By Fouad Bekkar
Good executives manage companies in growth, true leaders reveal themselves in times of crisis.
Covid-19 is what is called a black swan event, unpredictable beyond what is normally expected and has potentially severe consequences.
The global lock down, important to prevent a more severe health crisis that could stress test the most advanced healthcare systems in the world, has raised liquidity and solvency challenges for companies across different industries.
The efforts of governments and central banks to minimise the “impact” and maintain a functioning economy, mainly through liquidity injection and relief measures, may be sufficient in the short term to prevent an immediate jump into a recession, but uncertainty regarding the duration and severity of the pandemic has put companies in crisis mode, and most CEOs have found themselves overwhelmed by a sudden and sharp decline in their company revenue, an unprecedented stress on their cash and the whole workforce waiting for guidance and reassurance.
The 10 actions below can help CEOs and their executive teams navigate through the crisis:
The health of your employees and customers is more important than any other business considerations. Preparing a safe workplace, enhancing health and safety policies for customer facing staff, allowing work from home whenever possible and communicating about these measures are some of the steps that can reassure both employees and customers.
It is normal for every CEO to witness different economic cycles in their executive life, from high growth way down to crisis and vice versa. For measures to be effective an unnatural balance has to be struck between cool-headedness and quick decision making by assessing the new reality, establishing different scenarios and adjusting previous plans accordingly.
In normal times, communication is one of the essential responsibilities for any CEO, but in times of crisis, where reliable information is scarce and anxiety is high, staying in constant communication with the employees becomes a question of survival.
While trying to keep their families safe and supported, it is natural for uncertainty to find its way to your employees’ mind, making them worried about the negative impact of the crisis on the future of the company and their jobs. Keeping them informed of the impact of the pandemic on their business and what are the measures taken to mitigate the crisis will help ease some of the anxiety, keeping them engaged and maintaining a sense of normalcy.
Depending on how severe your industry is impacted by the crisis you need to establish different scenarios that could go from a simple downturn to a complete depression. The next step is to identify which one of these scenarios is likely to affect your business and quantify the financial impact on your balance sheet and cash flow.
Not all companies have the resources to cover operational expenses during a lock down and given the uncertainty of the pandemic duration and associated quarantine, even cash rich companies will face liquidity problems at a certain point. You will need both a plan and accurate and up-to-date financial information.
Adding to the duration uncertainty of the Covid-19 pandemic, every executive knows forecasting quality degrades as the time horizon increases. Normally requested by banks and private equity investors to assess the overall health of a company, a 13-week cash flow forecast can also be a tremendous tool for any company to monitor their cash levels on the short and medium term as it offers an accuracy level enough for swift decision making while providing a time horizon adequate for medium-term planning, managing working capital and maximising value from excess cash.
Scaling down the outflow of cash and accelerating receivables will help reduce the stress on your working capital and help your company navigate easily through the crisis. Although everybody is feeling the pain of the lockdown, there is always room for negotiation and mutual support.
Be open and frank with your vendors. There is high probability those with long-term relationships will be willing to postpone or reduce your obligations. A downturn can also present significant opportunities to reduce materials and supply chain costs.
Accelerate your receivables by clearing past due accounts, sending invoices early and frequently and by Offering discounts and incentives for early or partial payments.
Keeping your company lean is important in normal times but in times of cash crisis, scrutinising every expense becomes a vital necessity. The difficulty in this exercise is how to swiftly slash costs without jeopardising the long-term company survival.
You must ruthlessly prioritise your company's expenses. Eliminate unnecessary expenses and only keep the costs that keep operations running and secure revenue.
Given all assumptions on customer demand and forecasts have been challenged by the crisis, it is safe to assume most major investments and projects will be re-evaluated once the crisis is over. Postpone all large investments and initiatives.
Tech giants like Amazon and Alibaba are donating testing kits and protective gears to Africa, LVMH companies have redirected their high end perfume production facilities to produce hand sanitisers and many textile companies are making protective masks, both big and small companies around the world are stepping up to support the community and the health workers.
Even if your our company is not leading the fight against Covid-19, supporting your employees and caring for your customers is a well enough contribution.
Customers are important intangible assets of a firm that should be valued and managed even in times of crisis where due to lack of resources or priority setting, your product or service is falling short of their expectations. When faced with unprecedented wave of customer requests and questions your communication will have to be fast, transparent and accurate to ensure a lasting and trustworthy relationship
While the world geo-political and economic impact of Covid-19 is expected to be a game-changer, companies around the world should also prepare for a new reality where consumer demand, habits and expectations will change dramatically. Companies should also embrace the fact that until a new vaccine against Covid-19 is developed, resuming all economic activities after an initial pandemic control will pose a risk of the disease finding its way back to even further spread.
Companies that will reinvent themselves and embrace technology will surely adapt faster to the new normal, access new sale channels and secure bigger market shares.