The Finance 202: Top CEO says business leaders are worried about a W-shaped recovery
Their real-time assessment even as President Trump offers assurances that it’s safe for states to reopen: Some corners of the country are still at least weeks away from being ready to do so safely.
That’s according to Rich Lesser, who as chief executive of the Boston Consulting Group has emerged as a sort of whisperer to fellow CEOs navigating the thicket of corporate and political quandaries brought on by the pandemic. Lesser and fellow corporate chiefs have been comparing notes on weekly Friday calls convened by the Business Roundtable, the lobbying group representing 182 CEOs of the biggest U.S. companies.
“The starting point for every conversation is how to keep people safe,” Lesser told me in a Friday interview.
From there, though, the executives’ top concern “is the scenario where we’ve shut the whole economy down, we open it back up, but because of the way it’s reopened — and the difficulty, frankly, this virus has presented; it’s a very tough thing to combat — things get out of control, and we need to bring the economy back down again, only to have to reopen a second time.”
That has put corporate captains in the arguably unexpected position of cautioning against a hasty economic restart even as some elected leaders lift restrictions and encourage businesses to reopen. CEOs fear a resurgence of the disease, beyond wreaking more economic havoc, would bring “second-order impacts societally and to consumer confidence,” Lesser says.
The disease will come back. The question is how leaders respond.
Anthony S. Fauci, director of the National Institute of Allergy and Infectious Diseases, last week called it “inevitable” that the virus returns. Lesser, whose management consulting firm employs some 21,000 people around the world, acknowledges that.
He says elected and business leaders have a responsibility “to spot it quickly” to head off a W-shaped recovery that involves a painful second onset of infections: “The difference between the W and a blip is the quality with which you test, contract trace, monitor, and put in all sorts of workplace and community procedures to reduce the rate of transmission.”
The country now is a patchwork of readiness. Some communities “are still for sure weeks away from being ready to start at all,” Lesser says. “Some are probably in a position to start, if they start very slowly and carefully and with procedures in place to do it with quality.”
A backlash could be brewing.
Chief executives are confronting another category of concerns, as well. Washington’s multi-trillion-dollar economic intervention so far has succeeded in stabilizing the stock market even as companies lay off millions of workers. Such a pricey and uneven rescue is already stirring populist backlash in some quarters.
“We should expect that there would be a lot of anger across different communities, because people are feeling enormous pain and feeling like they were going about their business, leading good and productive lives, and this happened and created massive disruption and, for some, huge personal loss from a health standpoint,” Lesser says.
Some chief executives have canceled their own base salaries or cut them back considerably. And some publicly traded companies have suspended stock buybacks and dividend payments. Others have resisted. Lesser calls the matter “a critical board-level topic, but the answer won’t be the same for every company,” depending on their sector and underlying strength. “For many companies, that would be important to signal that the company is putting first its ability to navigate a very difficult period.” Boston Consulting Group is privately held.
The crisis is already transforming the economy in ways that will far outlast the disease.
Lesser predicts at his own firm, those changes will include allowing road-warrior consultants to cut back on travel.
Those miles logged exacerbate climate change while wearing on employees. “We thought it was going to be exceptionally difficult to make improvements, because our clients expected us to be with them all the time, and that was just how we operated,” Lesser says. “There’s a high degree of optimism, not that we want to keep working this way from our homes, purely remotely. But we will be able to make meaningful changes in our work model that will be more sustainable from both vantage points: from the standpoint of climate and from the standpoint of career.”
Stocks continue to rally as traders say they are flying blind.
Earnings outlooks are no longer the projections they once were: “As the pandemic disrupts industries from travel to manufacturing to retail, the only consensus is that those measures are doomed to fall,” the Wall Street Journal’s Karen Langley and Caitlin Ostroff
“Many investors say they hesitate to jump back into the market when so much remains unclear, but they also fear missing out if stocks keep climbing. Just how far earnings will fall is a subject of great debate. … Meanwhile, more than 160 companies in the S&P 500 — from Target Corp. to Harley-Davidson Inc. to Molson Coors Beverage Co. — have withdrawn or suspended their financial guidance, according to Wells Fargo Securities.»
Disney, Tyson and CVS are among the major companies reporting this week: “The weakest earnings season in more than a decade continues, with nearly 150 companies in the S&P 500 expected to report quarterly results this week, including big names in media and food,” WSJ’s Allison Prang reports.
“More than half of the S&P have already logged their results for the first three months of 2020, according to FactSet, and earnings are projected to fall 13.7 percent, year over year, as companies detail the impact of [the pandemic] on their operations. The estimate, based on those companies that have already reported and forecasts for those to come, would mark the largest such quarterly decline in earnings since the third quarter of 2009, FactSet said. Revenue growth is holding up better, projected to grow 0.7 percent year over year, said FactSet, which forecasts 148 companies in the S&P 500 giving quarterly updates this week.”
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