Withstanding the coronavirus aftermath – how agile does a business need to be?
How agile does a business need to be for withstanding the coronavirus aftermath? A few weeks ago, I gathered the management team and our key business partners to discuss the impact the novel coronavirus might have. The novel coronavirus causes the corona virus disease (COVID-19). Is this a just a flash in the pan seasonal illness or a worldwide pandemic event , which could last months? Is this an event, the likes of which could shake the rocky foundations of many businesses who have just emerged bruised and battered from a global economic downturn?
The globe downturn stemmed from a financial crisis in 2008. More recently, there has been increased global economic pressure due to lower than expected oil prices, a trade war between the US and China and uncertainty over Brexit. We are again facing unprecedented pressure on oil prices with the price per barrel at $30.
Learning from governance fails of the past
During our strategy planning meeting, we discussed different scenarios, most centring around the inability to travel to provide face to face training courses. Also, the lack of delegates to attend training masterclasses in Dubai or Malaysia. The two are hubs for professional learning and development for leaders. We also discussed the potential risk for trainers and employees and the impact a case of COVID-19 might have. We also considered wider risks associated with cashflows, contracted commitments and future pipeline of work.
Based on our strategic discussions we have come up with a plan B and C to diversify and embrace change. Firstly, to remain competitive and secondly to ensure we continue to fill the learning and consulting gap in the market. I can’t tell you our plans but watch this space, we have several innovative ideas we are developing.
Is change really necessary and how does governance apply?
Flybe has collapsed, due in part to a highly competitive airline industry and ultimately the effects on COVID-19. I am sure this is the first of many collapses across different industries. Airlines, the hospitality industry and travel agents will be massively impacted by the effects COVID-2019 is having and will have over the coming weeks and months. Let’s hope a cure is quickly found so that we can all go back to business as usual. The rising death toll is alarming and our thoughts are with the families who have lost loved ones. It could be a year until a vaccine is discovered for COVID-19.
Many businesses have collapsed over the last few years and we have seen household names fail, consider Thomas Cook, Clintons, mamas and papas, Karen Millen and Coast, Debenhams, Patisserie Valerie and Jessops. Businesses need to adapt to change quicker than ever before, you have heard the adage ‘you snooze, you lose’. Many organisations do not invest in embedding good governance as part of their culture.
What’s the role of the board and senior management in good governance?
It’s the role of the board and senior management to provide a governance framework that aligns the strategy, corporate culture and business objectives. A governance framework shouldn’t be about just ticking boxes, but for embedding ‘good governance’. An old proverb says that a fish rots from its head. If this is the case, then tone from the top of the organisation is paramount for establishing a culture of good governance. This can only be achieved by walking the talk and also rewarding good behaviour. Bad behaviour and unethical practices must be punished to reinforce the core values of the organisation.
Are we on the brink of a global recession?
History would tell us that we are due for another global correction and it could be that COVID-19 is the catalyst for an economic rebalancing. The US Federal Reserve recently acted quickly to cut base interest rates by 0.5% as a measure to alleviate some of the fears of investors. We haven’t seen an interest cut like this since the 2008 financial crisis. But, with the large downward swing on global indices we could see further cuts in the short-term.
Also, we see increased consumer borrowing and COVID-19 will inevitably lead to businesses and individuals defaulting on their bank borrowings. Moreover, liquidity will likely become an issue if this global crisis continues long-term. Even governments are sitting on huge debts and with another economic recession we could see some countries negotiating to refinance their debt.
Does the global economy need another injection?
The global economy needs an injection of life before the COVID-19 effects ripple globally. Moreover, we are already seeing many countries considering economic stimulus.
Can your business model adapt to disruption for withstanding the coronavirus aftermath?
Culture eats strategy for breakfast, but it looks like COVID-19 eats culture, strategy and business operating models for breakfast, lunch and dinner. Not many of us predicted a global epidemic/pandemic of the scale of COVID-19. But, the World Health Organisation predicted a disease X as the next major global public health risk. Fore vision leads to provision. In the case of COVID-19, not many businesses were prepared for the chaos which has ensued since the tragic discovery of the novel coronavirus in Wuhan on 31 December 2019.
All successful businesses plan for change. But not all successful businesses have robust business continuity and disaster recovery or crisis management plans. Does your organisation have tried and tested plans in place to manage unexpected, high impact risks which emerge suddenly? If the macro environment is moving at a quicker pace than your internal change processes, you might be doomed for failure. Don’t let the impacts of COVID-19 get the better of your organisation.
“If culture eats strategy for breakfast, it looks like COVID-19 eats culture, strategy and business operating models for breakfast, lunch and dinner.“ – Robert L. Ford, Governance Gurus
Withstanding the coronavirus aftermath – Where does corporate governance come into the equation?
In 1992, Sir Adrian Cadbury defined corporate governance in the first UK Corporate Governance Code as:
“Corporate governance is the system by which companies are directed and controlled. … The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The board’s actions are subject to laws, regulations and the shareholders in general meeting.”
Good governance is about great leadership, oversight of management and balancing short and long term business objectives.
Has Governance really evolved?
We are yet to see a better or more concise definition of corporate governance, than from Sir Adrian Cadbury. He had the vision to consider stewardship and the leadership role directors play. The directors are to direct and control strategy and have oversight of management. This oversight is to ensure the necessary internal controls and policies are in place. This is to adequately manage the current and emerging risks to the organisation. Good governance is all about being able to weather storms. By making provision during good times they ensure long-term sustainable success.
Moreover, part of the long-term success of an organisation is that it must be able to meet its current and future debts with a high level of certainty. Furthermore, the company should be left with enough cash to meet unexpected crisis. Also, companies who want to remain successful must invest in research and development of new products and services. This can only happen with available surplus of cash to re-invest into the business, when needed.
Is the future really that gloomy?
No, of course we are not heading to a disastrous apocalypse. However, we do need to be prepared for a tightening of the belt. There needs to be a focus on maintaining short, and medium-term debts, plus cashflows. This should put us in a good position to capitalise on opportunities. In all global downturns there are winners and losers. The right strategy and operating model will prove to be the difference between success and failure.
What strategy and operating model is right for your organisation?
Governance Gurus work with organisations of all sizes to develop their strategy. We also train leadership teams and help them implement organisational change. We can help you weather the storm or prepare appropriately to transform your business, get in touch here. Alternatively, you can check out our services for business strategy planning.
