Unless you are in hiding or your sector is uncorrelated to the world affairs, then financial market slides and question marks about economies won’t have escaped you. More directly, the year-to-date performance of major markets* are in the red due to real economic reasons.
In the ‘all market’ sell-offs over the past few weeks, the quality of companies’ financials and ‘value’ is less important than exiting positions and watching – buy and hold this is not. How deep any recession that may occur will be and how far around the world it does or doesn’t spread remains to be seen, although some economies will inevitably stumble into them. Further, although much talk is of temporary economic issues, many of the same commentators said inflation was “transitory”.
As agency and in-house leaders responsible for guiding clients and firms through the external environment – who knew comms professionals aren’t just media relations monkeys – the concerns have rarely been tougher as C-Suite teams, firms, clients & consumers alike, confront numerous economic and geopolitical forces simultaneously: inflation, declining consumer confidence and resulting changing consumer behaviours, difficult investor relations, China’s lockdowns, China’s real estate market, rising interest rates, bond market turmoil, a rising dollar, War in Ukraine, regional geopolitics, energy & food supply challenges, and inflated asset prices, to name a few.
Government responses thus far range from ‘there is no problem’ to ‘it’s a problem we are aware of’. Yet, with less money for consumers to spend, countries having thrown the kitchen sink at Covid, and with the cost of debt rising it would be ignorant not to anticipate a bumpy ride ahead in some form. As a secondary point, unlike the 2008 Financial Crisis that originated in markets and then hit the real economy, this time it is real economic fears filtering into markets.
Despite commonly held beliefs, corporate affairs leaders cannot control the external environment – read that again - but can instead prepare firms external relations, positioning, strategy, and reputation for the times we inhabit. Yes, media relations and PR is part of that mix but far from the only tools to be deployed. What is more, downturns present new opportunities for takeovers, joint ventures, campaigns, and market entry – an often-forgotten point.
Economies always rise and fall, so preparing for worst-case scenarios (significant recessions in the markets you’re concerned with) by dusting off crisis communications plans and media relations training is a good first step. Secondly, when economies slide governments change, so expect political unrest to intensify and countries to start changing hands – maybe Australia was first – especially noting the cost of food and energy increasing.
Managing relations with publics beyond you who are concerned and stressed is not easy, but it is vital the narratives delivered to external stakeholders are in sync with the world outside by utilising simplicity, humility (B2C), honesty (financial PR), and creativity (B2B). Lidl, Marks & Spencer, and Apple Inc, have all achieved this in the face of the status quo. Not to be forgotten is the value of silence – how many hedge funds and celebrities saying little to nothing are you still aware of, who maintain a good reputation none the less; sometimes less is more.
In addition, positivity and clarity of purpose goes a long way in developing trust and understanding - it is as valuable as it is strategic. For instance, can you describe what Ferrari embodies in four words? If innovation, speed, luxury, and design feature somewhere in your list then Ferrari have done their job. Now ask yourself, to what extent are you doing that in a way that is not just your firm or client speaking at the world – that’s relevant for firms of all sizes.
Despite consumers having less disposable income, the prevailing sentiment is they want to spend their cash with companies they view positively, and that sustainability is as important as ever, even in tough times. To that end, research by Mintel found that 66% of British consumers prefer firms who reduce carbon emissions, meanwhile research by the Wharton School, University of Pennsylvania found that 90% of Gen X consumers are willing to spend an extra 10% for sustainable products.
The value of effective brand and reputation in this environment is crucial considering the above as it helps maintain trust and by extension market share. Moreover, if a downturn intensifies it is time to park private jets and politely explain to clients and CEOs to avoid posting that Instagram reel from St Barts – unless they run a luxury brand, in which case roll on.
These things may sound obvious but in recent months it is something that was lost on mega-cap companies slow to leave Russia, energy firms who instead of taking the initiative waited for government policy to step in, and P&O which deserves a special mention for gross ignorance in reputation management. Oftentimes reputational mistakes are easier to avoid when deploying a relative strategy to competitors in similar sectors and markets.
Perhaps effective investor relations are the hardest audience in these economic and geopolitical involved times. Investors are smart, data rich, and more questioning than ever in the hunt for semblance of certainty across value, growth, yield and, of course, ESG when company outlooks are fading; getting the messaging around value, growth or yield right, remains tricky.
Whilst some investors are no longer welcome, and those from offshore centres face greater scrutiny, if the downturn continues then agencies and in-house teams can be expected to do far more heavily lifting on the IR side to find new investors and keep those already there happy.
In addition, corporate affairs leaders should anticipate institutional shareholders being replaced by activist hedge funds and PE firms sniffing for blood. Or the likelihood that institutional investors join the bandwagon themselves and cease to be quietly constructive voices in the room – maybe BT is next here.
In tough economic times i.e., 2000 and 2008, companies died and other arose through M&A, therefore it is a good time to take stock of shareholder lists and to ask CEOs and Executive Boards if they are receptive to a takeover or not, so your client or firm can be prepared and positioned accordingly. After all, things can happen fast, and a rising dollar makes the rest of the world just that little more cheaper and attractive.
In all it is a complex and multifaceted time with lots for corporate affairs leaders to be mindful of and strategize for. True, the economy may not slide, and recessionary fears may dissipate, but being ready for tough times ahead feels like the smart thing to do if you’re looking into the world outside and how the filters back.
* As of 26/5/2022; Source: Country Economy: DOW (-11.61%); NASDAQ (-26.91%); S&P 500 (-16.52%); STOXX 50 (-14.45%); DAX (-11.82%); CAC 40 (-11.94%)
Robert Quartly-Janeiro specialises in domestic and international corporate affairs issues predominately in corporate, financial, government, investment management, and luxury.