March 26, 2020

How to operate under a crisis – advice for business leaders from the former Prime Minister of Finland

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The new coronavirus has all the characteristics of what essayist and scholar-scientist Nassim Nicholas Taleb calls a black swan. Black swans are sudden and unexpected events that have a dramatic impact, and they are often rationalized only with the benefit of hindsight. COVID-19 surprised nearly everyone, from political leaders to health officials, and is on a rampage around the globe disrupting our societies, our economies, and the ways that companies operate.

In 1991, as the youngest-ever Prime Minister of Finland, Esko Aho encountered two black swans when Finland was hit by a severe economic depression and the Soviet Union fell apart. He also experienced the financial recession of early 1990s, the dot-com bubble in early 2000s, and the financial crisis of 2008. Here Esko, who is currently an NGP Capital Advisor, shares his thoughts and the lessons about how to operate and lead in a crisis induced by a black swan occurrence.

There’s no going back

Esko’s first advice to CEOs and founders is to be an optimist, but not to give in to wishful thinking.

“We tend to underestimate the depth of downturns when they emerge. Every black swan has changed and will change the world dramatically. The values and functions of our societies are being tested. Many societies and companies haven’t prepared for a situation where the supply chains are broken and global deliveries of goods and components stop. People start questioning whether we are overly dependent on each other. In general, mutual dependency is a positive thing, but I think a new era of globalization will emerge and we need to be better prepared for sudden changes in global systems and logistics chains.”

"We tend to underestimate the depth of downturns when they emerge."

Esko notes that we are not yet in April, but we can already see that 2020 will be a dire year for world economics. What’s more, major regions – particularly the US, Europe, and China – seem to be even more determined to focus on their own competiveness.

“For some countries, the economic effects will be catastrophic, especially for those countries that never fully recovered from the previous economic downturn. The countries that have managed to overcome previous economic downturns have also gained a shared experience and mindset that helps them tackle new challenges. This happened in Finland after the crisis of the early 1990s. Such major challenges have an impact on the shared consciousness of our next generation. People will adapt and a new normal will arise.”

Going forward, decision makers will have three things on their agenda: first, how to get the world economy back on track, second, how to do environmentally friendly investments and enhance global sustainability, and third, how to prepare for the effect our aging population will have on societies.

“Global megatrends will stay in place, but in the future, we need to be mentally prepared for the next black swan – regardless of whether it’s negative or positive.”

Negative black swans can also have positive effects

Esko notes that black swans can be negative, such as COVID-19, or positive, such as the rise of the Internet or the personal computer. However, whether negative or positive, they almost always have opposite effects.

“COVID-19 is hugely damaging, but it will not only have negative effects. It could strengthen emerging trends and weak signals. Interaction online should grow massively. The transition to digital services, such as online groceries, will undoubtedly accelerate. Certain segments of the workforce are very familiar with handling meetings online, but the adoption rate within new segments of working population will grow. Global logistics will change and companies will find ways to be better prepared for unexpected events. Even new approaches to solving climate change are likely to emerge. All in all, dealing with this particular black swan will strengthen the digital economy, and technology will play a key role in that change.”

"All in all, dealing with this particular black swan will strengthen the digital economy, and technology will play a key role in that change.”

According to Esko, those who believe in stakeholder capitalism are probably starting to understand that companies are dependent on societies and societies are dependent on companies – now more than ever before.

“According to shared-value thinking, the competitiveness of a company and the health of the communities around it are mutually dependent. For companies, it is risky not to have an understanding and appreciation of how societies function. This crisis proves that a well functioning society and public sector are instrumental to being able to effectively tackle major challenges. This in turn provides fertile ground and business opportunities for companies of all sizes.”

Leaders can’t get mired in details

Esko notes that in times of crisis, leaders should figure out what needs their attention the most and focus on those things.

“There are things that are important and then there are things that are critically important. You need to understand that you can’t solve everything. As a leader, you don’t have the time or the capacity for that. Therefore it is important to define the goals and vision for the company beyond the immediate crisis, then patiently work towards that goal. Very often that goal is more conceptual than just pure numbers."

"You need to understand that you can’t solve everything. As a leader, you don’t have the time or the capacity for that."

Esko also wants leaders to remember that being in constant crisis and survival mode wears you down.

“It’s not only impossible, but ineffective to make detailed business plans in a turbulent crisis environment. Rather, you should make sure you have time to develop your strategy, establish a core team that can handle the pressure, and then work toward the goals of the company. Also, the board of the company has a big role and responsibility in ensuring that this happens.

“You need to believe that your company will survive and will find ways to succeed beyond the immediate crisis. Be ready to make radical moves, take personal risks, and tolerate uncertainty. Know-how is not enough; mental and even physical strength is required. "

"Be ready to make radical moves, take personal risks, and tolerate uncertainty."

In times of crisis, the personal qualities of leaders stand out. But Esko warns that the coming months will feel lonely for those who carry responsibility.

“There were two things I found helpful when I was leading Finland through the deep economic depression of the early 1990s. One, you need to listen not only to the people who are already close to you, but also to the underdogs, the critics, and the originals. You will need that input to help you think outside of the box. The fact is that our old habits are our worst enemies when encountering a black swan. Two, you need to take care of your personal well-being. In stressful times, you will need the support of your family and friends more than ever.”