We speak to Rodrigo Alonso Martins, CEO and Head of Wealth Planning for Ripol Alliance Global Wealth Strategies. He shares his thoughts and tips on how companies can respond to this pandemic in order to continue growing during uncertain times.
- Ideally, what should companies have done to prepare for this situation?
This is an intriguing question when we look at the past and think about it. I say this because it is evident that looking historically at businesses and their business scenarios before the pandemic and during the course of it- and we have to limit ourselves to that scope because we are still experiencing it - companies should have structured their operations in order to have prepared the famous "plan B", in case their main strategies suffered some type of relevant impact or those strategies could not be followed overnight, whatever the surprise factor.
Obviously, many entrepreneurs, executives, and their companies did not have recent prior knowledge or experience that would contribute to the formation of value judgments regarding a similar obstacle of such magnitude as this COVID-19 pandemic, so, there was very little material evidence that they could rely on to determine what kind of alternatives they could have prepared if needed.
For many companies, this may not be a viable reality, but the diversification of business has proved to be an interesting alternative so that companies are not dependent on results linked exclusively to a business aspect. This is a maxim commonly used in the financial market where, as usual, the position of "not keeping all eggs in the same basket" is adopted, because it is implied that this concentration of risk may expose the investor too much. Thus, by analogy, the business world should adopt a similar philosophy in pursuit of longevity in its operations.
Companies and their executives must keep an open mind and start to operate with products, services, or business and commercial models never considered before in the "old normal".
Unfortunately, the pandemic was unprecedented, and so many companies may not have taken the above steps. How should companies react when everything is up in the air? What should be their priority?
In difficult times good opportunities are born! When caught off guard and sometimes even unprepared, companies should adopt more aggressive management and governance measures. It is important that responsible executives do not get carried away by the emotional aspect and take hasty measures that can cause regrets in the future.
The qualities, strongest characteristics of the company and its differentials must be taken into account so that the company can develop a recovery plan ensuring the maintenance of its human capital (as far as possible), thus preserving those strengths that form its "trademark". At such a time, the loss of this corporate essence can be very damaging to the company.
In parallel, they should focus on the new consumption patterns and practices that are formed in order to quickly identify how it is possible to adjust their new offer of products or services, as inevitably the old models may never return to practice. This can be reckless for the company because simply remaining inert under an expectation of returning to the "status quo" can result in its demise.
Such adjustments may even represent a change of one hundred and eighty degrees for the company in the quest to maintain its existence. Companies and their executives must keep an open mind and start to operate with products, services, or business and commercial models never considered before in the "old normal".
In this way, the important thing is that companies keep their appetite for growth and maintenance of their activities alive, and they must put into practice motivational leadership initiatives, as this way, cultivating this culture of challenge and success, they will be able to keep their employees committed to helping in the search for alternatives and implement them diligently in the face of more drastic situations, like the one we are currently experiencing with the COVID-19 pandemic.
What about business transactions that were way underway? Are they still good to proceed, or should companies hold on any M&A activity?
Regarding transactions, a first aspect that is relevant and necessary to be considered is the contractual engagement between the parties and whether or not the contractual relationship had force majeure or similar clauses that could be invoked by the parties as a suspensive factor of the transaction.
Having overcome this first analysis of a more formal aspect, and assuming that the subsequent decisions depend solely on the will of the parties, a broader and deeper assessment of the impact of the transaction on the market is necessary to contribute to the decision whether to proceed or suspend progress.
The above is relevant because not only can the parties be impacted due to an unexpected crisis and in the proportion experienced, but as much as the decision to move forward or suspend the transaction can create reflexes in the most diverse markets, which can be highly favourable as they can be equally catastrophic. For this reason, this analysis linked to social responsibility is appropriate so as not to create an imbalance in the environment in which the parties find themselves that could result in future obstacles to the operation and even accountability for negative social impacts caused as a result of irresponsible decisions.
Otherwise, anticipating that relevant M&A transactions do not occur overnight and are not completed in a short period of time due to the negotiation and due diligence stages mainly, normally these transactions have already had the most diverse scenarios considered and analyzed in order to allow them to move forward, including the fact that, as already mentioned, in difficult times good opportunities can arise which can be widely and deeply used by the companies involved in the M&A transactions.
The production chain must be thought of critically and strategically, regardless of the moment of the market, whether positive or negative.
