Beating the Black Swan: negotiating for mutual survival

The current coronavirus pandemic (COVID 19) is a ‘Black Swan’ – a totally unforeseen event with totally unpredictable outcomes. None of us would have predicted this event at the start of 2020 and the dramatic speed of the virus’ spread and the subsequent lockdown across much of the world, as much of the global economy comes to a standstill.

For many – if not most – companies, SMEs and self-employed people, the pandemic has immediately thrown us all into collective survival mode. Inevitably, negotiation has a role to play in this battle for survival but the difference here is that we are all in this together. So, while all negotiations should create and share value, in this current situation we must recognise that we all have a role to play in trying to ensure our mutual survival.   

There will inevitably be casualties. For many ‘Zombie companies’  – those with no growth, no profit and which are burning through cash while only paying bills - this is likely to be the end of the road and these businesses could be taken over by well-run companies.

The pandemic marks the changing of the game in business. With the dash to preserve cash and working capital, we enter a time to renegotiate across the business ecosystem, whether this is with landlords, suppliers, staff and others. But how can we do this quickly and effectively, in such extraordinary times, when supply chains are empty and huge dislocations are seen across industries, and we don’t know what will happen next?

The one certainty is that cash will be king – and this is a central part of the negotiating strategy for all parties.

The reality is that many companies, people and families, are facing unprecedented difficulties so while there may be difficult negotiations with supply chains and staff, there must also be a reflection on the ethical and moral considerations – doing the right thing is the right thing to do and these negotiations should not be just about protecting personal wealth at the expense of others. People make the difference after the pandemic has passed, we will all remember how we were treated – including in any negotiations to relieve the pressures on cash.

The key is to act fast and start negotiations with stakeholders starting with clear priorities and remembering that negotiations are not about winning but about sharing the spoils.

All business models are now irrelevant and we cannot rely on them - all the negotiating parties understand the  extreme uncertainty and focus on sustainability, with the simple aim of short-term survival. If you are a hotelier, restaurateur or any other leisure business, your revenues may have fallen by 100% in less than a month. Everyone in the industry clearly understands this.

When planning and preparing for negotiations, firms need to look at their priorities and what is most important for survival, as well as how long the cash will last. Consider your stakeholders and suppliers and pay the important bills. Most importantly,  consider the workforce first – they generate the revenues, and are not an expendable resource – and support them as much as possible within the limitations of cash. Then your clients, how can you continue to serve them and help them through these tough times? When looking at the supply chain, consider the big deals first and renegotiate a new mutually agreeable schedule of payments. A company’s lenders – from banks to private investors – can also help a lot while commercial property landlords will be facing the new reality of teleworking and will very likely want to hold on to loyal tenants. Governments are playing vital roles in supporting business and pulling all their available leavers, from tax to regulatory, and companies need to stay well-informed about government actions and changes to the rules.

It’s important to be proactive, set the agenda and focus on the key stakeholders based on your mutual ability to help each other survive. The tactical plan should be based on the most pessimistic economic predictions but also flexible enough to change as the situation and rules change.

The mindset is important as we approach these negotiations – we probably all have families at risk and small acts of kindness today will be repaid in future. We are all having tough times and showing empathy, courtesy and respect for the concerns of the counter party is essential. In fact, this is a great opportunity to create great mutual outcomes for the short and longer term.

Finally, remember that together, the world has chosen life and is investing in people and health for a better global ‘balance sheet’. We are all in this together and fast and sensible negotiations will help many more companies survive and continue to thrive, post pandemic.

Keep well.

 

Malcolm Smith is an alumnus of Alliance Manchester Business School and lectures on the school’s part-time Global MBA programme in Dubai, focusing on Private Equity & Venture Capital, as well as negotiation. He is non-executive chairman of several companies operating in the internet space.