Over the last few months, almost all countries in the world have been faced with the challenge of how to handle the threat from the highly contagious coronavirus. The governments of most countries have elected to “close down” their economies, at least to some degree, so as to contain the spread of the virus, and thereby also to “flatten the curve” of those that might be in need of hospital support as a consequence of the virus. Some governments reacted more quickly than others when it came to imposing rules for societal lockdowns, thereby apparently contributing significantly to a more successful (initial) management of the virus, including saving lives. Other countries have decided not to impose such stringent lockdown rules, relying instead on the belief that their populations would become self-immunised through exposure to the virus (Sweden) or that this pandemic might not be that serious after all (Brazil, Mexico). But Sweden, guided principally by the leading epidemiologist Dr Anders Tegnell, seems to have been largely unsuccessful so far, with a death toll (as of 6 June 2020) of more than 4,500, while its closest neighbouring country, Norway, had less than 10 percent of that figure. Norway’s population is about half that of Sweden, at around 5.4 million, versus Sweden’s approximately 10 million.
There is undoubtedly a lot of tension among experts from both sides when it comes to closing down (or, now, continuing to keep fairly closed) versus reopening. Typical arguments from the closing-down side are, “We cannot deny the data,” or, “Human lives have infinite value.” Typical counterarguments from the reopening side are, “We must salvage the economy, and ameliorate extreme recessionary effects,” as well as, “Economic recession (as a result of not reopening) might lead to health problems in its own right, at a serious time” (for example, as a result of a lack of food, or psychological issues). Handling this trade-off is certainly not becoming any less difficult in light of the fact that a second wave of the coronavirus may be on its way. As the renowned epidemiologist Dr Anthony Fauci says, “It has devastated the world, and it is not over yet.” The head of the WHO exclaimed, “This microscopic virus has humbled all of us!” We ordinary citizens and business leaders are caught between two groups of opposing specialists – epidemiologists and scientists versus economists and social scientists – and between adhering to social distancing and accepting social impact. It’s no wonder that we may slowly seem to be giving up, at least when it comes to key countries such as the United States.
Politicians, always with an eye to their own re-election, are typically willing to reopen economies in spite of the health concerns. And they are often supported by many of us “ordinary people”, who might have become impatient or restless with the effects of lockdown, feeling perhaps that their own democratic freedom is being impacted or limited. They may claim social justice as a rationale for reopening. And there can be no doubt that the economic pain has been and continues to be enormous in many parts of the world. The Federal Reserve estimates, for instance, that a recovery is likely to be rather slow, with US unemployment being at a staggering 9.3 percent by the end of 2020, and this is assuming no second wave of the coronavirus outbreak!
Are some countries and communities opening up too soon? Is it possible to make gradual reopening safer in terms of health through testing and the isolation of emerging cases? Is a relatively uncoordinated reopening among different regions (for example, US states, Spain’s Balearic Islands) working well enough? These issues are, of course, being hotly debated.
The scientific community is, obviously, working at full steam on developing an effective vaccine. Until now, the development of new types of vaccines, properly tested out on large samples of humans to confirm their safety, has typically taken up to 10 years. At present, several research teams are working overtime to develop an effective new vaccine to fight the coronavirus. And both the US and the EU have already committed resources to prepare for rapid scale-up and mass production, which is remarkable, given the fact that we do not know yet when a workable new vaccine will be found. But it is all a matter of saving time. Those countries which have implemented relatively strict measures to contain the virus, to flatten the contamination curve, have thereby probably gained an advantage, in the sense that delaying the threat means that the contamination of many citizens may now be ameliorated through vaccination.
So, the key question revolves around when we might have an effective vaccine available. Our epidemiologists will probably be able to gain the upper hand over the reopening/economic experts if a relatively early timing for the arrival of an effective vaccine can be achieved. Maintaining strict preventive efforts can then be more readily justified in terms of cost-benefits.
So, where are the business leaders in all of this? Which types of businesses are likely to benefit from a lockdown? Are there differences of opinion in terms of business sector, size and type of company, and leadership? On the other hand, which are the ones that, above all, might benefit from a reopening?
I have been struggling with these issues when it comes to my own company, S. Ugelstad Invest (SUI), which has some 28 active investments. In the following discussion, I’ll be referring to some of my own experiences based on SUI. I’ll also share with you what seem to be some of the key learning points, at least for me.
In the category of those who may benefit from a fast reopening we have businesses such as some types of basic manufacturing (relying on assembly-line processes), construction, hospitality (hotels and restaurants), much of the transportation sector (airlines and ferries), as well as most types of retail stores (except for basic food and pharmacies). And, as Peter Brabeck, former CEO of Nestlé, says, impulse products in retailing need to be seen in (now closed) stores! (Lorange Network Webinar, 2 June 2020). Large gatherings, such as sports events, conferences, schools and universities, etc., are also typically no longer acceptable.
