In making fast business decisions under stress and uncertainty, it helps greatly to zero in on a few key questions underlying such decisions. Even more so during a crisis such as the one we are experiencing. For business leaders, a great fundamental question to ask in these times is:
Who do I want to be when this is over?
I find this question useful because it provokes us to imagine what we will look like when the world is on the other side of this. More importantly, it helps answer an immediate question: Who do I want to be in this crisis? And an even more immediate one: How am I going to decide on the issue at hand?
In this article, inspired by a recent class discussion at Harvard Business School, I raise this question in the context of business leadership, and yet it also has an unmistakable personal appeal. I will use cash management as an anchor idea to illustrate how business leaders can apply this question fruitfully.
As the toll of COVID-19 pandemic mounts in the US amid worldwide devastation, the second week of lockdown in India draws to a close. CEOs and other business leaders are trying hard to figure out how to lead in a fast-changing and uncertain world.
In Boston, a restaurant chain owner has had to let go all employees, effectively pulling the shutters down and inflicting hardship on several families. In Singapore, a telemedicine provider is scrambling to raise money to keep up with an explosive growth in demand. In Barcelona, people are having to make difficult personal choices about how much they can support others while protecting themselves from the hazard. In Delhi, stalled projects are resulting in mass exodus of migrant workers from the city, inflicting unprecedented pain on them. These are extraordinary times raising a variety of practical and ethical concerns for business leaders.
Faced with myriad decisions, many business leaders are dealing with tactical and moral dilemmas around cash management. Do we help customers who are facing cash crunch or do we shut them down? Do we lay people off or protect the payroll? Do we delay payments to vendors or keep their tap on? Do we draw down full line of credit or only take what we need? The answers are not easy, and they will vary greatly based on the perspective one adopts.
According to one perspective, we all compete in a market economy and we must do whatever is right for the business. The free market model has served us well and that model encourages the survival of the fittest. We should, therefore, not worry about other things – just do what it takes to maximize shareholder value. Act rationally, in a businesslike manner.
Going by another perspective, no business can survive, let alone thrive, in the absence of an ecosystem that sustains it. Competition serves well as the primary metaphor for running a business during normal times. In unusual circumstances such as the current pandemic, the entire ecosystem is threatened, not just your individual business. Therefore, collaboration and ecosystem protection are the appropriate metaphors for business leaders.
Let us examine both these perspectives using concrete examples most leaders are likely to encounter in their businesses in the weeks and months ahead.
First and foremost, the purpose of every business is to serve its customers. How far will you go in serving customers who cannot pay you on time anymore? How much credit can you afford to extend? The answers will differ from business to business. When we try to make a decision like this, I tend to fall back on the fundamental question: Who do I want to be when this is over?
Sooner or later, the storm will pass. The rest of the world will still be there. People whom we deal with will still be there, and so will our relationships. They will remember how we treated them in these tough times. Of course, we will stay firm when we can make no more concessions, but we will communicate that in a relationship-retaining manner. Our customers know they can count on us in hard times. By the same token, we trust our customers will understand when we cannot support them anymore.
There is a wide menu of choices business leaders must explore when the time comes to restrict cash outflows for employee costs: delayed salaries, unpaid leaves, restricted work hours, furloughs, benefit cuts, pay cuts, and layoffs. Each choice has its pros and cons.
An entrepreneur from Italy, about whom I have written in another article, approached this issue from a different perspective: we are in it together. He assured full pay to all employees and went to work. The choice was stark, potentially putting the survival of the business at risk. But here again, he could make a choice and move on because he could answer the fundamental question: Who do I want to be when this is over?
Other leaders may settle for creative solutions like a 4-day work week, graded salary reductions (highest for the CEO, then the exec team, even lower percentage down the ladder), or pay package restructuring. Each business is different, and so will be your answer to the fundamental question.
In a recent poll of CEOs, they were asked about their biggest concern when it comes to cash management during the COVID-19 crisis. The winning answer was: our customers may not pay on time. Then there was another poll that asked them what their preferred strategy to conserve cash was. The winning answer (yes, you guessed it right): we won’t pay our vendors on time.
In times like this, it is tempting to delay payments to vendors and squeeze them as much as you can. This makes good business sense because you have no option when your accounts receivable are growing and you have limited liquidity. Your ability to squeeze vendors will vary from business to business. To the extent you need to keep the supply chain going, there are limits on your leverage with vendors.
Going back to our fundamental question, you might also wonder: Do I want this vendor to go out of business? Can I at least pay them enough to keep the lights on? Do I have a high quality, transparent communication with them so they will understand why I am delaying their payment?
Banks are known to close the umbrella when it starts raining. If you have a line of credit, does it make sense to draw it fully? Should one borrow while one can regardless of the uncertainty about future repayment?
There are different answers different CEOs will give you. Some will argue that it is imprudent and perhaps unethical to borrow when the repayment outlook is uncertain; it is like making business death more certain, only down the road. Others will say it is best to get all the cash one can for the rainy day. The truly cynical ones will draw down Line of Credit and buy back shares as market hits the bottom!
Some business leaders argue that they don’t have time for values when survival is at stake. Some other business leaders say their values are non-negotiable. I understand both positions. In both the cases, I would argue it is best to ask the fundamental question and take an informed, conscious decision.
Why? Because once the crisis is over, you will have time to sit down and analyze the impact of what you did on yourself and on your business. You don’t want to regret then. Going by what Amazon’s Jeff Bezos lightheartedly calls his Future Regret Minimization Framework, you want to do everything today that will avoid regret later.
The fundamental question, then, is a great tool that will help you go back to your goals, priorities and values as a business leader. Who do you want to be when this is over? A clever survivor with a damaged conscience, or a dead hero with no business?
Or is there a third option, that involves your ingenuity, innovation and integrity?
Maybe you will find such an option. A third option that could transform you into just the kind of leader needed for the new normal? A third option that conserves enough cash without damaging relationships? A third option that protects the ecosystem without driving your business over the cliff? I am curious to learn your thoughts.
The author thanks Professors Fritz Foley, Malcolm Baker, and fellow HBS alums (especially Jaime Zobel de Ayala) for their inputs.
