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Board Leadership for Navigating Economic Shocks

The Covid-19 pandemic is impacting a global economy that was already stuttering. Growth was slowing in a range of countries, exacerbated by trade disputes, uncertain negotiations and growing indebtedness. The global pandemic poses an existential threat to many business sectors and enterprises of all sizes. It presents national Governments and corporate boards with formidable challenges. Many of these are shared by stakeholders and competitors and require common and/or collective responses. Many decisions have to be taken quickly and without the benefit of lengthy analyses of the relative merits of different options.

The ritual of monthly board meetings and othergovernance arrangements are insufficient for dealing with fast moving and disruptive shocks to economic and social systems. The pandemic has exposed the vulnerability and lack of resilience and flexibility of many business models, lean operation and extended and international supply chains when countries and companies give priority to safeguarding their own interests. With the focus on Covid-19, will other threats such as global warming be overlooked and put on the back burner? Is the pandemic a wakeup call? Could this be an opportunity to also rethinkbusiness models, direction, purpose and priorities and transition to a more sustainable development path?

Many board meetings are nowvirtualand have become sober affairs. Around the world, boards have adjusted and reacted to the spread of Covid-19 and its impacts upon customers and employees, and to Government responses. In some countries, new measures have been announced on an almost daily basis. Responsible boards follow official advice, but they should also do more when necessary to protect the interests of their stakeholders, particularly those who are especially vulnerable and disproportionately affected. Overnight companies can lose their customer base or be forced or ordered to cease or transform their operations.

Enforced and Serious Reflection

What should directors in the eye of the storm and working from home and/or self-isolating be thinking about? Between crisis conference calls what should they reflect upon? Will previous practices return if and when the pandemic passes? Will behaviours, preferences and priorities change or move in new directions? Will some board members and companies, whether customers, competitors, business partners or suppliers, no longer be with us? How resilient and flexible are wein the face of adversity? Can wequickly scale back or switch production, for example to ventilators? Are we resigned and hoping for the best?

Prior to the pandemic all was not rosy. There were sustainability, environmental and climate change concerns and new technologies and business models to consider. Some sectors, markets and countries were experiencing a slowdown in economic growth. In key national markets many consumers faced a credit crunch and falling house prices. Theywere pulling in their horns. Businesses were postponing investment decisions because of economic, political and other uncertainties. Certain sectors, markets and countries were on the brink of recession.

At lower levels of activity and confidence, any shock can put pressure on corporate budgets, margins and profits.The pandemic has compounded problems being experienced by many businesses and complicated the situation for public policy makers searching for an appropriate response. In India, increased inflation was complicatingthe efforts of the Government to revive growth by reducing interest rates.A certain level of economic growth may be needed to increase inclusion, feed and house more people and, in some countries, cope with the support requirements of an aging population.

Negative Consequences of Excessive Growth

A continuous period of rapid growth can lead to overheating and inflation. It may put pressure on resources, the environment and public services and lead to complacency, a reluctance to consider alternatives and a lack of challenge. Even marginal companies may be busy if more desirable players from a customer perspective are unable to keep up with increasing demand. When the going is good, some boards may be tempted to postpone difficult decisions or devote less attention to containing costs or improving productivity.

While an economy expands there may be little imperative to change, even though growth might have its critics. In developing countries, more people may be lifted out of poverty, but uncontrolled growth can also strain fragile eco-systems and lead to increased pollution, waste and carbon emissions. Does faster growth in a country such as China lead to the looting of scarce natural capital that is required to improve the conditions of people elsewhere, for example in parts of Africa? Are there limits to growth, and in relation to sustainability and global warming, have we already exceeded them? Is nature fighting back?

Was the rapid expansion of cities and urbanisation prior to Covid-19 sustainable? Is there an inevitable trade-off between growth and environmental quality? In the case of consumer led growth and its implications, is it responsible for companies to continue to use advertising and other marketing communications to create a dependence effect and wants for a range of offerings that may not lead to happiness and it would not be sustainable for a majority of the world’s population to enjoy? Should responsible business leaders champion simpler, healthier, more fulfilling and less stressful and environmentally harmful alternatives?

Impacts of Economic Recession

A pandemic can trigger widespread recession. From a wider societal perspective, what are successful and unsuccessful responses tosuch an economic shock?Whatsteps should boards take to review corporate purpose and priorities, transition to a more sustainable business paradigm and improve their positioning by containing costs, boosting performance in key areas and enhancing corporate ability to survive future shocks and act responsibly? Some companies have found practical and affordable ways of increasing flexibility and resilience, and capturing and sharing the superior approaches of high performers in ways that can improve profitability and growth while also benefiting people, organisations and the planet.

Many young people have been looking for jobs at a time when technological developments threaten many existing ones and worsening and uncertain economic prospects might deter business start-ups and initiatives to create new ones. An economic slowdown can impact on living standards. If an economy grows more slowly than population,many people canbecome poorer. Total output and output per head may be insufficient to fund investments to reduce harmful emissions and improve productivity and the quality of life. Covid-19 is resulting in unprecedented levels of Government intervention and support.

