The Impact of COVID-19 on Middle Market Resiliency and Risk Tolerance
Since the country’s last major economic event—the financial crisis in 2007-09—the middle market has proven to be remarkably resilient. The uncertainty and disruption brought on in 2020 no doubt put that resiliency to the test. However, it’s not surprising to see that the middle market as a whole seems to be finding its footing, even if full recovery will require more time. Employment declines are a good example: while, on average, mid-size companies decreased the size of their workforce by 2.2% over the course of the year, these losses are much less profound than the 2020 employment declines reported by smaller (-5.1%) or larger (-8.1%) businesses, respectively. Looking forward, the middle market’s cautiously optimistic prediction for positive top-line revenue growth of 4.1% in 2021 is noteworthy, particularly since middle market executives are known for their conservatism.
But what risks will middle market leaders be willing to take in order to drive that new growth? The pandemic has clearly changed executive’s appetite for risk going forward. Nearly 50% say they are much more or somewhat more averse to taking on risk, with only 10% saying their tolerance has increased. Management of risk appears to happen primarily at the board or executive level—only 15% of firms report having an enterprise risk function, and one in five rely on their insurance agent or broker. Whether faced with an operational, strategic, or cyber risk, less than 50% of companies feel prepared before or during the event (COVID-19 aside). But, with their own grit and, in many cases, outside advice, middle market companies are able to recover quickly. It will be interesting to track if this holds true in 2021.