The gift of hindsight, when applied to large-scale crises, can make us all look wise. Looking back, it seems obvious that subprime mortgages were inappropriate vehicles for huge debt investments. Looking back, it seems obvious that Enron, Madoff and Lehman Brothers were not viable businesses. Looking back, it seems obvious that a bull run could not continue forever.
The current Covid-19 crisis will be no different. The equity stories of the post-pandemic era are being written now and will appear obvious when viewed through the rear-view mirror. The CEOs who survive and thrive through this crisis will look like the obvious candidates after a year or two, while those who fail to see out the coronavirus will have their weaknesses fully exposed by the cold light of retrospection.
In the midst of global pandemonium, however, such clarity is rare. When all asset classes are strained and highly volatile, identifying those that will survive the crisis and thrive in the post-crisis world is fraught with difficulty.
For example, Goldman Sachs recently advised its clients to buy gold. The ‘currency of last resort’ had suffered major price falls in the previous two weeks as investors scrambled for cash; at $1,460 per ounce, Goldman called an inflection point and argued that the time had come to invest in gold. Only hindsight will prove whether it was right to make the call, and hindsight – like toilet paper, rice and pasta – is in short supply mid-crisis.
Right or wrong, Goldman is doing what all companies should be doing in times of crisis: keeping lines of engagement open, reassuring customers that business continues and thinking about investor needs.
The most successful business strategies are often the simplest. Over-complication is a common failing in business, and countless examples exist of the failure of complexity and the success of simplicity. This is worth remembering at a time when every rulebook of business is being torn up and not a single company on the planet is immune to some sort of disruption.
So how can business apply simplicity of strategy while also maintaining and building relationships? Evidence is already appearing of a powerful success indicator: those businesses that behave honorably and do the right thing when under stress are likely to be rewarded with customer loyalty and an enhanced reputation when the dust settles.
The hotel chain that fired its people with no notice and no assistance will be compared with the competitor that offered its rooms and facilities for healthcare and other key workers for free. The retailer that doubled or tripled prices of hand sanitizer will be compared with the retailer that maintained prices for the wider good. The airline that offered to fly stranded nationals home for an extortionate fare will be compared with the carrier that pulled out all the stops to do the right thing at an affordable price. The bank that was most accommodating to stressed borrowers will be compared with the bank that was inflexible. And so on.
These are all real examples from the past few days. Examples of generosity and greed have always existed in business, of course, but in the aftermath of the most extreme health crisis to face humanity for generations, these behaviors will be highlighted – and remembered.
When human beings are faced with personal tragedy (which, it is fair to say, most people will be in 2020) they tend to take a less financial, less selfish perspective, and instead adopt a more humanistic worldview, valuing kindness and magnanimity. This response will be universal and global. Those companies that seek to profit from the misery of others will be revealed, shamed and forced to face the consequences.
And this is an important element for CEOs to factor into their thinking at this time. Investors will forgive share price gyrations amid volatility but they will look harshly on CEOs for causing reputational damage caused by short-term greed and questionable corporate behavior. In a sense, the CEO’s unique relationship with the investor community means he or she must also be the voice of the firm’s values in the boardroom.
A key element in maintaining the understanding that is crucial to investor sentiment is transparency. This can be difficult when there is only bad news to report, and when the normal rules of business are suspended. But in these circumstances, CEOs must revert to their core messages, reiterate the simple strategies that will deliver shareholder value when normality returns and focus on the values and purpose of the organization while the storm persists.
In the UK, this approach has become almost mandatory since last week, when the Financial Conduct Authority, the country’s financial regulator, asked listed companies to delay publication of their preliminary results for ‘at least two weeks’, to give them more time to assess the impact of the coronavirus disruption on their profitability and reduce pressure on staff. It has requested that they now observe a two-week results moratorium, to prevent investors acting on out-of-date information.
‘Investors in capital markets rely on trustworthy information on the companies whose instruments they trade,’ the regulator said. ‘The unprecedented events of the last couple of weeks mean that the basis on which companies are reporting and planning is changing rapidly. It is important that due consideration is given by companies to these events in preparing their disclosures.’
Any move to dispel uncertainty should be welcome. And for the CEOs at those companies, the removal of this fixture in the financial calendar should mean they redouble their communications efforts with their investors. High up the agenda on these efforts should be a restatement of their simple business strategy underlined by their corporate values and purpose.
This approach will not guarantee survival but it will help to ensure that when judged in the future with the benefit of hindsight, these firms and their CEOs will be treated more kindly.
Oliver Schutzmann is CEO of Iridium Advisors