Stephanie Resnick, partner and co-chair of the Directors’ and Officers’ Liability and Corporate Governance Practice Group at Fox Rothschild LLP, offers advice to corporate boards and leaders on how they can avoid being faulted for failing to prepare for an economic downturn.
When a company fails to properly prepare for a recession, its board and top executives can be blamed. Resnick says it’s vital that they acknowledge the possibility of an economic downturn, and take steps to mitigate its impact.
Corporate leaders might fear the notion of a self-fulfilling prophecy — that if they admit to a negative outlook, their stock might go down as a result of that announcement. But Resnick says they need to confront the possibility and be frank about its possible impact on the company. “It should be discussed,” she says. “There should be transparency around the issue.”
Possible actions in anticipation of recession might include adjustments in production and the supply chain, layoffs or general cost-cutting. But saying or doing nothing is not an option. “The worst possible thing that could happen is if the company stands idly by and doesn’t address it,” Resnick says.
In response to negative financial news, boards and executives should openly discuss their options. It’s important that they take a “deeper dive” into the company’s financials, to see where cuts might be made and how profitability will be impacted by recession.
The public nature of such actions is key. “A recession exposes weakness,” Resnick says. “What you as a company have to do is show that you’re going to be able to withstand the storm.”
None of these actions should include backing away from commitments to corporate social responsibility, including respect for workers’ rights and addressing environmental concerns. “Those must stand,” Resnick says, “especially if promises have been made.”
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