During good times , prepare for the bad

My blogger friend, Justin Choo, has a recent post “In bad times prepare for the good”,  talking about a Singaporean CEO not retrenching his workers, despite the downturn for his company. 

The CEO was quoted to say that retrenchment is morally wrong.He would rather ask his workers to take a a salary cut than to retrench them.I think his action is commendable and should be emulated by the CEOs of some of our companies that are now facing financial problems. 

I would also like to quote the comment by romerz on that post:

In 1986, in my first job after graduation, I had to retrench 190+ factory workers because the company was going belly-up due to insufficient working capital not caused by the factory itself but the property development arm of the group.

It was the hardest thing I’ve ever done in my life.

Giving those retrenched their last salaries and asking them not to come back to work anymore (trying not to look into their eyes as I explained why to every individual). The exercise lasted 3 days and I couldn’t sleep those 3 nights.

 
In any economic downturn, besides stimulus package, cutting interest rates to make funds cheaper for businesses, one important aspect is to have a safety net for the retrenched and the poor.

These are the people without deep pockets. They must be given certain amount of basic assistance as well as retraining, to channel them to areas where manpower are still needed.

Otherwise giving them soft loans to start petty businesses, etc should be considered.

I think this Singaporean CEO has don the right thing to cut every body’s salary instead of retrenching staff. BUt as the economic worsens, there would come a time that retrenchment may become unavoidable, especially when the company is going under.

It is therefor important for a government to be prudent in its spending during good time, so that it can build up a reserve fund to be used during an economic downturn.

It is like a wage earner. He has to save during good time , and his savings would come handy should be face any problems during an economic downturn, or during times that he may be sick and unable to work.

In other words, during sunny days, prepare for the rain.

Ideally , a country should not have an budget deficits. Instead there should be surplus so that the government does not run up any debts. Instead, the  Treasuryc should have savings to invest and be used during an economic downturn.

In practice, a short period, say a year or 2, of budget deficits may be tolerated to stimulate development, but a long period of budget deficits would make the government a debtor, and the money needed to service the debt  would be higher and higher, cutting into the operating expenditure.

It all boils down to prudent spending.

It all boils down to “During good times, prepare for the bad”.

20 Comments (+add yours?)

  1. zztop
    Dec 04, 2008 @ 14:05:38

    I am really touched by your article.
    It is really sad to see workers (dedicated workers in particular) especially those who lives from hand to mouth and has a family to look after get retrenched. My heart goes out to them. If only i can help.

    Like

  2. Peter Yew
    Dec 04, 2008 @ 14:08:47

    I remember in 1989 when my business was so bad that I had cashflow problems I made sure my employees got paid first and I last. It might not have been a recession scenario but I had great feelings for my employees as they trusted me enough to come work for me. Today my business is doing alright and hopefully able to ride the recession phase of our economy. I believe in the principle of what goes around comes around. Do what is right and the right things will come to you.

    The government was wrong to ‘force’ EPF contributors to spend 3% of their contributions. I suppose that is how an inexperienced new Finance Minister think. Since the government has been ‘making’ so much money from our taxes and increasing the reserves, what should be proposed is disburse to every taxpayer a lumpsum to spend to stimulate the economy rather than ‘forcing’ the taxpayers to spend their retirement savings.

    We do not have a wise government in financial management. I honestly think that for a nation this rich in natural resources we should be able to escape recession by using our national reserves to reward the people for their patriotism and hardwork. If we had worked more and talk less we might have achieve this scenario.

    Like

  3. Dr Hsu
    Dec 04, 2008 @ 15:05:42

    Peter, I salute you. You are like the CEO of the SIngapore company.

    Human resources are an asset. Workers are like our family.

    mY nurses have all worked for many many years for me ( i have lost track). My filipino maid has worked for me 15 years now. They do commit mistakes some time, but do we not all do that? To err is human.

