Glance through the chairperson`s report accompanying the financial results of most listed companies, and it has become commonplace for blame to be partitioned on low aggregate demand and suppressed economic challenges prevailing in the country for the less than satisfactory company results. Justifiably so one might say, after all, the macro-economic challenges prevailing in the country have significantly weighed down on the earnings capabilities of companies.
But could this line that seems to now be used with near-reckless abandon, be simply an excuse of convenience for c-suite company executives? Consider this, companies rise or fall largely due to the nature of their leadership. While, the external economic environment plays a part in affecting the fortunes of a company, without solid leadership steering a company in the right direction, it is very much possible for a company to be run to the ground even in a flourishing economy. Local company executives earn, for lack of a better word, “boatloads” of dollars together with other pecks, and in return they are asked to maximize shareholder value. Essentially, they are hired to keep companies afloat, by exercising their care, skill and judgment.
Contrary to what most local company executives would have us believe; the economy does not kill any business, but poor leadership certainly does! If depressed macro-economic conditions would cause a business to fare poorly, then it was never much of a business to start with. Prior to dollarization in 2008, businesses used the crutch of foreign currency shortages to explain away the poor business performance experienced in those years. Post 2009, after a brief period of resurgence, liquidity challenges are now being cited as the source of everything that is bad in corporate Zimbabwe. Whilst these factors undoubtedly contributed in part to the adverse fortunes of businesses in Zimbabwe, to lay the blame squarely on these external factors, would be a gross dereliction of duties by company executives. They have to own a significant part of the blame for the poor performances over the companies they are presiding over.
Good leadership does not become bad in a struggling economy, but poor leadership is revealed in such an economy, as weak business models and poor decision making will not be covered up for by a stronger economy. As the saying goes, “a rising tide lifts up all the boats, and it’s not until it goes, that those who have been swimming naked will be exposed.” Just to illustrate this point, when an economy is characterized by high unemployment, wide-scale retrenchments, would that not be a good time to attract the top talent in the market? When competition is being overly cautious and scaling down operations, would that not present the most opportune time to aggressively increase sales and market share? In fact, several studies have found out that companies that focus on growth strategies in times of economic decline do considerably better than their peers who choose to see out the bust years whilst on the sidelines.
Circuit City, which used to be the 2nd largest electronics retailer in the United States, provides perhaps the best example of poor decision making by management in times of economic slowdown. During the global economic meltdown of 2008, the company’s executives initiated a ‘wage management initiative’, which essentially was a plan to fire the most talented and experienced workers in favour of inexperienced young workers, who would earn much less. As you might imagine, the customer satisfaction levels across its stores dropped and customers took their business elsewhere as they were not getting satisfactory service. Hardly a year after this decision was made, the company filed for bankruptcy. This just shows that more than, a poorly performing economy, bad leadership can actually do more harm to a business.
In the Zimbabwean context, c-suite executives should just grow a back-bone and knuckle down to get things done and achieve results instead of redirecting the blame on the economy. Company executives would do well to dismiss the hunkered fallacy that no business can do well when the economy is performing poor. This is just a convenient excuse that simply does not cut it. Recessions have traditionally created new market leaders as companies which are more aggressive and are underpinned by solid leadership do well and also position themselves for the coming growth cycles. This is a wake-up call to Zimbabwean company executives – lead or get out of the way!
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