While companies are continuing to run the "juggling marathon" cash/liquidity is in many situations actually stronger than many thought. But let's make no mistake, many companies are benefitting from the "run-off" of their working capital, cashing in on receivables and inventory, as well as significant government support programs. At the same time margins are squeezed and many markets remain challenging.
The answers management teams have found to this unprecedented challenge are rather impressive and I have no doubt that they will continue to excel. The key reason for this success so far is a values-driven approach by leaders. My colleague Ted Bililies has written a thought-provoking piece about this: "The Kind Of Leaders We Need Now". Values-driven means equity-driven in the sense of creating an environment in which everyone is treated equally and fairly.
But there is "another equity" which surprisingly has played a much smaller role than it could have so far: Driven by the low-interest environment, companies have taken on additional debt and governments have also provided significant funding through debt like structures. Combined with low EBITDAs, leverages have grown and it is about time to think about ways to strengthen the equity of companies.
This would allow safer financing structures, create the headroom for future investments to tackle additional challenges like the green agenda and digitalization. It would also stabilize the banking sector.
This could include:
- tax advantages for equity investments, maybe bound to commitments to keep this capital in such investments for at least a certain period of time;
- debt equity swaps of funds provided by governments while in parallel distributing this equity to the inhabitants of the respective country (or in the EU maybe at EU level) to allow participation in the upside as well democratic control of these funds. Such a "public debt equity swap" could also enhance acceptance for support programs;
- upgraded mezzanine programs which allow owners to provide additional funds in a very flexible way; and
- extended programs for employees to get partially paid in equity
This is just a first list of instruments, more and more details to follow.