    Good workers are hard to find. Loyal workers are even harder to get. So in bad times, do consider all this, and as far as possible, retrenchement should be the last resort, if the company is really beyond rescue.

    Like

  4. klm
    Dec 04, 2008 @ 16:12:07

    It feel really good that there are still bosses like Peter Yew. The eastern culture of boss and employee relationship is what should make a successful corporate culture. This is sadly lacking in the western style business culture that is found in multi-nationals and in local companies that fully adopt western style management (blindly)

    Yes, it is nice to know that we still have good people like Peter and also our good doc. I know he will be successful.

    Like

  5. A true Malaysian
    Dec 04, 2008 @ 16:35:48

    Peter Yew,

    I agree fully with you on your statement of “Do what is right and the right things will come to you.”. I too would like to salute you.

    To me, prudence is the key to good management of an economy. As the government is also our ‘trustee’ to our saving in EPF, any announcement to get fund from EPF in the name of guaranteed loan or investment in its investment arm like Valuecap will send chills in my spine.

    In my view, government should not interfere market forces in stock exchange and money market but to let these market forces to find its own balance.

    Like

  6. Dr Hsu
    Dec 04, 2008 @ 16:56:25

    To inject 5 billion from EPF to valucap is wrong, wrong and wrong.

    Stock market is important but there are other ways to help. Give incentives for listed companies to buy back their own shares, for example. That will enocurage companies to be more prudent.

    ANyway, artificially saving companies would not help much, as ultimately, how a company performs in the stock market depends onits fundaments. Market forces always prevail in the end.

    Like

  7. Frank
    Dec 04, 2008 @ 17:55:46

    I solely agree with Doc – ‘make hay while the sun shines and keep them for the rainy days’! Never will be wrong all these adage and wise sayings.

    If these wise words are all adopted by our Government, notwithstanding their ‘kiasu’ mentality of harping on the laughing stock of ‘Ketuanan’ thingy, I believe being the more enterprising Chinese community whom we are believing in fair competition and self-reliance, we have little concerns whether we have the same privileges of having the silver ‘tongkat’, which is only meant for those crippled and underprivileged who might lose out in the torrent of competitions, if without it the crutch! We don’t need the crutch, we just don’t like to be looked down like the handicaps, for as long as we are concerned, opportunities are every where, in the deep blue sea and in the Davy Jone’s Locker are treasures we can find! What we dislike and what we want our Government to make sure is they should distribute fairly all the harvest of good fishes to the needy and to those who deserve!

    The problem is, just when will it be solved, and how can we prevent, while we are all slogging hard to make hays and save them in the silo, they have all been abused and siphoned, not for the needy but into some ones’ ready sewed deep pockets, for their own keeps! Sad isn’t it?!……

    Like

  8. A true Malaysian
    Dec 04, 2008 @ 21:00:31

    Dr. Hsu,

    What I don’t understand is that why inject RM5 billion to Valuecap, which is just a company, but RM7 billion for the whole economy.

    I can’t figure out the logic in this move.

    As you commented, inject RM5 billion into Valuecap is wrong, wrong, wrong. Injection of RM7 is simply not enough for an economy. Might as well inject RM12 billion into the economy.

    Like

  9. chinseng
    Dec 04, 2008 @ 21:22:22

    Dear Dr. Hsu,

    To inject 5 billion from EPF to valucap is wrong, wrong and wrong but at least we know it is injected into valuecap… Injection of RM7 billion for the whole country economy but do not tell us where the money are injected into… can we find out where the money goes to ??…

    Sorry that many people are asking where this RM7 billion goes to…. simply because people do not trust the BN government anymore..

    Gerakan is still part of BN and keep very silence on all this wrong doing…. it is taxpayer money oh….

    Like

  10. Richard Loh
    Dec 05, 2008 @ 01:47:20

    When the economy is booming, everyone is happy, from the boss to the janitor. The boss is generous, paying months of bonuses, the company is making tonnes of money. No one thinks about the bad time anymore, no saving for the rainy day.

