As the tariff wars exploded in these weeks in recent weeks, there was good reason if they had flashbacks to the early days of Covid-19. Simon Freakley, executive chairman of Alixpartners Consultancy, certainly had the feeling of numbing Déjà Vu.
He says that the global scope, deep uncertainty about the future, a sudden, uncertainty in the market that makes history, and ultimately, we are somewhere unknown, are experiencing a lot of people he talks about, not being so aware of those dark days.
“I think it was a dry run for this early in the pandemic. I think they were dry runs for the conditions we were dealing with,” he told me on Tuesday night in a conversation before shaking the shaking of Wednesday's tard drama. “The pandemic could not be avoided. This could have been avoided, but that's the situation we're dealing with.”
So, what is he giving advice to the CEO of a large company he's talking about to do now? He states the basics: Control what you can control, communicate communications, and above all protect your balance sheet. Then take note of the occasion.
“What do the best leadership team do? They stay agile,” he says. “They guarantee that the previous moment is not a hostage of strategies that may have been appropriate, but now it is not appropriate. The following has been compiled for length and clarity.
You talk to many CEOs. What's the atmosphere there right now? What does the CEO feel? What do they want from you?
At the moment, here's what the CEO is saying: I don't know where this is heading. We know that it leads to pressure on the margins. We know that leads to pressure on prices, so we need to take steps to mitigate to some extent the possibility of harmful effects on our business.
Suspend discretionary spending to the extent possible, convert fixed costs to variable costs to the extent possible, and reduce capital spending until you know where this is heading. You have the option to maximize cash access through cash reserves, disposal of non-core assets, or borrowing facilities. Because lack of credit is not an option from cash. Also, potentially, if special opportunities arise in the market, if assets are on sale, if they can be capitalized, there is resources to do so.
What you were giving people at the beginning of Covid is that when you don't know what will happen next, it's a lot of advice to focus on controlling what's in your control.
that's right. In these moments of uncertainty, we can control what is controllable only by mitigating costs, maximizing and maximizing cash storage as things become clearer.
What do you say about how to deal with the tariffs themselves? So what advice would you give?
There is a customs war room or customs command center in place, and clients understand how to maximize customs arbitration. If one jurisdiction has lower tariffs than another, can we restructure the supply chain and ease it as much as possible?
We don't pay any enhanced duties on indirect costs as we see how they can break down their products and allow them to become imported products only at the direct costs that have been built up to now. We import semi-manufactured products, not finished products. It is a way to restructure our own domestic manufacturing operations to manufacture the most expensive components to import, and import cheaper products from differentiated regions.
For example, in an environment where China controls 60% of the world's rare earth elements and perhaps 90% of its production using rare earth elements, if China becomes a very high tariff country for imports, then it can alleviate that by bringing rare earth elements into different jurisdictions and manufacturing them so that it doesn't end with higher tariffs.
The only good news about this is to use an AI-enabled engine to understand how to break down all of this production and reconfigure it with the lowest possible tariff configuration. These AI tools can digest thousands of contracts per day to understand where the differentiation and differences lie. They allow decisions to be made more quickly than before.
How about talking to stakeholders? Think about communication now.
One of the things you said before is true today, just like the early moments of Covid. The best CEOs are their own Chief Communications Officer. They reach the forehead of communication.
One of the master classes we were given to all of us in this regard was Marriott CEO Arne Sorenson, one of the CEOs of the year's award, who reached right in the early stages of Covid, despite being he was undergoing intense cancer treatment at the time. All his hair fell off. He lost quite a lot of weight. He filmed all 444,000 employees himself about what Marriott was doing with Covid, respecting its value and protecting his business. (Watch the video on YouTube.)
Ultimately, of course, Marriott had to attack many employees when they worked through Covid. But he gained so much trust and goodwill from his employees, doing it himself, telling the truth on his feet, and doing it himself in an age of deep uncertainty.
That's exactly the truth today. Even if you don't have the answer, CEOs need to understand that they need to talk about what they're doing in the face of uncertainty to protect their customers, protect the possible employees, and make the best decisions to investors, and that new facts of tomorrow need to pivot again in a slightly different direction.
In the end, no one knows what they're trying to do, so all they can do is tell the principles they use, the basis for determining the best decisions for the business. People get high marks to do that.
In this crisis, looking at business history, some companies are stronger than others. Some make a big move to make them within their industry. Are there any tips to find opportunities for volatility and make sure your rivals aren't? You don't have to beat everyone in the market. Just defeat your rival.
What do the best leader do? What does the best leadership team do? They remain agile. They assure you that the previous moment is not a hostage of strategies that may have been appropriate, but now it is not appropriate. They remain agile for the pivot.
The winner is someone who can pivot. This means you have cash resources. They have balance sheet flexibility rather than facing the wall in terms of borrowing.
What is left behind, what is not having a strength in the balance sheet, they are tied up and cannot move. Their costs are too fixed. They are not variable. People who don't actually narrate what they're doing can't carry their members with them. All of these turned out to be a winner's feature at such a moment.
Honestly, I think in the early days when the pandemic was a dry run for this, they were dry runs for the conditions we were dealing with. The pandemic could not be avoided. This could have been avoidable, but that's the situation we're dealing with. But what's similar about this and the pandemic is now a global phenomenon. The winners, and now there will be winners, but the winners are those who can pivot quickly.