For many companies, it seems critical that they be able to “shift gear” successfully. Initially, many companies had to close down much of their business activities. The Norwegian digital events organising company Deltager, for instance, lost around 90 percent of its income within 10 days in March, when the government imposed its restrictions.
Later on, however, with a gradual reopening of many economies, including Norway’s, as a function of successful amelioration of much of the coronavirus threat, shifting gear once more to “full steam ahead” seems key for many businesses. More resources might perhaps be allocated to marketing again, to take advantage of the reopening, in order to gain new market share. Deltager, for instance, is presently enjoying higher income than it did at the same time last year. Dynamic thinking is thus called for: first brake, then reaccelerate!
However, let’s now talk about some of the key learning points from the SUI experience. To begin with, we need to highlight what seems to be a confirmation that SUI’s basic strategy still seems to hold in light of the coronavirus threat.
- Focus on high tech, with particular emphasis on IT, which might extend to virtual reality
- Only moderate to no leverage, with emphasis on a conservative break-even
- Go for projects that have established revenue, real customers, documented demand, in contrast to merely “good ideas”
- Work primarily with solid partners
- Invest mainly in minority positions
- Reduce complexity; it is harder to stay on top of your business or investments when your structure is not simple
- Rethink everything, constantly
- Adopt co-creativity and a collaborative spirit
As discussed elsewhere, SUI is active in five major business areas. Let’s turn to some of SUI’s experiences in light of the coronavirus crisis with regard to each of these:
- Stocks/bonds. We have reduced our stock exposure considerably. We are, however, engaging in several relatively small forward contracts, such as betting on the future levels of various stocks. And we are maintaining our bond portfolio as is.
- Shipping. We are not making any major changes here, but continue to focus primarily on relatively local trades (for example, the Baltic, Northern Europe, Adriatic, West Indies) and at least 50 percent on b/b charter. We have reduced our exposure slightly and are now involved in around 15 projects only. Our major concern is whether our b/b chartering counterparties are able to continue to serve their commitments to pay their b/b hires in the face of a prolonged recession? In addition, we are trying to sell some shipping assets that are doing well in order to free up more liquidity, so as to be able to “invest more at bottom”.
- Real estate. We are continuing more or less as before in the US (retrofitting mid-priced residentials), Norway (land development) and Bulgaria (leisure). Another major concern is the ability of ordinary consumers to pay their rents and/or property purchase costs in the face of a long-term recession.
- Ventures. Most of these are still doing well. The exceptions are WIN Systems, where we are seeing no business activities any longer in the software market for gambling; and A-Beauty, where we see have seen a dramatic drop in demand for luxury-type products.
- Educational. We are continuing to adapt the Lorange Network (LN) offering. Although we have not been able to conduct the physical seminars that we would have wished for, we have focused much more heavily on webinars, our deal wall, podcasts and articles. In a sense, we have always been digital, but we have become even more so during the corona lockdown.
It goes without saying that this strategy was developed several years ago. Further, it seems to be a key advantage when coping with the coronavirus issue that a realistic long-term strategy can be maintained as is.
There are, as we have seen, also potentially beneficial aspects for many businesses when it comes to societal regimes with extensive social distancing. Working from home can lead to significant office cost savings. And more advanced uses of IT-based communication technologies can typically now more easily be implemented. Elsewhere, “difficult” restricting can now often be implemented smoothly, since most of the people affected might more easily understand the necessity for such moves. Lay-offs, for instance, can now typically be directly implemented.
There is no doubt that the advent of the coronavirus threat and the generally dramatic government-dictated shutdowns in many countries might also have led to a sense of added acceptance on the part of many citizens of the need to accept hardships, as well as an added need to be more flexible. For many companies, openings to implement rather radical changes might thereby have been central. The renegotiation of old contracts regarding office rents, delays in payments (of loans and rent), reductions of salaries (now often partly matched with government support), even lay-offs of employees, might now be more achievable. Changes might often be implemented which would be hard to carry out during more normal circumstances.
So, how can we better understand this apparent conflict between closing down versus reopening, between the epidemiology scientists and the economic experts? What is the relative influence of each group? To understand this better is key for us businesspeople, in order to see how this trade-off is evolving, and when reopening might start to take place. On the surface of it, the closing-down epidemiology experts seem to have the winning argument: to save lives! They typically take, we might say, a longer-term point of view. But as time goes on, the tide might turn more over to the reopening side. The pandemic may now be more under control. Therefore, politicians may increasingly boost their own standing with the electorate, and many of us “normal” citizens who are neither experts nor politicians might become increasingly impatient, even restless!