    I have gone through the mid seventies, mid eighties and the late nineties recessions. Dr. Hsu, I think you are about my age and you must have face them as well.

    I always have this day dream of mine, thinking of being a boss of a medium size company and what I will do about running the company when such recession happen.

    I would run the company like a big family. Firstly, try to employ only Malaysians unless necessary. Set up a saving fund for every Malaysian employees during the boom time. Every month, its up to the employee how much they want to save, minimum 5 ringgit up to max 100 ringgit and on top of that the employer will contribute 20% of the employee saving. This saving will be put in a special bank account where the employer will have no right to access. The interest gain will be put back in the saving to generate more interest. If the year end bonus is good, say 3 months or more, one month of the bonus can be put in the saving fund, for this bonus saving the employer need not contribute the 20%.

    On a rough calculation, assuming an average monthly saving of 50 ringgit plus the employer 10 ringgit which make a total of 60 ringgit. Allow the number of years before a recession hit to be 8 years, you could easily have 7500 ringgit plus interest.

    The options how the saving is disburse when the recession hit can be in many forms depending how the company reacts to the recession.

    If there is retrenchment, the employee can withdraw all the saving. If pay cut, a withdrawal of 50% of the amount that is cut, that would at least lesson the burden of the employee.

    There may be many factors and reasonings for the above not to be workable but at least there must be some preparation for it or some solutions along that line, when serious recession occurs.

    I am now old and do not have any more opportunity to try out my day dream.. lol..

    Like

  11. Dr Hsu
    Dec 05, 2008 @ 11:51:05

    Your idea is very good in fact. That is really saving for the rainy days.

    One other group that should be given assistance is the old people. Those who ahve retired from work and depend their saving for their living expenses. Now that interest rate is coming down, they will have less income to survive.

    Perhaps the government should direct the banks to cut the spread between the ledning and saving rate and not so much the saving rate per se.

    Our spread is very high, about 4 percent and that is why banks are earning so much of profits the last few years.

    Another way is of course to give the retired, say people over 60, a rate that is higher than the younger generations.

    But as i have mentioned , in my last write up in MalaysianInsider, the private sector must be encouraged to invest. There are many cash rich companies. Look at YTL, they have purchase the Singapore power company.

    But for private companies to invest and create jobs , they must be given incentives and NEP must be done away. Try for a few years without NEP. If everyone profits, then continue without NEP. If later on, the majority people want it back, it can be brought back but without the skewed implementation.

    Like

  12. A true Malaysian
    Dec 05, 2008 @ 12:33:56

    Government should encourage savings like what Richard Loh commented. Income earned from these savings as well as contribution to these savings should be exempted from all kind of taxes.

    A nation with high saving definitely bode well for its economy and currency.

    Like

  13. wassup
    Dec 05, 2008 @ 14:46:50

    Always, always save in good and bad times. We cannot be an effective person when we are counting days to the next paycheck.

    Small scale is ok to be ‘fren fren’ but when we are talking about hundreds or thousands of staff like multi nationals corp., how to be kind and grateful?

    Save atleast for a year of expenses without any income coming in before you can start stealing slippers hahaha…….

    Like

  14. Peter Yew
    Dec 05, 2008 @ 15:30:57

    I am reminded of the polar bears and how they manage seasonal downs during winters by conserving food in their fats and hibernating while the body metabolises the reserves slowly. I believe we can learn from how God created such animals to survive in bad seasons.

    It apply to individuals, families, companies and governments. Economic cycles always have good and bad times. In good times, don’t spend like there is no tomorrow (which sadly is what many people in our country practise). Always save and not touch them because it will surely be needed when bad times come (like now).

    Like the polar bears, slow down and wait out for the bad times to pass. Use the reserve wisely. Economic activities must continue but not at the usual pace. When nearly everybody practise frugality in recession artificially pushing up more work opprtunity will not necessarily work. It goes against the flow of nature. Everything that lives must rest cyclically. Now is the ebb and now is the rest phase. We need to face it and wait out for better times to come back, which will take time.

