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COMMUNITY UPDATE

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Last week, business leaders told us how they were acting to prioritise the changing needs of their people and customers in the midst of coronavirus. Now, we explore how creativity, compassion and having a detailed plan for the next three months will also be integral to how organisations respond. 
 
In part one of this article, we spoke to Criticaleye Board Mentors and experts from sectors including hospitality, finance and oil & gas. Now we hear from their peers in banking, utilities and private equity.  
 
Tom Beedham, Director of Board Mentors and NEDs at Criticaleye says, “Few CEOs and executive teams will have been through a crisis of this magnitude before, so the broad perspective and experience that the best non-executives can provide are proving crucial at this time.  
 
“Cross-sector lessons on how crisis teams operate, how governance and finances can be best managed, and how supply chains are being strengthened are invaluable.”
 

John Shelley is an Independent NED at Standard Chartered China, former Chief Risk Officer for RBS in Asia Pacific, and a Board Mentor at Criticaleye. Based in Hong Kong, John says that failing to show compassion and understanding will have a long-term impact
 
As a leader, first and foremost you ask whether your staff are safe. Can you make them safe? How do you support them physically and mentally? And then, almost equally, customers. What are their immediate needs? 
 
In this part of the world big banks have agreed to give payment holidays as part of their normal course of business. That includes people with mortgages, small businesses with loans and large businesses, like airlines. To give people breathing space, the initial rule of thumb has been three months. Behind the scenes we do sense checks on that and ask whether the business is really suffering because of the circumstances – there must be that sanity check, but we err on the side of the customer. 
 
People have extremely long memories. I remember from SARS back in 2003, if you do just a little bit to help somebody in these circumstances then they will have a good feeling about you forever. If you are hardnosed or just don’t listen then people won’t just mistrust you forever, they’ll also tell everyone they meet that they really, really, don’t like you. There’s a huge downside in not showing compassion and understanding. 
 
That’s the phase we are all in now, but you do have to start thinking about the longer term. The customer’s business is suffering in the short term, but later there may have to be a genuine conversation about whether it can survive. Assistance packages from governments are starting to kick in and banks have a role in helping customers understand those. We shouldn’t forget that governments bailed the banks out not that long ago, so there should be an in-built sense of compassion. 
 
As a leader in a crisis, there are three things you need to do: you need to be the hope giver, you need to deal with people’s fears and you need to make decisions based on incomplete information. 
 
Forgiveness is vital. Your people won’t necessarily be their best selves and may be in fight or flight mode. You have to accept that people might not express themselves tidily or politely. They might have already made a few questionable decisions but moving past that and getting to the bigger points is key. 
 
 
Alastair Lyons, Chair of businesses including Glas Cymru (Welsh Water) and Harworth Group as well as a Board Mentor at Criticaleye, says that planning for beyond a year may be time wasted in such an uncertain environment 
 
Businesses need to plan in great detail for three months but should have a 12-month forward view. Looking beyond that period in the current circumstances is probably not constructive because in that time we will find out more about how we are getting out of this.  
 
We will know the likelihood of a second [wave] once some of the lockdown measures are [relaxed] and we will understand how other countries around the world are coming out of this – or not. So, it will all need to be re-planned. The worst step for businesses right now would be to think this is going to be quick.  
 
Plan for the worst and get ahead of the curve to anticipate how things might develop and what may be needed. Leaders must be decisive: think through the options and then come to a clear course of action. Once that decision is made, good communication becomes essential. 
 
Everyone is nervous and uncertain as to what the future holds and it’s even more difficult to be in touch remotely, so you really need to be communicating well and frequently with your people. You should also be as open as possible in your communications about things that are known and can be talked about. For the unknowns, you must be honest with people. 
 
Businesses are having to run really hard, so cut out whatever you can from the agenda and just focus on the big things that are going to make a difference getting through this. All businesses will have initiatives, plans and improvements they want to make, but now is not the time.

Clear the decks and focus on what is going to allow you to keep your business running as effectively as possible. 
 
 
Samantha Barber, NED of Scottish Water as well as a Criticaleye Board Mentor, says organisations need to be flexible and creative in reshaping how they operate.  
 
The challenges facing utilities in general concern continuing to provide a service. We need to keep providing gas, electricity and ensure the lights stay on, especially for essential services like hospitals – it’s an urgent requirement. Similarly, with water we must make sure that raw water can be treated, the supply of clean water into houses is maintained and sewage is treated. So, firstly the supply chain is crucial, making sure we’re still able to get the equipment and chemicals needed; and secondly, it’s about the workforce and having the teams able to carry out the tasks, such as working on power lines or windfarms – whatever is needed. 
 
It’s important to try to maintain business as usual while making adaptations to ensure we do that safely. There’s a lot of space for innovation and creativity around how we do some things quite differently. We have an immediate urgency in the next few weeks where contingency plans are put in place to counter business disruption, although I don’t think anyone will have anticipated quite this level of disruption. 
 
Beyond that companies need to look at how they can do things differently. I’m the Chair of an orchestra that’s cancelling concerts. If we can’t play for 12 months what are we going to do? We’re already looking at other options creatively, and luckily we have a small orchestra whose members are very flexible and adaptable at what they are prepared to do. So, taking that analogy this is no space for fixed mindsets, this is space for openness, creativity and innovation. 
 
I think it’s worth businesses looking at Germany and Singapore where coronavirus cases have been fewer to understand the virus. Are there steps taken there that may not have been adopted by the UK government, but which could be taken by your organisation? Looking at what others are doing, especially if they’re doing it well, is what business is really good at. 
 
 
John Greenland, Partner at Jamieson Corporate Finance, says that while the outlook is tough PE businesses are less leveraged than in the financial crisis
  
Over the last two weeks transactions in the private equity market have started to go slow or have been put on hold. Around 75 percent of the things we are working on have moved from being reasonably active to treading water while people wait to see what happens next.  
 
Transactions take a reasonable amount of time from start to finish. So, when macro events are impacting business performance and strategic decisions are put on hold, it can take quite a long time to reset the model and then understand what the true impact has been on the short, medium and long term. Positive transactions don’t get going again until after that. It wouldn’t surprise me if there’s a slow period through until the end of the summer.    
 
Private equity uses a significant amount of debt to fund their investments and I suspect some of those businesses aren’t set up to have a period where there isn’t a significant amount of revenue.   
 
However, in the restructures we looked at in 2008-2010, there were businesses that had debt in the double digits, and while a few large businesses have stretched their debt facilities to 7 or 8x a lot have stuck to around 6x leverage (or less). On recent deals, debt has been a lower percentage of the capital structure overall. I think, going into this, businesses were less leveraged than in the financial crisis.  
 
In addition to that, one big shift has been a reduction in the number of covenants on debt, which gives companies breathing space when it comes to volatility.  
 
Clearly some industries and sectors are going to be really hard hit. Even with the support measures being announced daily by the government it’s hard to predict the long term fall out. Retail was already struggling going into this – I imagine there will be some well known names that don’t survive.  
 
The key thing will be trying to get some level of certainty about the next steps. Communication has been improving from the government and people are starting to understand the magnitude of the situation. It would be good to understand what the government are looking for to trigger them to unwind, and how they might start to unwind the advice they have been giving.
 
David Hobbs, Senior Editor, Criticaleye and Emma Carroll, Senior Editor, Criticaleye
 
For part one of this article, click here