With the coronavirus jangling global supply chains, crowd-associated economic activity contracting nearly everywhere, and stock markets worldwide gyrating in response, CEOs are suddenly engaged in discussions about how to prepare for a recession that seems to be more likely by the day.
Plotting strategy for a slowdown is challenging enough—and worse still in an election year fraught with uncertainty—but there is one additional problem: Not enough CEOs have experienced a downturn before. Relatively few of today’s chiefs were running their company—or any company—through 2001, after the national gut punch of 9/11, or even during the Great Recession of 2008 and 2009. Indeed, most of today’s C-suite only has known the prosperity of a decade of steady growth, with quiescent inflation and interest rates during the Obama administration and a huge corporate tax cut and deregulatory push by the Trump administration.
Those who’ve been there before don’t like what they’re seeing now. “It looks like the markets are telling us the coronavirus is going to be a significant damper on global economic growth for a significant period of time,” said James Loree, CEO of Stanley Black & Decker, who was CFO of the New Britain, Connecticut-based tool manufacturer through both 9/11 and the Great Recession.
Loree’s company has 10 factories and 8,000 employees in China, the origin and epicenter of the new virus – but then plants were “all running” as of late last week, he told Chief Executive. “It’s one day at a time.” Overall, the Chinese domestic market accounts for only about $200 million in sales out of Stanley Black & Decker’s $14.4 billion in annual revenues, he said. “But there are a couple billion dollars’ worth of products and/or components that we export from China into the United States and Europe.
“We can all do only what we can do, and what we’re doing is protecting our employees and, second, protecting our supply chain to the extent we can,” Loree said. “That means keeping our factories running and working with our vendors to make sure their factories are running and, third, to be aware of everything that’s going on and be agile as it evolves.”
The coronavirus already has nicked Varsity Brands because a considerable number of teams from China were restricted from attending the Memphis-based company’s major international cheerleading competition at the ESPN sports complex in Orlando a couple of weeks ago. “We have more events in the spring that also have a significant international component, so we’re watching [the coronavirus impact] like everyone else,” Jeff Webb, Varsity’s founder and chairman, told Chief Executive.
“All we can do is stay on top of it,” Webb said. “But we do want to overcommunicate with our customers and suppliers and contractors so that everyone is capable of making decisions as quickly as possible.”
If a recession does develop soon, it may have a unique character because it likely would reflect supply-chain crimps and artificially curtailed production because of coronavirus fears, rather than a classic drop in demand. But however a slowdown might unfold, for today’s CEO one key could be learning from those who’ve actually led a company through a recession. There’s no other roadmap.
“If you’re not willing to make tough decisions because you haven’t had to make them in your tenure, you’re going to be hamstrung when you have no choice,” said Charly Weinstein, CEO of the EisnerAmper accounting firm, based in New York City.
But even the least tested and most sanguine CEOs know a downturn is likely at some point and want to prepare for it. “Most good CEOs will figure it out and have people they can call on,” said Julian Anderson, president of Phoenix-based Rider Levett Bucknall North America and chairman of the Australian construction-cost-management firm’s global board of directors.
Chief Executive talked with 20 CEOs and former chiefs who have led companies into, through and out of downturns, and a handful of other experienced business leaders. Over the next two weeks, we will be sharing compendia of their advice and stories about how to anticipate a recession, how to prepare for it, how to ride it out – even how to come out better on the other side.
And in one way or another, many of them stressed that how a company performs through such a trial by fire indeed starts with the CEO.
“Bright CEOs can be brought into an organization when it’s doing well and allow it to sustain and grow incrementally,” said C. Richard Panico, CEO of Integrated Project Management, a consulting firm based in Burr Ridge, Illinois. “But when you start talking about tough times, recession and a turnaround—you need a warrior CEO.”
John Stroup, president, CEO and chairman of Belden, a maker of electrical components based in St. Louis, urged peers, “Be authentic. If you start doing things not natural or normal to you, everyone will figure it out. My style tends to be very frank.” Even before the coronavirus became manifest, he said, “Last summer, I told people there could be a recession by the end of 2020.”
At least today’s shakes may remove one obstacle to effective corporate leadership that has been observed by Jim Hallett. “The biggest blind spot for CEOs now is they don’t think [recession] is going to happen,” said the CEO of KAR Global, a used-car auctioneering company based in Carmel, Indiana. “They’re short-term thinkers. ‘We’re going to wake up in the morning and this is going to be over.’ So they haven’t prepared for it.”
Here’s a quick history of the U.S. recessions that have afflicted a half-century of CEOs:
1970: A relatively quick downturn at 10 months, when quarterly GDP plunged by 4.2 percent but peak unemployment reached only 6.1 percent.
1973-1975: OPEC quadrupled oil prices, President Nixon instituted wage and price controls, reducing demand and causing “stagflation.”
1980-1982: The Fed hiked interest rates to combat inflation, cutting business spending. Iran embargoed oil. There were two separate recessions.
1990-1991: The savings-and-loan crisis instigated this nine-month slowdown, which saw unemployment peak at 7.8 percent.
2001: First the dot-com bust stunned the economy, with the blow of 9/11 sending the nation into an economic shock for a few months.
2008-2009: Subprime mortgages led to a global bank-credit crisis, the bursting of the U.S. housing bubble, corporate bankruptcies and the worst financial crisis in this country since the Great Depression.