Category: Insight | Date: 02/08/2022

Xenia Xtra Series: Point 3 - Think twice, even if the business appears to have reliable backing and support

I suppose its only pertinent to resume our fortnightly Xtra series on a matter that compliments and looks a little deeper into the previous instalment, which was centred around being too big to fail. It’s through the process of time, beliefs and our own cognitive experiences that we make a valid assumption all is well with a trading partner. However, sometimes not is all as it seems in terms of the operation, its success and how they are observed by those that evaluate such affairs. Many large firms and their front end success and prowess is often deeply embedded in the system, normally through years of hard work, research, diversification and providing a service and/or product that fits a specific need and requirement better than its competitors. However, one should always ‘Think Twice’, even if the business appears to have reliable backing, support and success as having doubts or a dubious sense of confidence, is a natural almost critical thinking inspired and encouraged as part of any risk management philosophy. This cautious bubble of faith can mean the difference between preventing a bad debt and in essence serving cash flow for other trading or business purposes instead of using copious resources and time to put a strain on particular affairs which, can in turn aspire to even greater issues for the business and relationships. Carillion is a prime example here in view of its prognosis but underlying intangible value before its collapse. Dig a little deeper into the numbers at the time, avoid the noise they were too big and important to fail and it was a box office movie in waiting.

This specific theme turns the spotlight on to a very different logic to evaluate and examine even the smallest iota of doubt as its often alluded to trust your own instinct, as this is a feeling built up over time through experiences, failures, successes and personal/professional development. We are also victims of our own success and have a tendency to follow the herd and listen to the generalised view that’s being bellowed across a marketplace or within a certain circle etc…furthermore, there must be an acknowledgement that whilst most intentions of many organisations will fit the brief there are some where their prime focus is of course all about delivery to its shareholders. Therefore, it’s very hard sometimes to determine the intentions as shareholders can drive different intentions to the business as a whole. Their decisions are expressed in financial terms normally which may deviate from the strategy of the business ruling and the greater narrative or intent. Those firms that believe risk management is an intrinsic part of any business, will ensure they mitigate any issues that should arise but provide a sound platform to springboard off should any occasion present itself. More and more sound management of risk is becoming a critical pillar in business in recent years and more so since the pandemic. Any business can make money in the good times, it’s the great ones who can stand strong and sustain that trend in times of challenge and disquiet and in some cases are incompatible with the institutional values expected. The pandemic and its aftermath has increased not only the need but demand for speed of change and adoption of technology as more players throw their hat into the innovation ring and some considering it a necessity. This is now a fundamental angle of observation in this context as businesses that were once solid, creditworthy and undoubted may fall to the overconfidence and success of yesterday and we all know, tomorrow is tomorrow! This is now deemed a powerful driver in the credit analysis process going forward…no grand theories, economic philosophy or streamlined strategy, just pure and simple enterprise logic.

Roberto Simone

Risk Development Executive