Treasury News & Events

Learning to swim with the Black Swan

 

Robustness, resilience, antifragility: Three words, each with different implications for economic survival through and out the other side of a pandemic.

  • Robustness: Ability to resist failure
  • Resilience: Ability to recover from failure
  • Antifragility: A property of systems that increase in capability to thrive as a result of stressors, shocks, volatility, noise, mistakes, faults, attacks or failures

It is somewhat ironic that Barrington/Barrington was running workshops around the turn of the year on the ‘antifragile’ treasury – a concept based around not only dealing with Black Swan events but actually performing better in such circumstances. In other words: expect change, adapt and thrive.

By definition, Black Swan events can cause catastrophic damage to an economy, and because they cannot be predicted, these events can only be prepared for by building robust systems. Covid-19 has caused many in treasury to adapt, some to hunker down in survival mode, and in a few cases, businesses have revealed an ability to thrive. All now anticipate further change.

So, what have we learned? Good practice remains good practice. Robust treasury policies, funding plans, a disciplined approach to regular review of exposures and close management of cash are paramount.

Gaps in process highlighted by Covid-19 shocks include sub-optimal exposure identification and management, particularly regarding the precise nature of contracts and their terms; lack of visibility of cash, where it is and who controls it; reliance on banks to ‘always be there to provide funding’ when (particularly for bigger borrowers) a more formal funding plan would better reflect a better match between need and reality; shortfalls in reporting, often too manual and too slow to show critical data accurately; and a reliance on BAU with little contingency planning in the payments/receipting space.

These gaps underline the need to review and understand what your business could do to lessen its fragility – and also the need to be customer-led when regarding what it should do.

On the positive side of the balance sheet, banks have mostly been supportive in meeting the needs of their existing clients, and businesses have taken the decisions that they needed to take in order to get through this first acute phase of the pandemic.

Businesses should now be looking at how they can increase their resilience and robustness going into the longer haul through Covid-19, ideally putting in place antifragility measures so they are in a position to thrive. Pragmatically and decisively working your way through potential changes to business practice may not get you to a ‘perfect’ solution, but when the status quo ceases to work, the only option is to accept change – or even better, to search for change and use it as a stepping off point for improvement.