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CEO Shift: How CEOs Are Using Crisis To Pivot To A Better Future

Regardless of the shape of the recovery curve, one thing is sure: CEOs must make these five big shifts if they are to have a brighter—or any— future.

In a recent interview, Don Gogel, Chair of private equity firm Clayton, Dubilier & Rice, reminded us of a quote by Samuel Goldwyn, who said “Nobody knows anything.” What we do know is that companies will have to architect their businesses anew, regardless of V, W, U or the dreaded L curves that emerge over the coming months.

Regardless of the shape and duration of the curve, one thing is predictable—CEOs must by necessity take 5 “pivots” out of the crisis if they are to have a brighter (or any) future.

We interviewed well over a dozen CEOs who concurred that crisis or “wartime strategies and actions” will look very different after enjoying over a decade of “peacetime.” They will, as Chris Franklin, CEO of Aqua America pointed out in his interview that CEOs could for many years get away with just talking the talk about things people, customers, teams, breaking down silos, and so on.

However, it is now imperative that they walk the talk, and as he put it, “we must move urgently now to action.” Several other CEOs in the affirmative pointed out that culture, values, and stakeholder engagement are now “action items” and not simply talking points.

Here are the 5 big shifts
CEOs must make immediately to ensure a brighter future. Otherwise they are putting their company, their employees, their customers, and yes– themselves–at risk. That, we suggest, is the only thing we do know.

1. Make Employees a Top Priority

Many CEOs and boards have instinctively tried to protect employees’ health and welfare, especially in plants and facilities that are still operating during the Covid-19 crisis. Putting employee safety first and customers second represents a clear reordering among stakeholders, and it must continue.

CEOs need to stay attuned to their people issues through the crisis and long after recovery. Front line employees are the ones carrying essential businesses right now and helping non-essential industries find creative ways
to survive. Employees across the board are suffering emotional and financial stress.

Gary Burnison, CEO of Korn Ferry, noted that in some cases employees have seen their net worth cut by 40%.

These and other employee concerns must be elevated to the CEO’s desk, and CEOs should address employees directly. As CEO of Dupont, lead director at Comcast, and former CEO Tyco, Ed Breen has personally lived through two major crises, so he speaks from experience in saying that the CEO must be the key messenger on all matters affecting employees. He has already launched regular Q&A sessions with his executive team, weekly communications with his board, regular emails to all staff members, and
is starting a series of video-conference updates for the entire organization.

Companies should seek ways to sustain employees financially, including nontraditional approaches. Reducing or forgoing executive salaries and using furloughs instead of layoffs so employees don’t lose their health care will help.

But if employees truly have a seat at the stakeholder table along with customers and investors, companies should ensure that they—not just shareholders and the leadership team—participate in the rewards of recovery.

2. Keep the Organization Lean and Nimble

Efficiency and agility have been critical for companies in this disruption.
Even some companies that were notoriously rigid have been able to react and innovate quickly, getting people to work across geographies, time zones, and organizational levels to solve urgent problems. So CEOs are realizing that work can be done differently, faster, and with the use of technology, even virtually.

Ford Motor Company, for example, is hardly known for its quick product development, but when auto production came to a halt, the company jumped into producing face shields for those treating Coronavirus patients. Although face shields are much simpler to make than automobiles, the project still required collaboration across internal silos and with suppliers, hospital representatives, and regulators. As John D. Stoll and Greg Ip reported in the Wall Street Journal, Ford assembled a team that connected electronically, tweaked an open source design, and produced a prototype within days. An FDA approved version went into production within a week.

The current bias for action has flattened hierarchies and driven out time wasters like politicking, multiple approval levels, and redundant meetings. CEOs should be encouraged to maintain a sense of urgency and keep pushing to make their organizations leaner, more nimble, and flatter, even as they rebalance face-to-face and virtual connections post crisis. They should consider how to apply now proven technologies like video conferencing to supply chains, organizational structure, and shareholder communications, as well as to internal teamwork.

3. Redefine What a “Responsible” Balance Sheet Looks Like

CEOs and boards have riveted
their attention to cash—figuring out how to generate it, how to conserve it, and for those that have cash, how and when to allocate it. Planning for liquidity no less than 6 months, and more likely 12 months, out will require some tough decisions. But as Warren Buffett says, “Cash combined with courage in a time of crisis is priceless.”

CEOs should set clear priorities and sequence them against cash flow while being prepared for a resurgence of the virus. Keeping the sales force intact may be a top priority for some companies, while continuing to invest in R&D, as Breen is doing at Dupont, may be critical for others. Cutting expenses, postponing capital expenditures, tapping into lines of credit, and delaying 401(k) matching contributions to instead maintain employee health benefits—all these things should be considered.

As the crisis subsides, companies should stay focused on cash and build greater cash reserves into their balance sheets. They should have cash on hand to invest in people, innovation, potential mergers and acquisitions, and to weather any additional storms that have not yet been identified. Opportunities for acquisitions will arise, but as David Meline, former CFO of Amgen and a Director of ABB, notes, “If you aren’t healthy, then you’re scrambling.”

CEOs will have to defend their idea of what a responsible balance sheet looks like, especially against short-term investors and activists who push for ways to dispense the cash. Shareholders have been the dominant voice in the past decade, but they cannot be the sole voice CEOs listen to going forward. Companies have to be prepared to balance what shareholders want against the interests of employees, customers, and communities and importantly, protecting the future. Balancing multiple stakeholders should make it easier to muster support for actions that strengthen the organization’s health and ensure its longevity.

4. Adapt to Consumers’ Changing Needs

The consumer is the single most important indicator of a business’s success. In the end, it is customers who deliver the revenues. But companies will have to re-learn what consumers want and need post crisis—something consumers themselves don’t yet know.

Customers’ needs changed overnight when the crisis hit, and companies that have been helping them endure the storm—through things like extending credit terms or providing home delivery—are creating meaningful value and shaping customers’ perception of the company.

But those needs will change again in ways no one can predict. Consumer psychology will not change instantly once the virus subsides, and psychology influences consumer behavior. People may be hesitant to travel or to attend public venues. Some consumers and businesses will have taken a serious financial hit, and others may be afraid to spend what they have. Industrial companies will have little to go on in projecting demand.

Companies should maintain customer relationships and create mechanisms to observe consumer behavior as it changes. If customer needs are altered dramatically, companies may have to redefine their customer base and how to serve them. Companies that are agile will have an edge in adapting their business models and executing on them.

McKinsey’s digital czar, Rodney Zemmel, points out that “before the shift, digital was on the agenda, but now it is the agenda. Most companies have digital initiatives underway but now is the time to move from pilots to real business impact and building new businesses.” Even business-to-business companies are getting on the bandwagon of new expectations of their customers. Rich Kramer, Chair and CEO of the 120-year-old Goodyear Tire & Rubber Company, explains, “Now we can install new tires on your car at your home.” While they “used to just talk about using technology/online tools to generate revenue, now they are doing it.”

5. Step Up to Social Responsibility

Many CEOs helped fill the leadership vacuum in their local communities when the Covid-19 crisis first erupted. Don Slager, CEO of Republic Services, said, “We had to move quickly from talking about things like social responsibility to actually doing them.” One action Republic took was to give employees gift cards for local restaurants. The employees benefited, while helping to keep the restaurants alive through the mandatory shut down.

CEOs must continue to think of the community as a critical stakeholder and solidify their relationships with government officials at the state and local levels. Everyone will benefit as they do.


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