When did Noah build the ark? Before the flood.
The world is facing unprecedented ‘slings and arrows of outrageous fortune’, and as a leader in volatile times it can be difficult to know exactly how to react. The coronavirus crisis is a story with an unclear ending, but what has become clear these last few weeks is that the human impact is already tragic.
The decisions focused on protecting your team and community from the humanitarian impact of the virus are relatively prescriptive. Greater complexity, however, lies in interpreting and responding to the economic consequences.
Experts predict consumer demand will falter, supply chains will be dramatically disrupted, and global GDP growth will likely halve.
The key question that determines the severity of the economic impact will be the degree to which the economic contagion flows into the credit system. It’s just too early to tell. Fortunately, however, central banks and governments refined the monetary playbook through the last cycle, which has somewhat prepared the banking system for such a shock.
Although humanitarian implications of this crisis are starkly more severe than the last downturn, the economic implications may be similar. To help you navigate this period of upcoming uncertainty, here are the key lessons that we can draw from advising in-house teams through previous economic cycles:
1. Don’t assume the worst, but prepare for it
Most developed world governments will respond swiftly. This will help contain the humanitarian implications of Covid-19, but magnify the economic implications. We can expect they will respond with successive stimulus measures, however these will be too little too late for many businesses. The adage ‘Hard decisions, easy life. Easy decisions, hard life’ always holds true in an economic crisis.
Legal functions can expect a dramatic spike in workload, as businesses rely on the team to be ‘pathfinders’ in this complexity. General Counsels need to move quickly to ‘prepare the field of battle’ through rapidly scaling back involvement in previous BAU activities – so they have capacity to deploy against urgent value-preservation spot fires.
2. Don’t get caught between a rock and a Law Firm
As the internal austerity measures roll through your organisation the pressure to do more for less will magnify. One might hope that your Law Firms will be responsive to your requests for discounted rates. Sadly, Law Firms lag-in and lag-out of economic cycles. As the last cycle taught us, they won’t feel any demand-side pressure to compress rates, leaving many legal teams caught between a rock and a hard place.
Progressive teams will leverage secondees to more dynamically resource their functions, insourcing legal work and reducing the strain on an already stretched legal team.
3. Supply chain and partner analysis
Supply chains are already materially disrupted, and it is likely a material quantity of your customers will fail or enter economic distress. Legal functions should work with their peers in Supply Chain and Procurement to stress test scenarios, and develop contingency plans based on likely risks. They should also simplify the contracting process to rapidly sign up ‘contingency suppliers’.
Although this is an opportune time to selectively renegotiate relationships, the last downturn taught us that industries have long memories, and those that took a longer-term view of their relationships were grateful when the dust settled.
4. Use it or lose it
Many leaders will be tempted to press pause on functional investments. This is a mistake. If it hasn’t happened already, you can expect your CFO to introduce company-wide headcount and budget freezes in the near future.
Freezes like this are a rapid but blunt instrument to rationalise the cost base, however they fail to recognise that certain functions (such as Legal) require greater resourcing now than ever.
To the extent you can, we encourage you to continue to invest in your function, while you can.
5. Digitise your workflow
As teams think through their business continuity plans, one thing that becomes clear is that the shift to remote work will accelerate the need for digitising legal workflows. Most critical of this will be the contract approval and signing process. In a time when it is critical for businesses to move fast, there will be a low organisational tolerance for any bottlenecks.
6. Prepare for health and mental health impacts
You can expect that as infection rates climb, members of your team will not only become physically sick, but mental health issues will become magnified by anxiety and heightened workloads. Further, with remote working, it will be harder to catch some of the usual telltale signs. We encourage leaders to address this head on, and provide access to the organisation’s wellbeing resources.
Over to you
Research has proven time and time again that companies and executives who lean into downturns come out way ahead of those that bunker down. These next few weeks and months will be full of uncertainty, and we’ll all be called upon to be our best selves.
We hope you all maintain healthy and productive working practices over the coming weeks. Good luck out there.