| |July 20209anticipation of these all so frequent events. Shouldn't the leverage strategy, dividend policy & equity reserve levels, all devised to ensure, there is cushion to ride over these events? Aggressive dividend policies or even rein-vestment of reserves at the expense of maintaining a suf-ficient loss absorbing buffer, is what put the solvency of a company in question, during these times. One needs to look at several changes to make corpo-rations less immune to these crises. Let's look at a few of them. Keeping aside a certain portion of distributable dividends into a contingency reserve to ensure continu-ity & solvency at all time will be very effective. A relook at the corporate tax law & policies, with respect to tax deductible interest charge, linked to the leverage taken, to fund any distribution to shareholders. From a corpo-rate governance point of view, a black swan downside scenario should be included in the annual reports for shareholders to properly gauge worst case, value at risk.Similarly, financial institutions should look to hire people with real operating experience to estimate the real risk while lending to a particular business. A more wholesome fundamental and operational un-derstanding of the business is required to take right lending decisions.What should be done?As for the current situation, all stakeholders including companies, financial institutions, national government need to work together to ride out of this crisis and sur-viving to live another day. Commercial banks will have to play a critical role in a mutually beneficial debt re-structuring for some of the fundamentally strong com-panies, in conjunction with the government policies to support MSME and large corporates, with an undertak-ing from them, to make the right changes in the capital structure and corporate policies over the longer term. They need to proactively engage with customers and understand the immediate and long-term repercussions for each client. In many cases a bank may be serving both a company and its customer base. In this case all three parties need to work together to manage their cash flow profile and arriving at a win-win (rather a survive-survive) strategy. This is clearly not straight forward as many times this is a tradeoff between playing a bigger role in the crisis versus protecting its own balance sheet. But this is a scenario where all players need to play for the bigger goal rather than playing for individual glory.After speaking about COVID and corporate finance, let's talk about courage. I have always believed the best form of defense is attack. As companies look to survive, they forget that some of the bandwidth may be used towards attacking i.e. looking at the opportunity. De-spite of an across the board carnage, there have been sectors which have been positively impacted. Businesses need to find a way to reach out and try to win market share in those sectors, as all the competitors put their guard down. An attack or show of courage can take many forms including productivity improvement, use of alternate sales and delivery channels, cost optimization, innovative marketing techniques, change in product po-sitioning, new product development, to name a few.As the Great Warren Buffet famously said, "You only find out who is swimming naked when the tide goes out", once the crisis abates, It's the companies which can use the two "C" are the ones that shall be able to come on the other side as leaner and meaner corporations. All stakeholders including companies, financial institutions, national government need to work together to ride out of this crisis and surviving to live another dayAmit Marwah
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