    We are in the winter of the polar bear life. Be like him and wait for spring when you can spot that new fur and fresh outlook and begin life anew.

    Take care and be well.

    Like

  15. nick
    Dec 05, 2008 @ 18:03:37

    If you log into ‘Singapore Straits Times’ today, there is a regional survey covering several countries in Asia and the No. 1 worry for most particpants is ‘jobs’. Losing a job for a man is like losing his balls, if you know what I mean. Without a job, how are you going to feed the family, educate the children, pay the rent or the mortgage, pay for the car, etc, etc. You will be half the man that you would be. This Recession is the scarriest thing I have ever faced. Let us all be responsible and do everything it takes to keep the Company afloat and not resort to sacking anyone. It is teh cruellest thing to throw somebody into the street unless you are giving them a “golden parachute”.

    Like

  16. robertchai48
    Dec 05, 2008 @ 18:16:40

    Imagine PR government still insist that tin mining industry to be revive in Perak? Building
    cement factory in Gopeng. Destroying the environment and not bringing more revenue for Perakian. With this industry it will bring massive destruction to our green environment and sink hole problem.

    What step have been taken to generate more job in tourism industry and agriculture sector. It is more sense to take good care of our environment

    Like

  17. monsterball
    Dec 06, 2008 @ 08:19:05

    Whatever you wish to say…it is down to good or bad management of the country..by a sincere government ..for the people…by the people and with the people.
    Listening to RPK’s latest speech…I learned a new Bahasa word….”Munafix…or is it.. Munafique”…meaning hypocrite.
    According to the Koran…the Prophet told his followers…”Kill the munafix…..before you kill the enemy”
    We know who are the munafix in Malaysia…don’t we.
    RPK said he can’t understand some Muslims mentalities. If a Malay .who is a Muslim..cannot understand another some Malays..that are also Muslims…..how can other races understand them?
    ISA is forbidden by Islam. ISA is above Allah’s law and UMNO is the protector of ISA…not Islam.
    So to “kill” the munafix…and ISA…Malaysians need to vote UMNO out.
    Have a nice weekend.

    Like

  18. monsterball
    Dec 06, 2008 @ 08:31:38

    That includes..voting out MCA..Gerakan and MIC..who are worst than the munafiques of UMNO.
    They sell there races..and accept to be second class citizens.. for personal gains.
    Speaking for myself as a Malaysian Chinese…how can any sincere Malaysian speaks so highly of these three parties….that are.. balls carriers of UMNO….I also cannot understand too.
    Sultan of Selangor said…no titles for politicians.
    Long live..the Sultan of Selangor!!!!…which I am proud to be one of his subject.
    Again….have a real nice..long weekend……all of you.

    Like

  19. robertchai48
    Dec 08, 2008 @ 09:56:43

    Look what have been done by the PR government in Perak. Concentration only in Manjung District. Thai is politicking by the power to be in Perak. Do we need to sell
    exporting sand, logging and tin ore? What is the core business in Perak? Is it not agriculture, ecotourism and medium industry? Do we need another term in PR government that know cut and copy only?

    We need a government that care for the people. Imagine playing politic with naming a Taman Cempaka with several language, free hold title for newvillage, blaming the federal government for banning exporting of sand, give them another one more term, naming road after their former leaders etc…. This will not brings any benefit for the rakyat. What the rakyat want is improvement in their qualities of life, a eye wash for those visiting Ipoh, cutting of grass in the city only… How about those in new villages and gardens? It is time we want action and not talk only.

    Like

  20. monsterball
    Dec 08, 2008 @ 10:16:23

    Easy to talk we want actions…when in Perak…the government of Pakatan Rakyat is managed by a small majority….with the overall govt….still under UMNO.
    Be reasonable and understanding with your demands.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: