In KPMG’s analysis of the ‘Great Recession’ for instance, they found that ‘select companies were able to maintain profits and even managed to grow revenues and margins, despite falling demand. By acting early, they managed to sustain nearly all their shareholders’ value, while the shareholder returns of the worst performers fell by more than 23%.
This clarifies two things, quick and preventative action can save against huge losses, and that it is possible to remain profitable and even grow during a time of crisis. In this whitepaper we will explore how legal teams can help contribute to mitigating the upcoming economic crisis.
Contracts form the backbone of all economic activity, and as the team that is primarily in charge of these contracts, legal has a unique opportunity of helping their companies stay afloat during these difficult times.
SRB Framework
Here is a simple framework with the help of which legal teams can help protect and grow their businesses in this time of crisis.
Stop and Take Stock:
Many companies believe that their signed contracts are fixed costs or gains. This is not true, based on how a contract was drafted, the continued validity of all parties involved, the opportunity for renegotiation, etc. – value from contracts can vary significantly.
Re-calibrate and Re-negotiate:
Renegotiation contracts, reallocating resources and vendor consolidation have been identified as the 3 main ‘go-to’ tactics or levers to optimize spend and risk during economic uncertainty.
Build Provisions for the Future
New contract models, flexible payment terms, shorter lock-ins, protection against price, supply and demand fluctuations. Now is the time to get creative and build provisions for the escalation of economic turmoil in the coming months.
Any business is exposed to different vulnerabilities be it owing to internal reasons such as bankruptcy, lack of funds or external reasons such as inflation or recession. And that’s when the legal team comes to the rescue by mitigating risk.
Here about the 6 actionable steps via which your legal team can act on the SRB framework and help recession-proof your business:
Stop and Take Stock:
- Heighten vigilance: minutely track every single important contract KPI.
- Plug any value leakage
Re-calibrate and Re-negotiate:
- Reallocate resources
- Re-evaluate current contractual relationships & obligation
Build Provisions for the Future:
- Code flexibility into your contracts
a. Safeguard against supply chain turbulence
b. Safeguard against price fluctuations
c. Brace against change in demand
d. Protect liquidity of the company - Mergers and Acquisitions – Looking Ahead
To learn about these actionable steps in detail, please look out for the next blog. Watch this space!
