It may seem rose-tinted to describe managing listed companies through more than one, career-defining, macro-economic crisis as being lucky. Yet, I feel I have been very lucky to have gained extraordinary insights helping companies survive and even thrive, despite the seismic shocks of the Asian financial crisis, the SARS epidemic and the global financial crisis (GFC).
The economic crisis sparked by the COVID-19 pandemic is unique. The International Monetary Fund is forecasting it will cause the worst global downturn since the Great Depression of the 1930s, which is not their worst-case scenario.
That means no board member, leader in a company, or employee, for that matter, has had to deal with a crisis quite like this pandemic. The closest I’ve come is the 1997 Asian financial crisis — and there are lessons learned from having led companies then that can help today.
During the Asian financial crisis, I was deployed by Ernst & Young to manage one of a number of company liquidations. This one was for BFI Finance, one of the largest finance companies in Indonesia. BFI employed more than 20,000 people across its national network. The main business was arranging finance for heavy equipment to build the infrastructure that underpinned the rapid economic development Indonesia had been experiencing. It was a good business that many people depended on but, in the grip of the Asian financial crisis, the big projects BFI relied on had been cancelled or put on hold.
When I turned up at the company’s Jakarta headquarters one morning in the late 1990s, a 20-something with a “get-it-done” attitude, I was told by the president of BFI, Francis Lay, that he found it impossible to contemplate liquidation of the business. Therein lies one of the big lessons of the Asian financial crisis that applies equally today — when a crisis hits, the impossible becomes possible.
While my instructions were clear, Lay convinced me we should use the week I had to report back to the creditors’ committee to explore whether the business could be restructured, as liquidation would be catastrophic for all its stakeholders. I agreed it could be. Again, the impossible became possible.
We looked at what the company had, did well and could scale in the crisis. We pivoted the business to focus on financing individual consumers’ motorcycles — a multimillion-customer market in Indonesia. It was less glamorous than financing the machinery for the large hero projects driving economic prosperity, but it was a move that saved the company and allowed it to thrive. When the Asian financial crisis hit in 1997, BFI’s market capitalisation fell to US$29m. Five years later, when I left the company, it was US$400m.
The idea of pivoting to financing motorcycles did not take place in isolation. We continued making the impossible possible by negotiating a court-sanctioned debt for equity restructuring with the large global banks and bondholders that lent to BFI — a first for the Indonesian corporate sector.
Plan for the worst
That brings me to another key lesson. At BFI, I was sent in to liquidate the company, which was the worst-case scenario. But within a week, we started implementing a rescue package.
The lesson is: plan for the worst and go early. By quickly arriving at liquidation as a base case to capture the value in BFI, we created the space to consider alternatives and identify opportunities for growth. Once we had the idea of the pivot to offering financing to meet individuals’ needs, we acted quickly to negotiate novel and innovative recapitalisation options.
Engaging with lenders and key shareholders early allowed our plans to be given full consideration at a time when these stakeholders still had capacity to be flexible. The longer an economic crisis persists, the more it constrains the ability to act for providers of capital.
At BFI and subsequently, while working during the SARS epidemic and the GFC, in Singapore, it became clear that another key to navigating crises is our ability to retain the best talent. That is another critical lesson for any business in a crisis — it is important to bring your best people with you. A crisis will not last forever and finding ways to retain your best people, or even attract new talent, will mean your business will be in a stronger position during the recovery.
At BFI, we were able to offer five per cent of the equity in the business as an incentive to management — for them to disseminate as they saw fit — to make the rescue package work. In Singapore, many employee contracts have what is known as a monthly variable component (MVC) representing 10 per cent of an employee’s pay. The MVC gives employers the ability to immediately cut their wage bill by 10 per cent in the face of a crisis or severe business downturn — and return salaries to previous levels once a crisis has passed.
During the 2003 SARS epidemic in Singapore, I discovered that, in practice, instituting a blanket 10 per cent MVC pay cut drove high-performing employees out of the business in pursuit of better remuneration elsewhere, hampering the company’s ability to compete during the crisis or recover post-crisis. So during the 2007–08 GFC, which had a much more profound impact in Singapore than in Australia, best practice for talent management was to ask high-performing employees how they would like to help the business survive. Some accepted a short-term pay cut while others opted to take a sabbatical or extended leave. Others opted for a shorter working week, to work remotely or to accept options/equity in the business as part of their remuneration. The lesson was that by involving high-performing employees in developing a response to a crisis, they become more invested in the business and offer creative solutions. Importantly, you bring your best people with you.
No two crises are the same. The economic impact from COVID-19 is likely to be a once-in-a-lifetime challenge. Companies will need a blend of lessons learned from previous crises and creativity to work through the specific challenges. That combination — as was the case at BFI — can not only help a company to survive, but might uncover some opportunities for it to thrive.
Abigail Cheadle MAICD is a non-executive director of Isentia Group and QANTM Intellectual Property. She has worked globally in accounting and risk management.