by Ron Robinson, “Practices of Resilient Companies: Overcome Disruption with Compassion, Collaboration and Knowledge“
Business leaders’ ability to design strategies that anticipate and manage disruption determines whether their businesses fail, survive, or thrive. Creating resilience around disruptions — including those related to political actions — ensures they’re able to prevail during adversity.
One could argue that most of the disruption in the 21st century has originated from government actions regarding taxation, free markets, interest rate policy, and regulation. In other words, politics.
A case in point: all three recessions of this century were caused by similar legislation and policies in all three collapses:
Dot Com Recession, March–December 2001 – In 2000 the Taxpayer Relief Act and FED actions reducing interest rates made debt financing easily available. The infusion of capital into World Wide Web startups created a frenzy of startups by entrepreneurs with no business plans or management ability. The FED increased interest rates in March 2000 and the music stopped with 40,000 business failures in 2001.
The Great Recession, December 2007–June 2009 – The Gramm-Leach-Bliley Act overturned regulation of banks combining commercial and investment functions. The Department of Housing and Urban Development (HUD) opened mortgages to low-income borrowers, and unregulated commercial banks packaged risky mortgages into mortgage-backed securities. A downturn in the housing market caused securities to lose value, banks to lose value, and business to experience a staggering 60,837 bankruptcies in 2009.
The Pandemic Recession, February–April 2020 – The Tax Cut and Jobs Act (TCJA) of 2017 reduced the corporate tax rate from 35 to 21 percent. The Economic Growth, Regulatory Relief, and Consumer Protection Act reduced the number of banks subject to stronger federal oversight and reduced regulation of small- and medium-sized bank holding companies. The stage was set for federal and state governments to shut down the economy to stop the COVID-19 pandemic and experience the deepest recession of this century.
In their study, William G. Gale and Claire Haldeman of the Brookings Institution concluded that the effect of the TCJA was to reduce revenue to the Treasury. “Growth in business formation, employment, and median wages slowed after the TCJA was enacted. International profit shifting fell only slightly, and the boost in repatriated profits primarily led to increased share repurchases rather than new investment. Much of the investment increase was concentrated in oil and related industries and appeared to be a response to increases in oil prices, not lower tax rates. Indeed, other investment did not grow very much, and even overall investment growth petered out by the end of 2019.”
The common thread going through three recessions connects political actions to cut taxes, services, and regulation with business failures. The government remedy has been to tighten regulation and increase taxes and services to revive the economy. When the next bubble bursts, the impulse to cut taxes, services, and impose regulation should be challenged.
Meanwhile, weathering the changes political actions can wreck on one’s business necessitates implementing tactical internal strategies. Tools and talents used to strengthen financials include scorecards, engagement, problem-solving, and positive reinforcement — as exemplified within the following business:
My neighbor Roy invited me to tour his veterinary clinic. The first thing I noticed were two graphs on the wall next to the reception desk. One graph was labeled “Sales” and the other “Expenses.” In both the grooming area and the operating room two graphs were posted titled “Customer Count” and “Customer Satisfaction.”
I examined the two graphs behind the front desk. Each graph reported weekly data for a year and tracked seven years of comparative data. The sales graph illustrated that for every year revenue was higher than the year before. The Expenses graph told a different story. The lines increased steadily for the first several years before flattening out and remaining relatively stable over the last four years.
“Weren’t you concerned your staff would know how much money you make?” I asked.
“No, they thought I was rich,” he chuckled.
Roy experienced seven years of steady income growth while containing his costs. He’d beaten the odds of many entrepreneurs. He shared the importance of keeping everyone focused with graphs and using positive reinforcement. His reinforcement — 10 cents on every dollar the clinic earned over the same period the previous year became a monthly bonus. Employees chose how to spend their bonus.
“We really began moving forward when we initiated annual planning sessions,” he shared. “We meet outside of work each year to update our plans and make changes.” I could see the pride written all over his face.
The combination of scorecards coupled with positive reinforcement (bonuses), decision-making, and problem-solving by staff, along with total inclusion in annual plans and weekly business huddles, resulted in everyone becoming part of the business and seven years of steady income growth.
To increase sales, reduce waste and costs, and ensure customer satisfaction, verbal and visual feedback are a way to strengthen the financial component of a business and create resilience to fend off disruption. At the same time, business leaders and managers must do their part to elect responsible representatives who institute greater economic stability and growth through responsible tax and regulatory policies.
