Broadman to CEOs: First, Don’t Panic

First in a two-part series.

Think about how competitors are faring before you make decisions about how to clip your business activities during the COVID-19 recession, a veteran advisor to company chiefs is advising CEOs these days. Imagining all your rivals in the same “bathtub,” inevitably rising and falling with you during the coronavirus crisis, might provide a valuable lens for envisioning how to bring your enterprise out on the other side.

“Even in this unusual environment, we’re all trying to out-game one another,” Harry Broadman, managing director of Berkeley Research Group and a globally recognized strategic advisor to CEOs, boards and the White House, told Chief Executive. “Even in crisis, that begets opportunities. You have to think carefully as the bathtub drains on everyone. You get important information because you’re going to observe how you’re doing relative to competitors—important market signals that you honestly wouldn’t have without this crisis.”

Broadman said that one of the most important “overarching lessons from all of this will be how you manage risk.” It’s crucial in that regard, he advised, for CEOs not to panic; to remain confident in decisions that were made amid prosperity; to understand how the COVID-19 recession is going to stress the existing framework of your industry; and to make sound decisions right now about how to capitalize for the future.

This is where fellow occupants of the “bathtub” come in. “Assume for the sake of argument that you’re all in the same bathtub and you’re all going to fall pretty much at once, even in different ways. Then the bathtub is going to refill again, and you may find that we all will be in the same relative positions as when the crisis began.

“CEOs and boards need to be thinking through that issue in a cool, clinical fashion.”

For example, Broadman said, “If you see some of your biggest competitors are having trouble, that’s really important data and should be informing your decisions. Maybe you want to overtake them, or acquire them when things get better. Mentally take the cloak off the king and see what he looks like without the robes—that’s an important dynamic framework for thinking about these things.”

Broadman said that “there’s not a secret formula” to this approach. “But there is a sound analytical framework that CEOs and their management teams should be employing as they make decisions now. For one thing, they need to do so in a present-value sense: Discount backward, for the sake of argument, to a year from now. On the other side of the COVID-19 recession, Broadman reminded CEOs, “There’s going to be a change in configuration. Who will the winners and losers be? Depending on the length and severity of the crisis, who survives and what shape they’re in may not be what you thought of.

“Companies need to retain their resilience and agility so that they can take advantage of this, or on the other side protect themselves. When the water has filled back up, you don’t want to be saying, ‘I had no idea that guy invested a lot and is now king of the hill.’”