This is fine; this is finance

9th Jan 20

Are we all in denial or have we just become desensitised to drama? After a period of massive upheaval and uncertainty – handily demarcated on either side of the Atlantic by Trump and Brexit since 2016, and by various Eurozone crisis from a little earlier – it seems as if markets and businesses have reached a point where reacting to our volatile world is no longer worth it.

First, Trump. Impeachment, pressure on the Fed, trade wars, a shooting war with Iran – nothing now seems to faze the markets. Yes, we’ve seen blips for drone strikes or a hostile tweet about tariffs – but the recovery in market sentiment is almost instant. (You can just about spot the assassination of Soleimani on the chart below, which covers the S&P 1st to 9th Jan – but the Iranian missile response is the uptick on the last shaded area. I guess shooting to miss is as good as a peace deal these days...) The US economy, despite everything, is going great guns.

The S&P ETF starting Jan 1, 2020

Brexit’s no better. True, the pound has lost all of its big gains after the election put Boris Johnson in decisive control of affairs in the UK. But even with a monumental negotiating job ahead of us and the near certainty that costs and complexity for business are going to spike at the end of the year, people and businesses have largely put ‘Brexit uncertainty’ behind them. Confidence is at a three-year high (well, except for the smallest businesses and sectors like retail that are facing secular decline…)

It puts one in mind of the meme of a dog sitting in a house on fire, enjoying a coffee and saying, “This is fine.” In the early years of the Trump/Brexit projects, social media commentators would use it accompany news of the latest ghastly entanglement as a way of despairing at the state of the world. But it’s become a self-fulfilling prophesy: despite everything, we just keep going.

No, really. It's fine

So, are you in denial or just desensitised? Well, maybe there’s a third option. There comes a point during upheavals when a sober assessment of risk concludes that in the face of uncertainties, not to ‘get on with it’ has a bigger potential downsides than waiting for the fire to all be put out. Is this ‘doggedness’, maybe, or ‘determination’?

Perhaps it’s more positively described as ‘detachment’. The engines of chaos are now so deeply embedded that waiting for certainties and unalloyed positivity is pointless. If you detach yourself from the tactical dramas, from fear of the worst happening or dread at the forces in play, decisions get a whole lot simpler.

Divorcing yourself from the emotion of a situation is something finance leaders at growth businesses probably understand better than most. In a huge corporate, it’s easy. Losing one or two talented employees, for example, is a flea-bite. Even your key people aren’t irreplaceable, and you can hose resources into the situation to mitigate their loss. (Just look at how Apple has rolled on quite happily after the departures of Steve Jobs and Sir Jonny Ive – twin architects of the company’s renaissance.)

In a smaller, growth-oriented business, the loss of your best people can make a huge impact. But as finance director, do you spend your entire time worrying about the health (physical, mental or financial) or your top salespeople or creatives? Do you expend all your time and money preventing them leaving? No. You keep an eye on things, perhaps you have a broad talent pipeline plan… but you know it’s going to happen and you still get on with other stuff.

(That said, you’re well advised to stay in touch with brilliant recruitment experts to fill key roles such as FC, FD and board chair should they become vacant…)

The same applies to areas like the economy and supply chains. There are risk factors that need to be monitored and sometimes mitigated. But if you overanalyse every data point or decide to sit things out until any risks are minimised, you might as well shut down.

The point is not to detach yourself from risk, then. It’s to detach yourself from fear. Eventually, the forecasts of a recession are going to come true. At some point, interest rates are going to go up. There will be a time in the foreseeable future when a disruptive technology kneecaps a key part of your business’s value chain. Your best employee will leave sooner or later.

But unless you carry on with investment, pursue growth and take risks, you’re going to run into problems a lot quicker than the arrival of some economic, personnel or geopolitical annoyance.

So don’t be in denial; don’t let yourself be desensitised to risk. But detach yourself from the hype and the fear that now routinely accompanies every new development, so you can make sober and positive decisions. This is fine: this is finance.