Firms urged to take initiative

COMPANIES THAT take the initiative over the next two years as Britain emerges from recession can dominate the business landscape for a decade, according to research by Deloitte.

It says those who make bold decisions can put themselves in a winning position, whereas those who keep their heads down and wait for recovery will lose out.

It cites Sir Terry Leahy, chief executive of Tesco and Sir Martin Sorrell, chief executive of advertising agency WPP, whose “strength of conviction” during the 1990s recession put their businesses at great advantages.

Deloitte proposes not a reckless dash for growth but a process that begins with strengthening the balance sheet so as to have the capacity to take opportunities. It involves optimising performance, not just on costs but on the size of the organisation to survive.

It also means building confidence among shareholders to get support when the opportunity comes to build new markets.

John Connolly, Deloitte chief executive and senior partner, will tell London Business School’s global leadership summit on Monday: “How companies act over the next 24 months will drive their performance for the next decade – difficult though it is, with so many near-term priorities, now is the time to think beyond today’s challenging markets.”

Deloitte’s research shows business returns spread in recessions. In buoyant markets, most companies perform within a relatively narrow range. In recession, however, the range between good and poor performers broadens.

In the 1990s recession, standard deviation of annualised shareholder returns for FTSE 100 companies rose from 8 per cent in the 10 years before the downturn to 27 per cent during the recession. In the current recession, the deviation rose from 12 per cent in the growth period before the downturn to 29 per cent in the year up to the first quarter of 2009.

Richard Punt, Deloitte strategy partner, said that just as a recession could expose weak leadership, it created real opportunities for those who take decisive action.

© 2009 Financial Times