Leaders of businesses large and small are trying to figure out what—if anything—to do as coronavirus spreads around the world. The potential impact on demand for goods and services is far from clear. Some companies—airlines, hotels, convention centers—already have suffered stinging blows. Others—retailers, manufacturers—remain largely unscathed so far.
Economic prognosticators offer what amount to educated guesses on the likely extent, severity and duration of the ailment's effect on global commerce. Medical experts are issuing dire but vague forecasts.
Investors seem to expect the worst. Stocks plummeted 11 percent last week in the worst weekly drop since 2008. Yet after gyrating this week, the S&P 500 still hasn't fallen the full 20 percent that represents a bear market, which in turn would be seen as a harbinger of recession.
The bottom line is that nobody knows how badly the virus will hurt worldwide economies, which industries will be hit hardest, or how long any economic pain will last. In other words, pretty much everything a CEO wants to know before deciding how to respond is unknown.
"Our ability to assess the financial impact of COVID-19 on our business continues to be limited due to quickly changing circumstances and uncertain consumer demand for travel," said Chicago-based Hyatt Hotels CEO Mark Hoplamazian after withdrawing 2020 financial guidance.
Sure, executives have managed through uncertain perils before. When collapsing financial markets triggered the Great Recession in 2008, company leaders couldn't tell how bad it would get or when it would end. They made the best decisions they could with the information available.
Coronavirus, however, involves a different type of uncertainty. Unlike past crises, this one is rooted not in familiar economic factors such as a credit bubble, but in epidemiological forces beyond the ken of the average CEO. Few, if any, are qualified to make judgments about how many people are likely to be infected, how many will die, or when the virus will subside. Without answers to those questions, predicting economic consequences becomes all but impossible.
An incipient global pandemic also raises other novel concerns. For example, a CEO confronting an ordinary cyclical downturn might worry that orders will sink so low that factories have to be closed and workers laid off. With coronavirus, leaders also wonder if contagion might deplete the workforce to the point that orders can't be filled, or that quarantines will cordon off essential raw materials and parts.
As some CEOs weigh potential downsides of widespread infection, others ponder the opposite. Companies such as North Chicago-based drug maker AbbVie and Deerfield-based pharmacy chain Walgreens could see a surge in demand. Questions for their leaders include how much to bet on that possibility, and whether supply chains can deliver the goods to meet demand.
On the other hand, worst-case fears may not come to pass. Previous pathogens such as SARS didn't bring down the economy, and global supply chains have rebounded fairly quickly from earthquakes and other disruptions. Coronavirus might run its course in a few months, with minor economic ripples.
A range of possibilities so wide leaves CEOs without fixed parameters for decision-making. Some companies, like Deerfield-based Mondelez, have warned that coronavirus will hurt short-term financial results. But only a relative handful have taken action as drastic as Chicago-based United Airlines' decision to cancel flights to China and pare back domestic schedules.
Like it or not, CEOs soon will have to decide how to respond to the most serious global health crisis in recent memory. A wait-and-see approach that seems prudent at first suddenly can start looking like head-in-the-sand indecision.
The first decision is when to decide, a tricky question in itself. Waiting for complete information could leave too little time to avoid serious damage. Moving too soon could put a company on the wrong side of events.
Next, a CEO must decide what action to take, if any. Should the company go into a defensive crouch, curtail spending, cancel new projects, furlough workers? That approach might blunt the effects of a serious downturn, but if no such decline materializes, cutbacks could short-circuit growth and cede ground to rivals.
Alternatively, a CEO might opt to stand pat, or even look to expand if competitors are retrenching. That strategy would look smart if coronavirus doesn't take a major economic toll, but dumb if it leaves the company fully exposed to a deeper downturn.
Of course, a CEO could choose from myriad possible variations on either approach. The right path will vary for each company, depending on its unique circumstances. We'll soon learn which CEOs are up to the challenge of finding it.