What Not to Do When The Economy's Down

Even Warren Buffett, the esteemed chairman of Berkshire Hathaway(BRK.A Quote), makes poor decisions.

In a February letter to his company's shareholders, Buffett admitted errors of both commission and omission. He made bad investments, such as buying shares of ConocoPhillips(COP Quote) as energy prices were peaking, and failed to take action when new opportunities arose.

Buffett's not alone. An economic recession like the current one can cause a "paralyzing fear," as he calls it, driving both individuals and companies to do dumb things. Here are some common pitfalls:

Airing dirty laundry: Even though Buffett admits his mistakes, he maintains a positive attitude toward shareholders and the public, even when times are dark. He knows his words can calm investors or cause panic.

Companies should follow his lead. It's fine to admit difficulties to employees and stakeholders, but don't act as though the sky is falling. Disclose what you must, but share other bad news with only a core group of managers in your company. Maintain a positive attitude with everyone else.

Cheapening your brand: Slashing costs and compromising quality to make ends meet will do more harm than good long-term. While you might have to resort to deals to draw in customers and build sales, be sure to deliver what customers expect from your company's products. If you cut corners now, customers will remember when the economy turns around.

Hampering productivity: During a recession, most companies try to get the most out of the fewest employees, especially if they've had to lay off staff. So now's not the time to hurt the productivity of remaining employees. Relying on outdated technology, doubling up on workspace, cutting back on essential travel, holding excessive meetings and other caught-in-the-headlights actions can cause more harm than good.