A slowdown and recession hasimplications for public revenues and meeting spending commitments. Actions to tackle certain problems that couldhave been addressed by higher levels of further growth may need to be postponed. Government responses to pandemics such as bailouts and other forms of financial support to people and organisations can lead to sudden and unplanned increases in public debt that break traditional fiscal rules and provide a further challenge for future generations. Reduced budgets elsewhere and in businesses can lead to cuts and delays in areas like maintenance that increase future costs. Windows of opportunity may be foregone or missed.

Differing Board and Corporate Responses

Where boards have discretion, economic slowdown, recession and shocks can lead to differing corporate responses. Past experience gives clues as to what we might expect. Costs may be cut to balance the books, with insufficient thought devoted to the longer-term consequences and implications. Rapid retrenchment can strain relationships.  Customers and employeesmay feel they are being required to bear a disproportionate share of the cost of adjustment to a lower level of activity. Some countries and sectors may be impacted more than others. Where growth creates expectations that progress will continue, slowdown can lead to social and political unrest. The Russian revolutionin 1917 occurred when economic slowdown followed a period of growth. Will the public make allowances for Covid-19?

Certain sectors and related professions can gain from an economic slowdown or recession. Receivers, liquidators and bailiffs may benefit from the misfortunes of others. Those who provide information and guidance can also experience enhanced demand for their services.Economic recessions createboth challenges and opportunities. They sometimes stimulate creativity, innovation and a fresh impetus in areas such as the search for new income streams and/or more inventive business practices. They can encourage collaboration in the face of common problems. A slowdown can also be an opportunity to explore alternatives and – ifbudget provision is available – undertake maintenance and repairs.

In comparison withan economic slowdown, a recession or shock can present different challenges and opportunities. There may be more pressure to act quickly, gasp nettles and make tough choices. A board might be less tempted to continue as before in the hope that market conditions may soon return to a previous situation or trend. There may also be less time for consultation with stakeholders, for those likely to be inconvenienced to make alternative arrangements and to secure support for a change of direction. During crises, less time for consideration and thought can result in moreknee jerk reactions. In order to move quickly, a smaller and tighter group may need to be involved in decision making.

Revealing Board Reactions

How boards react to a pandemic or an economic downturn can be very revealing. It might alertEnvironmental, Social and Governance (ESG) investors to responsible boards worth supporting. How acompanyresponds in comparison with others could be a source of competitive advantage. It is sometimes easier to differentiate in hard times. Benign trading conditions can paper over the cracks of relative deficiencies. If used wisely, some slowdowns andrecessions provide a pause for reflection and positive steps to secure competitive advantage and transition to less damaging and more sustainable and inclusive business models and patterns of development that put greater emphasis upon the quality of life. A board could act to show stakeholders what it is made of and secure their support for change.

In terms of what areas to focus upon first a board could start by: looking at new and emerging needs; alternative sources of supply and/or means of operation and/or delivery, where these are required; how to increase productivity to produce more sustainable value from fewer scarce inputs; and considering the relationship and welfare of its stakeholders and looking for ways of either benefitting them or working with them to reduce harm and/or increase environmental and/or social benefit in a particular situation or context. Consideration could also be given to how best to embrace the ‘new leadership’ required to support people during transition and transformation journeys following a review of corporate purpose and priorities.

The dilemma for many corporate boards in a recession is reconciling the need for short term savings with the desire to build longer term capabilities to address certain shared challenges and transition to a more sustainable business model. In crises, boards should ideally both address immediate issues and also think longer-term about implications, consequences and possibilities. In periods of adversity it is often easier to distinguish between ‘winners’ such as top-quartile performers and ‘losers’ such as those in the bottom quartile of performance. The winners or those most likely to succeed often behave very differently from the losers who often compound their problems and trap themselves in a descending spiral of decline.

Differing Responses of ‘Winners’ and ‘Losers’

Let us start with losers. In tough market conditions these directors and boards tend to batten down the hatches and cut costs. They rush to lay people off. New initiatives are avoided or put on ice. Their focusis largely internal as they manage re-structuring and redundancies. Losers are more likely to be self-interested, selfish, negativeand primarily concerned with impacts upon themselves. Events are regarded largely asproblems. When losers cut costs, it tends to be done hurriedly and across the board. When the axe falls they may not know whether a critical success factor or overhead is being taken out. Headcount culls also often fail to distinguish between high and low performers among the people of an organisation. Valuable knowledge and experience often walks out the door when people are ‘let go’.

In contrast, winners are more positive, proactive, considered and balanced in their approach. They are more likely to consider impacts upon others and the environment and to see opportunities for helping others to cope. There may be economies to be made, but the emphasis of winners is upon improving efficiency, productivity and performance rather than cost reduction per se. They may be more open to ideas, alternatives and possibilities for improvement. They may simultaneously look for ways of increasing benefits by doing more with less. They may be willing to consider different ways of measuring, accounting for and reporting performance and assessing success and the value of what is produced.

