Managing During a Crisis

The work of the CFO during a crisis is more important than ever (“Anybody can be a CEO but not everybody can be a CFO” – a quote from my book: “What the CFO Wants You to Know”). Ford Motor Company survived the 2008 Global Financial Crisis (GFC) because the finance folks had mortgaged the company and had enough cash on hand to weather the storm. During this crisis (2020 pandemic), CFOs, who should have trained and prepared for a time like this have to perform at their best. I used to say during the 2008 crisis that I was like a marine trained for what was at stake. The CFO needs to work hard on the following fronts:

1) Cash – Having enough cash on hand to meet the entity’s commitments is the ultimate role of the CFO. As Keynes said: “The market can stay irrational longer than you can stay solvent.” With that in mind, this is the time for the CFO to lead the strategy session with the other executives regarding strategy and tactics to enhance cash conservation and slow cash disbursements. With proper planning, jobs can be protected and unnecessary layoffs avoided.

2) Lawyers – The CFO should be working with the lawyers to ensure that covenants on financial facilities and contract provisions are properly understood for the enterprise to make the necessary moves during the crisis.  Given the operational needs and outputs available during this period, questions around unusual events, up to and including Force Majeure should be reviewed, discussed and positions taken. A contingency plan should be in place, pointing out various avenues for the company to operate as necessary. This is probably easier maneuvered in jurisdictions where the Legal function reports through the CFO organization. During the GFC, I had my team work with our South African and UK external lawyers to review our options to help formulate our operating plans. CFOs should get ahead of the curve and put options in place for the firm’s survival. Does your CFO have a contingency plan for the company?

3) Negotiations – Tough times call for tougher actions. During times like this, the CFO should be a Negotiator-in-Chief, conferring with in-house teams to ensure that all operational options available for the continuity of the enterprise clearly thought out and can be invoked at short notice. In a similar vein, negotiations with suppliers, customers, bankers, and all affected stakeholders at the highest levels with a focus on keeping the company afloat must be the order of the day. Modifying scope of work underway, pulling ahead production, or delaying spending must all be considered. There will be no company when the firm is unable to meet its commitments when due (think bankruptcy!). Hence, the CFO should optimize all options for the firm’s survival.