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  • Writer's pictureThomas Weikart

The 2nd Wave is Now Happening...

Yes, there's a new wave of Covid happening globally. It's quite concerning and potentially further delays our return to full "normalcy"; whatever that may look like in the future. We know what the first wave did to unemployment, family routines (job, school, life's activities) and the overall psyche of people all over the world -- and we despise it! Unemployment mostly impacted people that work in the public domain: jobs in restaurants, health clubs, florists, airlines, and sporting venues, to name just a few. It has devastated many small businesses - I see it everyday when I am out and about.

Several months back, with unemployment claims expectantly rising (sadly), I was consulting with several investment advisory firms that wondered when the increasing claims would stop and how major corporations were handling it. I cautioned then that I saw a 2nd wave coming later - not Covid necessarily but rather job layoffs. This 2nd wave was going to happen in "Corporate America" and other public businesses worldwide. My guidance was the these companies wouldn't initially do many layoffs, as the job market was super tight for good talent at that point and the "unknowns" of Covid impact where too unknown to make drastic staffing changes.

Well, now the 2nd wave has started -- announced layoffs at large corporations are accelerating all while the cases of Covid are rising. Large companies notoriously make RIFs (reductions in force) anyway towards the end of the year, so that they can start the new year "rightsized" for their coming year's business. I now see many of my former corporate colleagues getting their notice of job elimination. I expect these notices to accelerate through the end of this year.

The question is: Should large, public companies be handing this differently in this instance, instead of doing the traditional "RIF" when there's a downcycle in business? I suspect that any government stimulus (forgivable loans, paycheck protection, whatever) will not benefit most major industrial companies, unlike the PPP (in the USA) which tried to bridge small businesses and the airline financial bridge. So, keeping "extra" people on the payroll will all be on the corporation's dime.

I think most would agree that this downturn is an exogenous event - meaning it's entirely unprecedented and did not occur within the natural business cycle. I would think such an event would suggest a different response: be extremely deliberate about letting people go; hold on to more people as long as you possibly can, even if it causes short-term financial pain. We know that when the pandemic slows down, the underlying demand is still there (i.e. GDP rebound) and we'll need people to make those products, manage those businesses, and delivery that service. I work with several companies about how to build up employee retention. Good first step would be show some resilience (and loyalty) during the tough times, especially when we know this cycle will turnaround fairly soon.

Having worked in "Corporate America" for many years in top leadership roles, I have had to do "RIF' events; after 9/11 in the Aerospace business; during the housing bubble and corresponding great financial crisis/recession. This time it's different! Let's remember it was just 9 months ago that we had historically low unemployment and companies were battling, literally battling, for good talent to run their businesses. If you're a company in the industrial, materials or traditional consumer businesses, you need this top talent to compete. One area you will have trouble competing in right now is stock price -- with the likes of Zoom, Docusign, Amazon, or other "stay at home", "work from anywhere" companies... May be better to think ahead for the time when business rebounds and you will need those good people to run your business -- the stock price will follow upwards.

Tom Weikart

Managing Consultant, Desert Sage Advisors

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