The Coronavirus (COVID-19) is keeping people on their toes, confronting companies with new operational challenges. According to the OECD, the Coronavirus is currently the largest threat to the global economy since the financial crisis of 2007/2008. Having an emergency and crisis management in place and pre-planning multiple scenarios has become indispensable.
The risk of a global recession is looming large on the horizon
The Coronavirus is threatening supply chains and the logistics setup of many companies, which is why it has become unavoidable that there will be a break in the supply chain and thus the production, thus causing longer delivery times. In view of the loss of production, important decreases should be expected in industrial production as well as in the retail trade. Simultaneously, consumers have rapidly changed their buying patterns and travels, thus reducing their expenditures for goods and services. The great insecurity is causing a significant drop in the demand for goods and investment activities, which are limited to the bare minimum. It is therefore possible that a global downturn is just around the corner.
To make things even more turbulent, the oil market is in a crisis, which is causing further uncertainty and instability. The current situation is making investors jittery. As at the beginning of March 2020, international stock markets have experienced their highest losses since the financial crisis in 2007/2008. Credit markets and the market for credit insurance are extremely tense.
Companies that are highly leveraged or those that are not highly profitable could enter troubled waters quickly, experiencing difficulty refinancing expiring bonds and loans or they could only service these at a much higher financial cost. Apart from a global recession, the Coronavirus could also trigger a debt crisis.
Switzerland has already experienced the first negative impact. Numerous companies warn of the Coronavirus in their outlooks and some have even issued profit warnings. The longer the insecurity is lasting, the higher the risk that a company with a low liquidity and equity buffer will spin out of control and into financial trouble.
In view of these developments, monetary policies will be called for from central banks and stimulus packages from governments. Indeed, the Swiss Federal Council has just announced that it would support companies with CHF 10 billion.
What to focus on now
In order to master this out-of-the ordinary situation that has come from nowhere, Management has to refocus quickly on the continuity of the company with the help of a business continuity management plan. Central issues are employee safety and protecting the value chain as well as the company’s liquidity.
A realistic view of the threat is imperative in order to master the crisis. For this, it is important to actively seek out the most up-to-date information both internally and externally. It is central to deploy sufficient resources for this.
Analyzing and assessing the impact of the Coronavirus holistically not only requires a good grasp of the threat but also a comprehensive understanding of the company, which should be integrated into the crisis management.
It is decisive to think in scenarios, have a multidisciplinary approach and to work out various action plans for each scenario in the context of the business continuity management as well as emergency and crisis management plans. It is also important to monitor things closely in order to ensure quick, efficient and timely action should the situation worsen.
How could the Coronavirus affect your business?
How the economy, politics and society deal with the pandemic could have numerous effects. From our viewpoint, the following will be especially hard hit: company management, finances, employees, the supply chain and logistics, production, customers and customer care, legal aspects and communication.
While this list is far from exhaustive, expect having to give consideration to the following:
1. Corporate governance
- We recommend setting up and implementing an interdisciplinary crisis team to support your Board of Directors and operational management
- Leaders will require a good deputy system and systematic work organization in order to be able to handle the extra load
- For an effective crisis management at large corporations, each business unit should have its own crisis team with a similar structure. These must be included in decision-making and implementation.