5 Leadership Questions Every Boss Should Ask Your employees need you most when times are tough. Know how to talk to them--whether the news is good or bad.

The downturn has brought about many woes, especially in the corporate sector. Balance sheets are in distress, stocks are down, layoffs are up, revenues are off, and employees are extremely worried; and so are employers. The shockwave that's been hitting the world economy demands that entrepreneurs react, and react differently than they have in the past. Unfortunately, the pathways toward effective action aren't always clear. There's no one set of rules to follow during turbulent times that say "This is the best way to go."

Nevertheless, there are some especially useful guidelines to consider during times of crisis that can be helpful to entrepreneurs interested in riding the negative wave and holding out for better times.

Entrepreneurs, like other leaders, often ask similar questions about how to manage in a downturn. Following are five examples of such typical questions, and the answers to them:

1. How should I manage and lead differently in light of the economy? The best response is to communicate, communicate, communicate. Your employees need to hear from you, the person at the top. Lack of communication leads to a rampant rumor mill that most often has harmful effects. Even the best of leaders' intentions can be misconstrued and twisted in the absence of direct communication. The leader must provide regularly scheduled updates on issues such as sales, services, revenues, losses, projections and near- and long-term projects and status.

That said, this message must be clear, upbeat and to the point. Employees, just like stockholders and trustees, dislike having to sift through corporate bluffing and unnecessary details to get to the "meat" of the message. Above all, the message must be honest, even when it's negative. The entrepreneur must not underestimate the level of understanding of the recipients of the message. No one likes to be spoken down to, and above all, no one likes to be lied to. If the leader tries to sugarcoat the message or minimize the impact of a situation, it'll soon become apparent to the audience. And when it does, they'll be angry; in fact, angrier than if they'd received a direct, yet negative message to begin with.

Furthermore, if the leader minimizes the negativity or is dishonest, his credibility will be injured, perhaps irrevocably. The leader must be constantly sensitive to employee morale and motivation. Realistically, sad economic news delivered in a depressing way leads to downbeat employees, which in turn leads to decreased motivation. It becomes a domino effect: Decreased motivation leads to decreased productivity, which leads to decreased output and revenue, which leads to possible employee termination for non-performance. Morale may plummet; however, if the leader is honest and clear, and frames the message in realistically optimistic terms, morale doesn't necessarily decline in the face of negative news. The key is to be a level-headed, rational, understanding and positive leader.

2. How often should I communicate the status of the company to employees? This depends on the type and size of the company, the industry and the degree of impact the harsh economic situation is having on the organization. The general rule is to communicate often enough to keep the employees up to speed, yet not so much that they overreact to the daily or weekly fluctuations of the marketplace. This is true unless the very survival of the company is directly tied to the frequent changes in the marketplace, in which case updates need to be made more often. Therefore, on the average, monthly status updates are appropriate.

3. Should I allow my employees to participate in these information sessions? Yes. Employees want and need to be heard. Many leaders are reluctant to open up the floor to their employees because they fear losing control. This usually only occurs when motivation is down and anger is high--two factors that can be minimized with frequent and honest feedback. Many organizations hold town hall meetings to create open communication between employers and employees. This helps both parties hear and understand each other's viewpoints, questions, frustrations and worries. If a meeting is held where only the boss speaks, the employees are prevented from airing their questions, fears and concerns--data the boss needs to understand in order to be an effective leader. In many cases, the leader can easily and rapidly clarify misconceptions and avoid disastrous rumors by allowing an open flow and exchange of information.

4. Should I give my employees a heads up about layoffs, work furloughs, etc.? Because this category of information is usually depressing, productivity and morale are certain to decline once it's delivered. In brief, no work gets done because the people are in shock and feel betrayed or confused. The best time to convey the bad news is right before it's scheduled to occur. Therefore, if a noon layoff is set, employees should be told, individually or in teams, shortly before then. The leader should allow time for questions and expression of fears and concerns--and yes, be prepared to be yelled at or even threatened. All of these are realistic and common reactions to receiving bad news about one's employment future.

5. How should I communicate bad news? No one likes to get bad news, especially when it applies to one's livelihood. Let there be no doubt--layoffs are difficult to accept. However, there's a communication format that can lessen the pain. As stated above, the message needs to be clear and concise. "Beating around the bush" isn't acceptable; neither is a very brief, dramatic statement like "You're fired." Instead, the leader needs to use a three-part sequence to deliver the message. First, say something positive, like "You've been a valuable member of our team for some time. I want you to know that I appreciate your contribution." This statement contains negativity, but it can be softened and better accepted if the message begins with a positive statement and the communicator is certain to express concern for the other party. Next, continue with the bad news. Tell them you have to cut your losses and terminate some people or cut back on certain projects. Pause and wait for your words to "sink in." Third, state what you'll do to help out those being terminated. Say you're setting up stations to show employees how to develop their resumes, search for new jobs, etc. If you don't intend to do this, then ask them to finish up what they're doing, gather their things, say their goodbyes and leave the building by a certain time.

The most important thing to take away from this column is that there's a framework to use when openly and honestly delivering news, even when that news is bad. The leader's credibility and honesty is at stake at every juncture here. As a result, the entrepreneur needs to be certain to invite feedback and express concern for the well-being of the employees.