Managing During A Plague

March 29, 2020

The COVID-19 outbreak is beginning to look unstoppable.  With infection rates doubling every four days in first world economies herd immunity will be reached in a short time frame (see note 1).

This crisis will have a severe economic impact which will require adjustment.   The human impact may last longer and be more damaging.   Being a good leader could make a dramatic difference to how your organization is viewed by your four constituents, employees, customers, suppliers and investors.

While the economic impact is likely the driving force behind changes, it is imperative that you manage the human aspects of this crisis.

Take Care of People

While it may not be possible to provide assistance, maybe even employment or services to all of the people impacted by your organization, it is possible to consider their well being.   Some will be unable to work, some will be afraid for their safety.  Customers may be unable to complete transactions; suppliers to deliver goods or services.   Giving the people room to adjust to this new reality, where you can, will promote goodwill.

Many issues, given the severity of the crisis, will appear to be minor in retrospect, so consider taking the high road in any dispute and either deferring the matter or letting it go.   Taking time to consider options before making things worse may be the best course.

Current evidence suggests that isolation is the only way to successfully avoid this virus, so letting employees work from home, delivering products directly to customers and possibly shutting down operations are worth considering (see Note 2).

Sometimes people just want to be heard.   If possible, figure out what you can and can’t do to help, try to settle on a strategy for the business, staff, customers and then inform those involved what will be done.   Listen to their concerns, respond to queries and concerns with your plan in mind, but don’t try to accommodate every request.   Stick to what you can do given your plan, regulatory requirements and your ability to sustain your organization.

Watch Your Balance Sheet

The stimulus packages being offered by central governments around the world are in response to the lack of capital available to individuals, organizations and government/agencies around the globe.   It is, in effect, a desperate dash for cash.  Historically this has manifested itself as runs on the banks.   When this began two weeks ago, central banks stepped in to avoid the damaging effects of a liquidity crisis.  Your organization, even your family, should do what you can to prevent this.

If you are a small business with limited resources, you need to consider all avenues, as quickly as possible to reduce your expenses, delay your cash outlays and hunker down for at least two or three quarters of damage to your financial metrics.

Medium size businesses may have a bit more flexibility to improve their balance sheet through lending, perhaps managing suppliers, adjusting margins and staff adjustments.  Many of the central bank programs are designed to help make loans available to withstand this uncertainty.   Start the process early as lenders will be extremely busy for many weeks.

Of course large enterprise should have the most flexibility, however this is dependent on their balance sheet currently.  Many organizations have been surviving on thin margins and the hope for improvements in future.  Oil and Gas companies, retailers, restaurateurs and travel companies have very heavy debt loads already and may find it difficult to access more capital.   If you can, draw down lines of credit with substantial working capital, delay expenses and manage staff to suit the expected workload as this crisis unfolds.

Prepare for Change

Political leaders are in the business of providing hope and comfort to all of those they represent.   Articles in major media talk about restarting the economy and getting back to normal, but this is not likely to happen.   In the best case scenario, this crisis will end in four to six weeks and we will return to our old ways, but with an additional debt burden that represents a year or two of earnings.

Some businesses will not make it through this event.  This will roll through the economy in a number of ways, including:

  • raising risks for lenders (and likely interest rates)
  • strain on suppliers (rents for example will come under pressure as management companies try to cover costs/losses)
  • supply chains could be broken (causing increased costs and delays)
  • reduced supply (which may increase some organizations’ pricing power)
  • ‘Essential’ workers are some of the least well paid, this crisis may alter perceptions on who is essential and how those who are essential should be compensated

The impact on individuals are likely to be profound and many will be difficult for them personally.   Some things to look for include:

  • Customers will have less financial flexibility and may reduce spending
  • People may be afraid to move about freely until a vaccine is found, making it difficult to work, delaying return to school for children, reducing use of mass transit, and finally needing to take care of loved ones.
  • Retirements will be deferred for many, later in their careers
  • Unemployment will have risen and may persist at higher levels
  • Travel may become less appealing for personal or for safety reasons
  • Working from home may become a necessity, particularly for those with niche skills

The last time the world was impacted by an event of this scale (1918-1919) the world looked nothing like it does today.   Population density, travel, supply chains were vastly different.   At the same time, our understanding of viruses and the tools we can bring to bear on the crisis are also vastly superior.

How you manage your organization may impact survival for your organization, but at the very least can provide insight into your humanity.

End Notes:
  1. While we can only use math, if 100,000 people in the US are infected currently, and the rate is doubling every four days, 5% of Americans could be infected before May.  Canada, starting with just 5,000 infections and a more significant restrictions on movement will take twice as long to reach 5% of the population.  As testing increases these numbers could change dramatically.
  2. The only country that has successfully stopped the virus is China and after six weeks they are beginning to get back to work.   Other countries and cities have now begun lock downs and it will be weeks before we know if they work.  If they don’t, expect the economic shock to last much longer.

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