30 Aug 2022
How are Boards and Businesses Preparing for the Recession in the UK?
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Our experts share insight into steps boards across the UK are taking in preparation for economic downturn and how we are providing support.
Despite strong global economic recovery following the COVID-19 pandemic, we now face intense inflationary pressures. Supply chain disruption, the energy crisis, and the Russian invasion of Ukraine has also exacerbated existing trends and added a further food price shock into the mix. A ‘perfect storm’ for economic downturn.
UK businesses face an unprecedented situation. Learned experience of most management teams relies on a playbook, rather than intuitive capability. Yet this recession is like no other; no model exists which can outline the steps companies should take to navigate the difficulties on the horizon. Because of this, views on exactly ‘what should be done’ are mixed.
Some of our clients call for bravery, to get ahead of the storm, to take action. Others caution such an approach, instead calling for prudence.
We are told by many that a conservative, but flexible, financial strategy is the logical plan of action when faced with a recession. The greater the business risk, the less financial risk one should take. It is similar to taking out a mortgage. If you are unsure about your job security, don’t take out a huge mortgage because if you lose the job, you can’t pay the mortgage, and you will lose the house.
Other clients echo this advice. The best way for companies to prepare for a recession, they tell us, is to decrease financial leverage. They believe the key to surviving an economic downturn is to have a strong equity buffer and conservative debt levels. Part of this is safeguarding cash flow and establishing creditworthiness – pivotal strategies for building financial resilience.
Businesses should take this opportunity to assess themselves.
Examine operating costs, inventory management, and secure finance well before any difficulties begin. This will mitigate risk, protect company morale, and enable boards to capitalise on opportunities when and if they present themselves.
Outside of finance, if the pandemic has taught us anything, it has taught us that being indispensable to customers in times of hardship can be hugely beneficial in protecting a business when things get rocky. Aligned with this is marketing and brand exposure. Rather than reducing these, they could provide the light at the end of the tunnel. Continuing efforts in these areas while others cut back, is likely to give clients and customers confidence to do business with you.
Clients at the more ‘risk-willing’ end of the spectrum argue this is a time to identify areas which can promote growth.
Through business planning and collecting feedback from management, leaders can pinpoint areas that may grow during periods of uncertainty.
This will enable companies to take advantage of the recession and build resilience into the business strategy. Of course, identifying areas that are likely to decline and pre-planning moves out of them will also mitigate losses.
These are not the only opportunities. The pandemic proved for many of our clients that a changing world can drive efficiencies and greater productivity. Many embraced agile working, invested in technology, training, and development, which encouraged productivity and by extension profitability. Certainly in this instance, the braver path that embraced the disruption was the most fruitful. Likewise, investing in employee sentiment and wellbeing also proved auspicious in the long-run. Given how competitive talent markets are now, it is safe to say this will be just as important in the near future.
While no one can agree on the exact formula for recession-proofing a business, we know that diversifying markets is a core pillar of resilience.
Of all the global executive search firms, Odgers Berndtson is the only one that is seriously committed to sectors such as education, healthcare, government, and charities. This commitment is twofold. First, because we believe they are fundamental to any economy in which we operate. Second, we know they operate on different cycles to our commercial clients. When you see a commercial downturn, you will often also notice that these sectors do not decline at the same time or rate. While our competitors might view these as low-fee environments, at Odgers Berndtson we recognise that it is both important work in and of itself, while providing us with resilience in a commercial downturn.
We also know boards need to instil confidence in shareholders about a company’s long-term plan, even if sales dip. Demonstrating viability in the long-run can garner shareholder support to see the company through a storm. This can sometimes get lost in moments of panic or uncertainty. Boards should therefore work alongside CEOs to communicate business strategies, contingency plans, and the path to future growth.
Whether clients opt for courage or caution, lasting viability is a consistent theme. Focusing on the long-term strategy, rather than the quick wins to address immediate problems seems to be a winning strategy for survival. The board’s role in this, is therefore vital.
If you would like to discuss the themes in this article, or your organisational needs, please contact Virginia Bottomley or Mark Freebairn, get in touch with us here or your local Odgers Berndtson contact.
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