THE coronavirus disease now officially tagged as Covid-19 has so far infected close to 80,000 people worldwide and claimed the lives of over 2,500 in China—surpassing the toll from the SARS outbreak of 2002-03. Last month, the World Health Organization (WHO) officially declared it a global health emergency. This virus, which has now infected people in more than 25 countries, has sent jitters across global capital markets. Last week was frenetic. I had to fly to three countries just to attend emergency board meetings of companies with a manufacturing presence in China. Almost overnight, Chinese manufacturing hubs stopped operating. Naturally as trade gets disrupted and workers are discouraged from going to factories, production of goods will stop. At a macro level, the economic impact of such an outbreak is difficult to fathom.
When the factory of the world suddenly stops producing goods, recipient companies all over the world will feel the heat. The World Trade Organization declared China as the biggest exporter and second biggest importer of merchandise. And it plays a crucial role in the global value chain as a hub of both demand and supply. Any long-term disruption in economic activity in China is bound to keep the markets on their toes.
As demand dries up, stock markets will take a beating and highly leveraged companies will suddenly turn south. On the bright side, despite the uncertainty in the marketplace, I do not anticipate any long-term damage. The outbreaks of SARS, swine flu, Ebola and others saw an initial sell-off in the markets, but they quickly bounced back and offset the losses. With the concerned authorities working on quarantine measures, news reports suggest the epidemic could plateau in the next few weeks. But this early, we can expect a downgrade in full year growth forecast. With China taking a beating, its neighbors will surely write off some gains last year. Similarly, to a domino effect, companies will mitigate their internal risks by downscaling operations, gradually letting go of manpower, restructuring debt, etc.
Let me now resume Part 2 of my article by focusing on how family owned enterprises (FOE) can regroup and formulate strategies in the face of one of the biggest threats that caught world unprepared.
3. With recession in the air and sales sliding, the key senior leader should open the floor for suggestions with regard to the kind of changes or intervention needed, why the need to change and discuss the pros and cons of every possible initiative. Important that other family members participate as they may have better ideas in navigating through rough patches
4. Identify the role, scope of responsibilities and capabilities of each family member that will be affected by change. Change will affect everyone in the family business. Each of them would have to be able to understand how the change would directly or indirectly affect their roles and line of activity. Their skills would have to be assessed in order to see how they could cope with the change.
5. Determine how the decision making process would have to be done. Decide whether the decision about the change would be based on voting or by the founder’s word or the department heads’ recommendation. Should it need the collective votes of members of the Business Council or Board of Directors? For example, if the family business would have to cut back on operations or reduce manpower, any sensitive decision could be made according to pre-agreed family business’ policies.