The Hidden Costs of Cutting Leadership Development: Why Pausing Or Postponing Leadership Programs Is A Dangerous & False Economy

In the face of economic headwinds, one of the easiest ways to reduce overhead is to cancel or reduce leadership development investments, pause existing leadership development programs, and postpone events or retreats for senior leaders.

While this may appear to be a logical cost-saving measure, research reveals that it has profound negative impacts on employee morale, organizational culture, and long-term performance. We have witnessed entire leadership teams disintegrate, and top executives leave after leadership programs we have been running have been cut short or canceled.

I believe this misguided approach can cost a business many years of lost or lackluster growth. Cutting leadership development programs is one of the most damaging organizational decisions during economic downturns.

In this second article in the series on the business case for leadership development—the first article deep dives into the benefits of investing in leaders—I look at the many costs of curtailing the development of exceptional and transformational leaders.

The Hidden Costs of Pausing, Postponing, Or Cancelling Leadership Training

The Psychological Impact

A longitudinal study by the American Psychological Association examining organizations during economic downturns found that companies that suspended leadership development programs experienced:

• 43% decline in employee perception of being valued by the organization
• 37% decrease in feelings of psychological safety
• 31% reduction in reported career optimism
• 28% drop in organizational commitment

The Motivation & Innovation Crisis

Research from Towers Watson reveals that when organizations cut leadership development during challenging times:

• 64% of high-potential employees report feeling “abandoned” by their organization
• Employee discretionary effort drops by an average of 32%
• Innovation initiatives decrease by 41%
• Voluntary turnover intent increases by 26% among top performers

The Trust Deficit

Harvard Business School research on organizational trust during economic downturns shows that cutting leadership development programs creates:

• A 39% decline in trust in senior leadership
• 45% reduction in belief in the organization’s commitment to employee growth
• 34% decrease in confidence about the organization’s future
• 29% drop in employee advocacy for the organization

75% of employees report that their boss, when not equipped with team building and relational leadership skills, is the worst and most stressful part of their job and 65% of employees say they’d take a new boss over a pay raise!

The False Economy of Cuts

Research on organizations that maintained versus cut leadership development during previous recessions reveals:

• Companies that maintained leadership development emerged from downturns stronger, with 2.5x the market share gains
• Organizations that cut programs took an average of 3.7 years to rebuild lost talent pipeline strength
• The cost of rebuilding suspended programs averaged 2.3x the savings from cuts
• Employee re-engagement after program reinstatement took 18-24 months on average

The Competitive Disadvantage

A study examining market performance during and after economic downturns found:

• Organizations that maintained leadership development programs during downturns outperformed their markets by an average of 42% in the recovery period
• Companies that cut programs underperformed market averages by 27% in the same timeframe
• Market share recovery took 2.3x longer for organizations that suspended leadership development

The Long Term Impact On Workforce Culture

Research from Deloitte’s Human Capital Trends survey indicates that cutting leadership development during challenging times creates lasting cultural damage:

• 57% decline in perceptions of organizational resilience
• 49% reduction in employee belief in organizational values
• 43% decrease in reported cultural cohesion
• 38% drop in cross-functional collaboration

Strategic Alternatives to Cutting, Pausing, Or Postponing Leadership Development

Instead of eliminating leadership development, organizations should consider research-backed alternatives:

Program Redesign

• Providing low-cost micro-tools and micro-learning through digital channels
• Leveraging peer-powered interventions to reduce the costs of experts
• Deploying circle-based leadership development approaches that can scale with low-cost
• Focusing on developing mission-critical capabilities around innovation leadership, change leadership, and team building
• Shifting to blended learning and/or digital-first approaches

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Training Optimization

Research shows that organizations can maintain 85% of development impact while reducing costs by:

• Shifting to blended learning approaches
• Leveraging internal expertise
• Streamlining program delivery
• Reducing the costs associated with excess HR managers and training program managers
• Working with consultancies that have reduced margins

Targeted Investment

Research demonstrates that focused investment in key areas can maintain development momentum:

• High-potential talent, including emerging leaders
• Brand or product senior leadership teams with the most innovation potential
• Business unit leadership teams that can deliver outsize growth
• Critical role succession
• Essential leadership capabilities
• Change leadership capacity

Conclusion: Improve, Don’t Cut Leadership Development

The question should never be whether to invest in or cut leadership development, but how to invest most effectively to drive maximal ROI. By taking a strategic approach, aligning development with business goals, and creating sustainable programs, organizations can build the leadership capacity they need to thrive in an uncertain future.

If leaders have felt cared for and invested in by the business—and then suddenly experience a loss of leadership development support and in-the-flow of work leadership training—they can rapidly lose faith, trust, and a sense of reciprocity. The most essential of assets—discretionary effort and energy, which are crucial for innovation and adaptive success—can tank.

Mature and talented leaders will only go the extra mile when they feel cared for, supported, and invested in as talent.

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