Is this a good time for businesses to review contracts? What should they be looking at?
Unfortunately, the moment we are experiencing has affected multiple countries and their companies so that the entire business world has been forced to seek competitive advantages or adjustments to maintain their operations.
Bearing in mind that the impact was widespread, a more important discussion than whether the moment is appropriate, is taking into account the Fairness and Equitable Principles as it is clear that the benefits sought by one side come loaded with the direct sacrifice of the other side at a time when several other variables may already be unbalanced, which would weigh too much for a single side.
Thus, it is essential that the parties maintain an open dialogue so that together they can seek alternatives based on consensus between both parties, guaranteeing the maintenance of fair legal relations.
What if the company’s suppliers are not able to follow through on their end of the contract? What action can be taken, especially to lessen customer’s impact?
The production chain must be thought of critically and strategically, regardless of the moment of the market, whether positive or negative.
This is because the concentration and dependence on an exclusive supplier in a production chain can represent a substantial risk. If we consider that this exclusive or sole provider can close its operations for the most diverse reasons, whether they are related to a period of globalised stress or not, a degree of dependency is naturally created that does not appear to be a very healthy strategy or plan for any type of company.
Companies can help themselves from bank financing to help with the financial flow until the economy returns to its normal pace
Considering the above point of view, all companies should maintain contracts with at least two different suppliers for all stages of their production chain so that they could migrate the contracts from one supplier to the other in case the supply is terminated by one of them.
The same principle of risk diversification and the non-concentration of “all eggs in one basket” must be followed.
Evidently, if there is a supplier that is so exclusive to be the only one in the entire industry, then the companies linked to this supplier must face this risk that would already be known and thus assume that their own production may suffer irreparable consequences in the absence of this one supplier; alternatively, they can evaluate the possibility that they are not restricted to only this product or service eradicating this dependence from a single supplier.
How can companies that have been detrimentally affected by the company recover?
In order to think about a recovery for the companies that were deeply affected, it is necessary to evaluate the whole scenario in which this company is inserted. This is because it is important to understand whether the situation is specific to that company or whether it is the entire market or industry in which it operates that has suffered this impact.
Corporate restructuring, ranging from the financial aspect to positioning in the market are alternatives, but I think that there is no ready recipe that can be used in all cases, as each specificity must be taken into account.
Companies can help themselves from bank financing to help with the financial flow until the economy returns to its normal pace; they can adopt new market positioning strategies in terms of region, product, delivery, and so on. In more drastic cases, as we experience with some significant companies in their markets, taking advantage of legal possibilities such as decreeing and instituting a judicial recovery allows companies to have time to reorganise their operations and at the same time comply with their obligations towards their creditors in order to seek this medium and long term business survival.
Rodrigo Alonso Martins, TEP®
* CEO and Head of Wealth Planning Strategies
* RIPOL ALLIANCE GLOBAL WEALTH STRATEGIES
* 1395 Brickell Avenue – 9th Floor – Suite 900
* Miami - FL - 33131 - USA
* Direct Phones: +1 305 357 2063/+55 11 3066 5932
* Brazil Office Phone: +55 11 3066 4800
* Mobiles: +1 786 641 8880/+55 11 99965 3908
* Fax: +1 305 200 8802 /+55 11 3066 4848
* Email: rodrigo.martins@ripolalliance.com
* Site: www.ripolalliance.com
Rodrigo Alonso Martins is CEO and Head of Wealth Planning for the Multi-Family Office Ripol Alliance Global Wealth Strategies based in Miami/USA (www.ripolalliance.com) and is also Head of International Taxation and Wealth Planning for the law firm Ronaldo Martins & Advogados (www.ronaldomartins.adv.br) based in São Paulo/Brazil.
The business group made up of the companies above, managed individually by their partners, is dedicated to the critical look at how the law can be used to generate competitive advantages for its clients, as well as making their clients' businesses more efficient, working with the wealth management of their private clients, developing estate and inheritance plans in order to guarantee the longevity of assets and the legacy of its clients. It also organises succession planning so that the transition between family generations occurs smoothly and without any unexpected surprises.
Thus, they adopt legal and economic principles that make this economic group highly competitive and efficient in the markets in which they operate, being highly recognised by the vanguard in the development of work for their clients through a multidisciplinary application, always aiming to obtain the best and most convenient results sought by customers.
