A fundamental difficulty with democracy – all democracy – is the tension between vulnerability to rent seeking and freedom to appoint your own leaders. Typically the result is some level of unavoidable exposure to governments and therefore elections.
In NZ this is for the most part relatively low, reasonably foreseeable and can be managed. There are plenty of reasons to believe that is no longer so.
Visiting the Tales of the Distribution - The New Normal?
The outcomes over 2016 / 17 tell the story. Brexit, Trump, Corbyn, Macron and, here, Ardern (to date). These are not results plucked from anywhere near the middle of any bell curve. They are a bunch of outliers from the tails of the distribution we have come to manage around.
Turnarounds and surprises are a better bet than the results most indicators tend to turn up. Scrambling media, commentators, experts and forecasters reinforce their role of making astrology look good.
In N.Z. the Middle May be Even more Scary
Some sort of ‘hung’ situation or weeks of ‘Winston wrangles’ are a strong possibility post 23 September.
Centre left and centre right, no matter how civilized the labels may sound are also synonymous with at least two words which are perhaps more accurate and certainly involve more risk – ‘muddled’ and ‘timid’. The combination is even worse but currently seductive.
Things to consider
Probably most businesses and the boards that govern them already plan for Election risk. If they don’t they know they should. Typically Plan A is some sort of BAU assumption with actions under a change of government being Plan B. This election I suggest, a very real requirement is Plan C – what to do if under a Pea Soup Scenario – as close as it gets to ‘no government’.
Basic Prudence – anticipating horror shows
At the very least the board should look at these spreadsheet scenarios (if it takes longer than 2 hours to run these up re-visit your summary reporting – fast):
P&L with a two year 15% sales drop
Hike your payroll by 20% (that’s less than a move from min wage to ‘living wage’)
Up your cost of capital by 300 basis points and look at the interest bill
Drop at least two growth projects out of the next two years plan
Slow your receivables collection rate by 20% (add 10% to 90 days and drop 10% off your current)
Run your purchases at an exchange rate of $NZD:USD $0.80 for 18 months.
Now do some combinations of some or all of these. How are you looking? What’s the plan for this?
Cup of Tea Risk
Arguably more difficult (not least because it is ignored) is the risk of ‘sweet nothing’. What happens if there is a stalled result or ‘shared centrism’. The consensus of an oh so democratic ‘Dunno’.
At least the following:
Renewal of grants, subsidies, funding programmes and any kind of ‘assistance’ from the Beehive slows or stops or is stuck in abeyance;
Regulatory and legislative changes, reforms, alterations, approvals, extensions to rules, inclusions of this or that activity all stop or go on hold or slow to snail’s pace; and,
Submissions, lobbying, petitions, discussions, ‘socialising ideas’, explaining, pleading and other rent seeking activity grinds to a halt either temporarily or for good.
Moreover there is no one to ‘blame’, sanction, kick or otherwise motivate into approving your vital piece of action, change, budget or anything much else.
And as for ‘getting stuff done’ where bureaucracy is concerned, the key motivating driver – political gain – is stymied. Where there no clear gains there is little point in taking risks.
Boards should envisage what such a scenario might leave them. The effects too are indirect and follow knock on impacts not just naked, direct exposures.
Keynes is, for once, helpful but not as much as Friedman
In the long run we’re all dead says the Lord but the alt Lord Milton says “the long run is a series of short runs added up”. Most businesses want to add up short term successes to get a long run. Their boards want to govern businesses that do just that.
Think right through Election risk, in 2017, in New Zealand, in your business – past ideology, past the people pageant piece, past the first round - to the commercial everyday impacts. And do some numbers. Then write up (yes write it down) some actions.