Something that warrants a rare FOMC inter-meeting rate cut calls for broader finance engagement.
There is a lot of information, advice and checklists coming out on how businesses should respond to the coronavirus, or COVID-19. This one from McKinsey is a good example.
- Health and safety first. A majority of companies, rightly, start with the most important steps to ensure the health and safety of employees, customers, suppliers and other stakeholders.
- Tabletop crisis response and planning. The next most important item tends to be the crisis response and scenario planning. Tabletop exercises are emphasized, because you must both plan and practice to ensure that they can be executed.
- Digital acceleration focused on customers/customer experience. One of the most interesting checklist items that more companies need to take to heart is how this crisis is pushing digital disruption of traditional business activities and accelerating transformation focused on customer needs and the customer experience.
- If you are stuck at home, for example, how do you easily and safely procure food and water (online shopping with a screened delivery driver or an autonomous delivery method), plus continue to do your job and earn your pay (remote work, collaboration and meeting tools)?
- If you are reliant on a supplier in China or Milan, how do you get production and delivery back online and mitigate future shutdowns (accelerate the Industrial Revolution 4.0 timeline with supply-chain financing and capital-raising assistance)?
This is why I think treasury and finance teams need to think proactively and creatively to support their business response by staying close to their customers (in the business, especially). They should also think about the financial support in terms of structural, long-term transformations beyond the near-term crisis responses (which are also important).
McKinsey’s advice on this point is outstanding:
“Stay close to your customers. Companies that navigate disruptions better often succeed because they invest in their core customer segments and anticipate their behaviors…. Customers’ changing preferences are not likely to go back to pre-outbreak norms(emphasis mine).“
Accordingly, treasury and finance teams should push back on cost-cutting measures presented as a coronavirus response and balance the short-term crisis risks with the opportunities for transformative investments that will pay off in the long run.
- Move past the obvious. Crises always prompt a “cash is king” reminder and a recommendation to ensure that liquidity is sufficient to weather the storm.
- How well will ML and AI forecasting apps and analytics tools fare in with this sort of black swan event?
- Does this change your final recommendations on how much excess cash to keep on the balance sheet in the wake of US tax reform?
- Does this change how you invest that cash, especially now with the rate-cut response?
Most firms are hyper-focused on cash and liquidity already, especially high-growth start-ups.
Moving on, other questions to ask:
- How has FX hedging been adjusting to shifting exposure profiles from demand and supply shocks? Commodity price risk management?
- What’s the supply-chain financing support being arranged to expedite effective supply/production shifts and how are firms and their finance partners dealing with the credit risk? Thinking longer-term, might your superior capital-raising ability help make structural and digital manufacturing changes that are needing to come anyway?
- Is a near or sub-1% USD funding round, or a potentially lower EUR round, right for dialing up a bond issue or other form of capital raise? Are the proceeds for buybacks? Or to make transformational investments like acquistions sooner rather than later? Does this present another liability management opportunity?
And perhaps most importantly:
- Are your banks and others serving you best by staying close to you as their customers to better understand your challenges during this time? To be there with solutions, currently available, and those they are prepared to invest in to make available soon?
Here is what NeuGroup is doing.