So, reopening becomes the norm. The economic experts (and the politicians) have won. This might be accompanied by large demonstrations, such as those we saw calling for judicial reform after the death of George Floyd – no social distancing here! And the statue of the 17th-century slave trader Edward Colston was even removed by demonstrators and pushed into the River Avon in Bristol, UK. Impatience among large groups of ordinary people took over. Social distancing was ignored, despite warnings from epidemiology experts and politicians.
But is there something more than monitoring the basic sentiment of society when it comes to impatience? Yes, there seems to be. In a recent book, Professor Tom Nichols points out that ignorance among us common people seems to have a more profound (and negative) effect. We are now even increasingly proud to be ignorant. To reject advice from experts increasingly seems to be seen as showing autonomy – our democratic right, some may claim! “My ignorance is just as good as your knowledge,” the author quotes, citing Isaac Asimov. All those who Google seem to be reclassifying themselves as instant experts. This is accentuated by the speed and global reach that characterise social media today, even though it has been warned that social media can often be inaccurate and even plain wrong. The Dunning-Kruger effect states that “the dumber you are, the more confident you are that you are not actually dumb” (Nichols, p. 44).
However, experts can, of course, be wrong too. Overconfidence is perhaps the most problematic issue for many experts. And, related to this, when well respected experts move from their established fields of expertise into new ones, things often go wrong for the expert.
For SUI, this has led to two strategic shifts, aimed both at ameliorating potential misjudgements by us, and staying “conservative”, rather than speculating on a quick upturn:
- We are generally much more conservative when it comes to investing. We now prioritise continuing to support existing commitments in case any of these might run into cash-flow problems, rather than entering into new projects.
- “Cash is king” for SUI too. In line with this, we are selling our 10-percent share in Cape-max oil carrier, and we are considering the same when it comes to our share in Affibody.
So, we individuals who are also active in business are faced with a third set of judgements to make, which may add to the call to reopen faster, thus reducing the influence of the epidemiologists and adding to that of the economists/social scientists and the politicians. How do we judge the crowd sentiment of the common people? Are there triggers, for instance, that might lead to an acceleration of the crowd’s impatience? Is an event such as the brutal police misuse of force leading to the death of George Floyd such a trigger?
What might seem like things getting out of control, with massive demonstrations worldwide defying social distancing, may simply represent signals to us in the business sector that reopening might be happening sooner rather than later!
It is, of course, hard to guess what to expect. How deep is the upcoming depression going to be, and how long will it last? Are governmental measures going to work? Are we going to experience a second wave of coronavirus, or perhaps even a third wave? While the implications for SUI seem clear when it comes to a relatively moderate and short-term depression, it also seems clear, unfortunately, that SUI will have problems, perhaps rather serious ones, if the recession we are facing lasts longer and is significantly more serious.
What are some of the key takeaways from all of this? In general, it seems clear that we should listen relatively more attentively to our epidemiological experts, i.e. remain disciplined. The contrasting view generally taken by economists, namely to “open up”, is often de facto motivated more by shorter-term hopes for economic gains and is typically politically driven. The public’s fatigue factor further underscores that we might be safer sticking to the epidemiologists’ advice!
For SUI the most significant learning points from the coronavirus threat seem threefold:
- A well-balanced portfolio of assets seems to be important, especially during the type of crisis we are experiencing.
- Speed and resoluteness seem to be key. Modifications in one’s strategy should be implemented with speed, and without falling into the trap of hoping for a future miracle.
- Conservatism when it comes to new investing seems appropriate, perhaps above all to conserve cash.
But we are, of course, all struggling to find good answers with regard to coping with today’s dramatic crisis. Please get in touch with me with any questions and/or comments.
About the Author
Since selling his shipping company in 2006, Peter Lorange has been a successful entrepreneur and owner of a highly diversified family office. He is widely regarded as one of the world’s foremost business school academics, having held the position of president at IMD, Lausanne for 15 years, as well as several positions on shipping company boards. His entrepreneurial journey spans key areas such as education, shipping, investments and, predominantly, family businesses. Peter founded the Lorange Network, a digital learning and networking platform, in 2017. He is Norwegian and lives in Küssnacht am Rigi, Switzerland.
Nichols, Tom (2018), The Death of Expertise, Oxford University Press.
Lorange, Peter (2019), Adaption and Flexibility in the Family Firm: A brief history of S. Ugelstad Invest, Smøyg.