Written by: Carden Calder & Ky Chow
There's danger in the gap between rhetoric and reality. Here's how to avoid being skewered by a columnist.
1. MARKET FEEDBACK
Who wins from market volatility and falling asset prices?
Anyone who benefits from high volumes of share trading, distress opportunities and bargain shopping.
We mentioned in the last briefing that CommSec has had record margin loan applications. Coronavirus market disruption is good news for such online trading platforms because trading volumes are up. Just as the stockbroking firms of the past made money whether clients were winning or losing – as long as they were transacting – the current high volume of trades are exceedingly good for trading platform business.
We hear trading platforms will be one of the few finance sector businesses to see record results, and that they, unlike many, welcome continued market volatility.
As reported here previously, private equity firms are also searching for distressed buying opportunities but they’ve now been publicly joined by clients and potential clients. This reflects the increasing theme we hear from you around distress opportunities – acquisitions, restructuring or the opportunity to poach talent from rivals who are under pressure.
No surprises that superannuation funds are reporting that member enquiries centre on early release as allowed by the government’s emergency measures, changes to drawdowns and market volatility.
Reports of switching however remain very mixed, depending on the fund and the member profile. Leadership teams remain very focused on helping members make decisions with the long term in mind.
CIOs are considering the long-term implications of COVID-19 for portfolios and asset allocation, including the mix of liquid and illiquid assets given the pressures on liquidity.
Investment strategists we talk to and our clients’ market commentary all indicate markets are still underestimating the impact on earnings from the complete halt to activity, and how slowly these will recover.
While we may have seen the peak in the epidemic itself across many major developed economies, it will take time for confirmation, and containment measures are set to continue into May, with only a gradual easing after.
So while this will likely see smaller shops opening first, then schools, and other venues such as restaurants, larger events such as conferences still appear to be unlikely for some time.
Clients expect the ramp up in activity to be slow and staggered, with many risks to growth – and therefore markets.
That said, we’re increasingly hearing, across clients, about the opportunities.
In the words of one “…the best preparation for inevitable but unforeseeable events requires a consistent and disciplined ability to do the right thing every day. In other words, to allocate capital to the most compelling reward-to-risk opportunities”. Another recently said “this is economically devastating but this is actually the part of the cycle when you can actually make the most money because of the risk-to-reward ratio’.
Many have been predicting a rise in corporate default rates and insolvencies in the quarters ahead. Both fund managers and insolvency practitioners have pointed out that several types of business will struggle: highly leveraged companies who struggle to operate in a macroeconomic environment characterised by manufacturing and service sector shutdowns, businesses of all sorts that were already under pressure, and those without many months of operating expenses in cash.
Venture capital / deals
A client report being released today indicates fewer VC deals in Q1 2020 compared with previous year (50 vs 90). The average size of deal in Q1 2020 is significantly larger ($11.7m v $6.7m), but the data also shows a significant drop in the number of announced deals in March 2020, coinciding with increased government announcements around COVID-19 and the progressive shutdown.
Investors in this space are focusing efforts on existing portfolio companies and will likely raise bar for investment in new start-ups. Founders will recut their numbers in April in response to COVID-19 with two groups emerging: those making adjustments to existing operations and others who will be forced to hibernate.
VCs we’ve spoken to oppose early release of superannuation as they take a long-term view. One talks about early release meaning more people will be on the aged pension in the future. “This policy is just kicking the can down the road”. It’s a view strongly echoed (mostly in private) by the exact opposite end of the funds management town: some of the largest local and global fundies as well as their clients the super funds.
2. MANAGEMENT RESPONSES
Corporate COVID-19 messages and the commentary environment
There are still a small number of companies that have not communicated at all to members about COVID-19, and we’re now seeing a “rush” by this laggard end of the bell curve.
Previously, we communicated that mainstream media titles are publishing pieces with only COVID-19 angles, while trade titles are doing 50/50. Large trade titles have confirmed that they are only publishing COVID-19 pieces now.
Mainstream media, however, are starting to move on. While COVID-19 still dominates, engagement levels on such content have dropped.
Many of you expect to see the same with your own content. Those engaged with active PR programs in other areas will thus start to see greater interest in these as the media seek to maintain high engagement levels.
Those we talk to who see opportunity are incredibly mindful of not being seen to profit from crisis – there’s real and justified caution about perceptions of opportunism.
Many of you recognise that there’s serious reputation risk now, particularly of being seen as heartless or out of touch. It’s almost a situation of “if you’re not part of the solution you’re part of the problem” when it comes to stakeholder engagement right now.
In other words, every action, message and decision is being assessed by you in a COVID-19 lens. This remains the right thing to do commercially, particularly when many of you are reading Joe Aston’s epithets about corporate social media that seems ignorant to the impact of the health crisis and its flow on effects.
Tech stability and privacy issues
Clients have reported concerns with the security of Zoom and have moved meetings to Microsoft Teams where possible (note Microsoft Teams now shows nine participants on screen – previously it only showed four). Teams also has been popular because of its ability to integrate with other products such as MS Office. Anecdotally its seem Microsoft is winning this game.
By contrast, Skype, a platform regarded as in decline, might now never recover it’s reputation as a business tool – our clients’ experiences suggest notably more glitches and problems just when they needed it most.
3. CEO GUIDANCE REGARDING CORONAVIRUS RESPONSES
1. Re-look at reputation risk, but do so as though you’re on the outside
We’ve never had so many CEOs ask us how not to come to Joe Aston’s attention. It’s a common question but his recent commentary has been particularly stinging to some folk in our sector. The long answer doesn’t have a place here. But the short answer is this:
Confront the brutal truth: what do your stakeholders say when you’re not in the room? Or find when they research you? If you don’t know, you should.
Understand if your stakeholder’s experience match their expectations. If not, address it or get ready to.
Make sure you have an evidence base of regular, objective views of what your stakeholders really think. From online reviews to informal conversations or large-scale sentiment research, get ‘listening’. This is good risk management but it also provides opportunities to move closer to your audiences and meet their emerging needs.
As we said earlier, many of you recognise that there’s serious reputation risk now. You’re assessing your actions, message and decisions through a COVID-19 lens. This remains the right thing to do.
2. Analyse the different phases of the crisis, including where you are now
With careful optimism growing about the actual health situation in Australia, you may need to shift gears and phases according to your response plans.
3. Take advantage of the closing window of high stakeholder engagement
The intense focus of COVID-19 has seen both media and companies experience record engagement, but that may be about to drop - potentially sharply. Seize the opportunity to lift the quality of your content and communication (including, for example, its frequency and timeliness) to maximise long term engagement.
If we’ve not yet spoken, please share your experience here.