At a time when everyone is right and wrong at the same time and all relationships are being tested, finance heads can rely on a few time-tested principles.
By Yogesh B Mathur
No response to a major crisis can come without a fundamental understanding of its root cause – in this case, COVID-19 and its effect and prognosis. Economically speaking, the crucial ingredients are well known by now.
It is extremely contagious but with low fatality when controlled and therefore could be prone to a second wave once the resultant lockdown is lifted, uncontrolled.
This clearly gives rise to a cusp period for business activity which could last for just a few months or even well into 2021, depending on when the vaccine and the cure are in sight.
The resultant physical (and therefore economic) lockdowns that raged across the business world were therefore disruptions of a kind not usually faced i.e. nothing had fundamentally changed or deteriorated, just that people-contact restrictions had affected activity all along the chain.
The key point here being that this was conscious physical stoppage, which in turn required systematic recovery from scratch – think startup, not disaster. And not just you as in one individual or one company but everybody in the ecosystem. Hence, given that the disruption came through the impact on people, its people issues are upfront.
Also, nothing is more crucial than being realistic yet visionary at the same time. One is reminded of a key management lesson in the face of adversity, from James C Collins in his seminal corporate self help and leadership book, Good to Great, that “faith that you will prevail in the end must not be confused with the brutal facts of your current reality, whatever they may be.” In its simplest form, this is about hoping for the best, but acknowledging and preparing for the worst.
The basic approach that suggests itself today may at times seem counter intuitive. Modern, consumer-led, demand-driven businesses have fostered several adages that are today considered near sacred in business.
Amidst the unique challenges of today and the most appropriate response for the CFO and top management alike, the following stand out:
- The consumer is king - Yes, but this time it is your people first or else you haven’t started up or restarted at all; get to the consumer’s needs only as you stabilize your ability to address them;
- Reward performance – Yes, but think first of what is required today as enablers for performance. Empathy, not aggression; enthusiasm and positivity, not drive for results; adaptability, not efficiency – are the qualities that yield results in a start-up environment.
- Credit enables growth – Yes, but all businesses, large and small, ultimately link up in a chain in which cashflow today is severely fractured; whether in startup mode or restart mode – being cash conscious would be rewarding at least for now. Let it be said for the establishment, that at least the government took measures to enable liquidity – go out of your way to maximise it across the value chain, and support all such initiatives.
- Contracts must be honoured – Yes, but today everyone is right and wrong at the same time and all relationships, big and small, are being tested. Let it be reiterated that the biggest ship ultimately is the relationship in focus. Communicating with supportive, like-minded vendors, customers and other stakeholders to thrash out a mutually workable solution would be better than examining matters such as ‘frustration of contract’, ‘material adverse event’ and ‘supervening impossibility’. These need to be resorted to only if mutuality fails.
- A (business) chain is only as strong as its weakest link – Yes, absolutely. First fix that weak link, because it’s the one that started cracking first and will be the most difficult to revive. Also, nothing is more permanent than change – and perhaps on balance it is time to make that change – but for now only change the parts that were weak in the first place.
Ultimately, it is not the crisis, but the response that matters the most. Businesses need to first get back on their feet again – get restarted and then look at the new normal. Clearly, the cusp period of uncertainty will pose problems led by the risk of disease.
By all means, the government, state, local authorities and external stakeholders have a role to play. Yet again, for a change at this stage to occur they are to be all of one mind i.e. support must be provided and each and every business must get back on its feet.
Finally, it is no shame for anyone to show that their business is fractured. Indeed, the winners will be winnowed out as those who openly recognize that, look at the widest possible ambit of issues and are upfront about how they intend to address these.
And that is what it takes to deal with a situation that comes once a lifetime or once a century.
(The author is a senior advisor with Grant Thornton, India. Mathur is a chartered accountant with over 35 years of experience as a senior finance professional with over 20 years in the CFO or equivalent roles. This is the fourth article by him on COVID-19 and the CFO)
Here are the earlier articles:
Case for the CFO as a leader in the post COVID-19 world
The CFO in the COVID-19 aftermath - Fight steel with steel
The CFO and COVID-19: Lockdown and beyond
