the false positives.

Commentary by Gary Burnison, CEO of Korn Ferry, a high-end staffing company. A bestselling author, he has written several, including his latest, "The Leadership Journey: How to Master the Four Critical Areas of Being a Great Leader."

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.