Does your board have sufficient expertise to deal with the current Pandemic crisis?

In any changed market situation, emergency or otherwise, there are winners and losers. Not since the second world war (1939-1945) has there been global disruption on the scale caused by the Coronavirus. The WTO has forecast that world trade could fall by between 13% and 32% in 2020, depending on assumptions about the length and severity of the Coronavirus Pandemic.

Unusually, there is no shame for a board of directors to admit it is in unfamiliar territory in facing a financial and operational crisis that will require radical decisions. The board that had been well composed with experience to thrive in normal market conditions and has worked effectively as a team to drive profits based on productivity and efficiency is now likely to be feeling unsure about the company’s future and possibly experiencing personal anxiety.

Turnaround approach to dealing with a crisis

There is no standard approach to turnaround where every situation is unique, every business is different and a surprisingly diverse array of solutions and tools are available and have been used successfully for other companies.

What is common to every crisis and turnaround, however, is that the current situation is not desired and needs to be addressed. The concept of a bridge can help where the first step is to be realistic about the current state of affairs and to consider your options for achieving the desired outcomes.

This approach provides a framework for identifying the preferred options and building a bridge from the current situation to preferred option.

The bridge analogy applies to both restructuring the balance sheet and to reorganising the trading activities which in turn impact on the balance sheet via the profit and loss and cash flow. As for the making and implementing decisions for building the bridge, the restructuring and recovery plan is likely to involve many and myriad improvement initiatives which can best be thought of as reviewing and optimising every line item on the trial balance.

Surviving a recession

Notwithstanding the unique impact of “lockdown” and enforced business interruption there are some key learnings from past recessions. Some of these require bravery and may seem counter-intuitive and will be covered in more depth in future K2 Board Briefings.

Briefly, keep marketing, maintain close contact with customers, hold your prices by adding value and not discounting and take any support funding that is being provided by government to mitigate the downturn (cash is always king). Do all of this before the perhaps natural inclination to drastically cut costs. When cutting out waste, take care to ensure marketing and customer engagement is maintained. There is little point in maintaining sales capacity if demand is stifled or you cut off lead generation.

Finally, resist the temptation to focus exclusively on short-term necessity but rather focus on the business model and future strategy. Success will not be achieved by panicking but instead by thinking rationally and behaving strategically.

Key to success is having access to board experience of similar situations, to those who are used to dealing with a crisis and who have developed and implemented a restructuring and recovery plan. This involves experience of many disciplines. If any of these are absent, they must be brought in, at least for the short-term, to get through the crises and establish a path to recovery.

Questions for the Board

Are we sure our team is balanced with sufficient experience to survive the current situation? Are we thinking strategically enough about a future beyond the immediate crisis?

Trading as K2 business partners since 2001, we are turnaround investment partners, each of us with over 30 years’ experience of backing directors by investing our time and expertise in the turnaround of their business and the realisation of business value.

We focus on companies with ￡5m-￡20m turnover led by committed boards and with assets that other investors find difficult to value.

K2 invests in companies that manufacture and supply house building and construction products and services; IT & technology service providers; database, branded and intellectual property businesses; and industrial manufacturers