The Step Up debate in brief (taken from the new book). This discussion won't go away...
In a recession situation the board's role should be limited to discussing the key issue:
“How would the shareholders/owners want to balance the two competing objectives of
1) minimizing the hit to profits versus
2) capturing maximum growth?”
You should be talking about how the company could, in fact, step-up its activities and use the recession as a chance to gain position and advantage.
A company has almost twice as much chance to dramatically improve its position in an industry during a recession compared to normal times — most (but not all) of the companies that did step-up in the last recession held their gains in subsequent economic recoveries.
“How can your board and management determine whether a step-up strategy is right for your company?”
You should consider three major questions:
1. Are there truly tangible consequences of missing the next year's earnings forecast by going for growth?
2. In your industry, do ‘temporary’ gains tend to become permanent?
3. What is the potential downside if you simply take a defensive posture?
It would take a lot of effort and courage to tailor a step-up strategy to the company's specific situation.
It's important for the board to hold the right discussion, even if the decision ends up in favour of retrenchment. And if the decision is to step-up, so much the better.
Step Up or Step Down - continued - the original debate