More successful boards may invest to increase flexibility and resilience, secure a competitive advantage or higher return, or deliver more socially responsible outcomes. They remain alert to opportunities to re-position and be better equipped to capitalize upon a resurgence of economic activity.They are more likely to recognise that customers and others may also be impacted and that there might be business opportunities to help them to adapt. Supporting people through hard times can help to build loyalty and trust. Winners assess trade-offs and opportunities to redeploy expenditures to improve overall effectiveness or change direction. They are more likely to identify and protect areas that are strategic and people who are high performing and difficult to replace. Steps may be taken to capture significant know how and the superior approaches of high performers to reduce the impact of the loss of key personnel.

Raising Fundamental Questions

A pandemic or other economic shock might be game-changing. During a crisis directors need to ensure that dealing with immediate issues does not drive out longer-term thinking and fundamental questions. Might continuing rapid economic growth with a traditional development model be neither desirable nor sustainable? An economic slowdown or recession can begood news for those concerned about the negative consequences of unrestrained and irresponsible growth, such as the loss of biodiversity and natural capital, increased pollution, greater environmental degradation and further production of greenhouse gases that contribute to global warming. A reduction of harmful activity can be beneficial.

Much depends upon the situation and level of development at the point when slowdown occurs. A slowdown or shock could be used as a warning sign of the scale of readjustment that might be needed if more stakeholders decide that activities such as burning fossil fuels are no longer acceptable. Where plant is coming to the end of its natural life, lower demand may strengthen the case for a more sustainable development path. Scaling back might provide an opportunity to cull damaging aspects of current activities. In a recession the economic case for continuing with them may be weakened. A key issue for responsible business leaders is the extent to which production of a lower level of output with a different mix of activities as some areas decline more than others might be less damaging and more sustainable.

The consequences for global warming of higher rates of growth with current consumer priorities, approaches to production and business models in a country such as India could be serious. Progress in catching up with the lifestyles of people in some developed countries could endanger the futures of most people living on our planet. Younger generations might become further alienated. The case for simpler, healthier and more fulfilling lifestyles needs to be put. From an environmental and climate change perspective, the disadvantages of a slowdown or recession could include the loss of funds to invest in innovation and transition to more sustainable approaches, models and lifestyles. Much depends upon the impacts, for example, whether coal production is slowing or a switch to renewables is occurring.

Integrating Longer-term Considerations into Corporate Responses

A longer-term perspective can help boards to decide what is important. The negative consequences of economic growth could be addressed by adopting a less damaging business model or innovation in a method of production. Business leaders could work towards a more caring, collaborative, resilientand responsible form of capitalism.As the expectations, requirements and priorities of stakeholders, the public, Governments and regulators change,boards should periodically review corporate purpose, their own priorities and responsibilities, the strategic direction they set and to whom they should feel accountable and for what.

How boards and individual directors react to a slowdown or recession might also help investors and other stakeholders, CEOs and board chairs to assess potential capability to deal with more dramatic events such as a pandemic, a scientific or technological revolution, or radically differentGovernment policies or business models. How quickly do directors and boards react and respond? Are they overly concerned with protecting existing activities, interests and investments? Where do customers, employees and other stakeholders and sustainable development considerations feature in their deliberations? Do they consider longer-term implications and possibilities? Are they prepared tochange direction?

The global pandemic might represent a once in a lifetime opportunity to re-boot enterprise, re-purpose and re-engage with stakeholders and the communities and societies in which businesses operate. Some boards may get in the way of what needs to be done. Others may catch the moment andearn the trust and respect of the excluded, exposed, worried and vulnerable. Supporting a collective response to Covid-19,pursuing social as well as economic aims and working to ensure a more sustainable and inclusive futurecouldmake younger generations more aware of the role that caring capitalism could play in their lives. Many people are concerned.Responsible reaction and sustainable development strategies could be a source of competitive advantage, socially desirable and suggest the possibility of a light and better future at the end of what may now seem a dark and forbidding tunnel.


Prof Colin Coulson-Thomas

Prof Colin Coulson-Thomas

He holds a portfolio of leadership roles and is IOD India’s Director-General, UK and Europe. He has advised directors and boards in over 40 countries.

Owned by: Institute of Directors, India

Disclaimer: The opinions expressed in the articles/ stories are the personal opinions of the author. IOD/ Editor is not responsible for the accuracy, completeness, suitability, or validity of any information in those articles. The information, facts or opinions expressed in the articles/ speeches do not reflect the views of IOD/ Editor and IOD/ Editor does not assume any responsibility or liability for the same.

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    Prof. Colin Coulson-Thomas

    Director-General of IOD India for UK and Europe operations

    Prof. (Dr) Colin Coulson-Thomas, President of the Institute of Management Services and Director-General of IOD India for UK and Europe operations. He has advised directors and boards in over 40 countries.

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