Sticking to the Fundamentals To Weather Today’s Post Midterm, Economic Environment

By Wes Bricker, Vice Chair - US Trust Solutions Co-Leader?

Few things are certain right now except for the fact that there's tremendous uncertainty ranging from political upheaval to increasingly choppy economic conditions. Abroad, we’re witnessing political tumult, including one of the shortest prime minister tenures in U.K. history. Shifting exchange rates, from the yen to the euro, are forcing government intervention to help stabilize and reverse falling rates.?

And here in the US, we’re not immune to the same uncertain conditions. The recent midterm elections point to likely divided control in Congress, with Democrats securing a slim majority in the Senate and Republicans eyeing a narrow margin in the House. Numerous races across the country have yet to be decided with Georgia’s Senate race headed to a runoff election. Consumer inflation has hit historic highs, exceeding 8%, while the Federal Reserve continues to raise interest rates and signal future rate hikes, even as rates have risen to their highest level in almost a decade.??

Inflation was a key concern for CEOs and executives I spoke to recently at Fortune’s CEO Initiative Conference in Florida. At the conference, Larry Summers, the former US Treasury Secretary warned that, in his experience, inflation doesn’t come down without restrictive policy that also limits growth and employment across the economy.?

Aside from just the CEOs I spoke to at Fortune’s event, there’s great concern across the C-suite of an impending recession. Nearly four out of five executives believe a recession is coming within the next six months, according to a recent PwC survey .?

For businesses, economic indicators show that we’re not in the clear, despite consumer spending and other economic activity returning to pre-pandemic levels. Executives should prepare to continue to lead through turbulent times that are likely ahead. Despite the heightened? uncertainty here and abroad, US boards and senior executives should remain focused on the fundamentals of their business to both weather a likely economic downturn and continue to execute on their long-term strategic vision.?

The Fundamentals

For businesses, staying focused on the fundamentals means you’re:

Acting on a long-term strategy: Economic uncertainty will likely pass. Now is the time to invest for growth.? The investment dollars come from today’s margin improvement, freeing up capital across the business, or raising outside money. I see leaders working on top line and margin growth as an immediate imperative to fund?long-term innovation. In fact, according to a recent PwC Survey , 83% of executives are focusing business strategy on growth as they confront today’s economic challenges.?

In getting top line and margin growth, it’s important to understand how next gen products and services can come to market to propel the business, not just through the immediate turbulent economic conditions, but across the next three to five years. It’s also important to think about the constraints on development roadmaps that may need clearing with senior level leadership. It’s also important to continually assess and reevaluate the business model to understand what may need refreshing to adapt to the current competitive environment and changing consumer habits.??

Getting the right pricing: Prices are not only rising nationwide but also globally as inflation drives up the cost of doing business.?

The better strategies I’ve seen are those that understand price increases are more than just passing along a higher cost of goods or services.? Instead, take this moment as?an opportunity to look at value as a way to drive market share and volume increases through bundling and quantity commitments and to secure longer-term investments in products, channels and customers. Work to first assess if price increases are necessary and, if they’re needed, show how a new premium price is delivering more value.??

Not cutting corners: An important fundamental for boards and executives to focus on is the commitment to not cut corners. In times of economic uncertainty, it can be tempting to save costs by underdelivering on commitments.? That’s a short-term approach that can undermine the sustainability of the business, especially in consumer goods and services. Especially in an economic downturn consumers can be?sensitive to value.?

While it's tough, it’s important to stay as consistent as possible and strive to offer the same quality. You likely want your customers to stick with you and stay by your side even when the economic challenges recede.?

Uncertainty Ahead

In the coming weeks and months, there will likely? be plenty of distractions that can easily push US businesses off course. Likely distractions include a push to enact price controls amid high inflation and the pressure to take on certain governmental policies as new leadership takes hold, post midterms, across the federal and state level.?

These distractions can make it even more important to stick to the fundamentals that not only work to help weather the short-term economic headwinds, but also provide the necessary strategic framework to push a company to meet its long-term goals.?