Don’t pass the buck — Break the chain! (Part 1/3)
Every business today is going through a tough time; not a single one has been spared. Consider that a good sign! If there was just one sector affected, it would bring about panic in a few businesses impacting other peripheral businesses. However, if Covid 19 has struck every business at some scale, whether large or small, everyone is pushed back at the same pace. So, there is no need to panic. At least not yet.
Covid-19 has caused an unprecedented effect on the Global economy, especially for the world’s superpowers. India’s GDP rate has also taken a tremendous hit and fall back. This is the time to ACT, not react. ALL businesses should own up and stabilize the eco-system instead of panicking and holding onto liquidity!
Easier said than done, yes, but this is the time to come together and not operate in silos. Don’t pass the buck down the supply chain! Try not to pass the financial pressures down to your employees and vendors by terminating contracts, reducing salary and laying off your staff. This might be a short term fix, but it will adversely affect your business sooner or later.
Instead, if you circulate the funds in the eco-system, the eco-system thrives and everyone benefits. If you hold on to your cash, the eco-system dies a slow death along with you and if you take undue advantage of a crisis, you’re dead anyway!
Employees and vendors are sensitive to these situations — they’re more afraid than businesses. As an entrepreneur (big or small), if you empathize with them and help them make it through this crisis, it is these people who will stand by you should times test us all further.
Here’s something to be proud of:
Nashik Waste Management Private Limited is a company that collects, segregates and treats 550 tones of waste per day for the entire city of Nashik. They have followed ethical business practices and have stepped up in these difficult times. They come under the Essential Services Act and deal with a lot of vendors, daily wage workers, contract workers and of course their own employees.
To ensure that everyone survives this crisis, they have purchased protective equipment, masks and gloves for all their staff.
-They have given an increment of 5% in salaries for their staff who are out there in the streets collecting, segregating and treating garbage
-They have continued existing salaries of all the employees, contractors who are stranded at home or en-route and cannot come for work
-They have deducted salaries from people who are abusing the system — Leave Without Pay for those who are “afraid” to step out of homes or are using the lockdown as an excuse to not come to work
NWMPL employs a lot of daily wage worker through labor contractors. They followed up with the labor contractors and ensured that the additional income of 5% was given to these daily wage workers and none of them were let go, ensuring everyone was taken care of. Business ethics at its best! Seeing these pro-active steps, Nasik Municipal Corporation i.e. the local government has stepped up and ensured that payments from the Corporation to NWMPL was done before the payment due date. That’s the power of empathy. Don’t undermine it!
The supply-chain panic effect
Suppose you are in the top management of a 1000+ Cr ($150 Million) company and you’re seeing a severe fall in company revenues. The CFO or Finance dept. looks at this in a similar light of 2001 or 2008 financial crisis and wrongly advises you to “hold on to liquidity” until the situation improves. You don’t think you have an option but to reduce expenses — salary cuts, delay or reduce vendor expenses, reduce staff, shutdown the production, evaluate and remove the ‘non-critical’ staff.
You terminate a contract with your vendors. Each of them may be 100 Cr ($15 Million) companies. Seeing their customer(s) panic and probably getting advice from their financial advisors to hold, they follow the same model and sack employees, and terminate contracts with their vendors.
These smaller vendors of 5–10 Cr ($ 750k to $1.5 Million) have nowhere to go and no one to look after them. They shut shop, all of their 25–150 staff are unemployed and other vendors are all out of business. It’s worse if this was a labor contractor who just sent a lot of poor daily wage workers on the street (literally). Should one really blame this contractor?
The lower income group now defaults on EMIs, stops paying their house help, live on bare essentials, ignore hygiene, breach the lockdown, flaunt rules, get frustrated and degrade their quality of life. This may escalate the crisis not just by spread of Covid-19 further but also cause a socio-economic meltdown!
The daily wage workers have borne the brunt of this — they have nowhere to go, nothing to eat, no information to access and stare staring into the face of a pandemic. It’s unfortunate that they suffer because of a top-level executive decision to “Hold on to liquidity”!
Could this debacle and panic be avoided?
Yes! Knowing that there would be financial turbulence ahead, instead of sitting on it, the larger companies dip into their reserves, approach banks, government and NBFCs and get moratorium without interest, leverage their assets for raising capital or debt! It’s easier for a larger corporation to do this since they larger corporations have better access to institutions.
In this crisis, everyone holds their own and supports the downstream chain. It’s possible that the situation deteriorates — maybe the top-management takes a salary cut. They talk to their vendors and see what it takes to survive this ordeal — a vendor realizes this and can reduce or defer some payment. Note that no one is without a job or out of business — everyone is in it together!
This in turn enables smaller vendors to look after their vendors and employees. That eventually helps people survive this ordeal, boost their morale, build loyalty and pass the positive effect up the supply chain!
That labor contractor is now able to provide bare minimum wages to daily workers and they at have some livelihood to survive the ordeal. The number of the hungry and homeless would now be lesser and the government can concentrate on their welfare.
Does this mean it’s the prerogative of only the Big Players to step up? No! Even smaller companies can engage in contingency planning of debt and raising capital but let’s face it — the larger the company, the easier it is to engage with financial institutions, banks and even the government to issue policies and gets financial benefits — so the big players do need to play a bigger role!
As with any company — business ethics start at the top! The bigger players need to step up with good business ethics and stop passing the buck down the chain. Everyone below steps up and economy survives!
Corruption and deceit will play a role but if the general consensus is ensure EVERYONE’s economic survival, it’s a WIN.
At Josh Software, as an IT company, we’re seeing turbulent times, and are probably in some of the trickiest waters that we have waded through. Despite this, we have decided that all vendor payments will be done in full, all employees (~120) will not face any salary crisis and no-one will be laid off. This is a tall claim but we are confident that everyone we work with will step up if we need their support in the future!
This is not to time to sit on your cash and see how the situation pans out. This is the time to act and ensure that everyone in the supply-chain survives!
Read part II of the series here: https://medium.com/@gautamrege/dont-pass-the-buck-support-the-supply-chain-not-just-a-relief-fund-part-2-3-5ba5f69cb766
