Once the crisis czar, cash czar, and crisis response teams have been estab- lished, the CEOs can move on to manage their own agendas. While the CEOs must be involved in many of the areas described above—negotiating directly with key creditors for a debt rollover, approaching key suppliers to increase volume, or overseeing a major acquisition or divestiture—they need to maintain a wider perspective that cuts across all of these areas. In particular, two items on that agenda stand out: ensuring talent quality and the dedication of sufficient management resources.
The first item on the CEO agenda is to make sure that the level of talent is up to the challenges of the crisis. Obviously, this is much easier to do if the company recognizes skill gaps before the crisis. During the crisis itself, com- panies often have to be resourceful at how they fill these needs. The finance role, in particular, is absolutely critical. At H&CB and Hanvit Bank in Korea, for example, the CEOs brought in experienced CFOs from outside Korea to act as tutors and advisors to their existing CFOs and management team. Not only did their experience help them identify problem areas more
quickly, but they also played an instrumental role in real-time training and development of key leaders in the two banks.
This training and development included making sure that the existing CFOs understood the responsibilities of their position. This included: ensur- ing that a sound asset-liability management program was in place, as well as good management information systems and controls; instituting perfor- mance and capital management processes; and communicating the bank’s business economics clearly to both internal and external parties. The experi- enced CFOs also taught senior management what to look for in future potential CFO candidates: public accounting background, strong under- standing of the economics of the bank’s business, broad business mindset, and good communication skills.
Roust used an aggressive talent acquisition strategy during the 1998 Russian financial crisis to help launch the country’s first commercial lending company, Russian Standard Bank. CEO Roustam Tariko brought in Alexan- der Zourabov, the former chairman of what had been one of the largest banks in the country. Zourabov in turn purchased the banking license of another bankrupt bank. Tariko also brought in basically the entire top management team from Mezhkombank, another leading bank, who were attracted to the bank’s business plan. Finally, he hired a vice president from the central bank as Russian Standard Bank’s first CEO.21
As important as ensuring that the right skills and people are in place is quickly taking out leaders who do not cut it. Companies cannot afford to delay in these types of situations. Ironically, it is not so much the lack of skills that causes the problems, but the lack of drive, energy, and decisiveness.
With the right skills and people in place, the second agenda item that the CEO needs to manage is to ensure that the appropriate level of manage- ment resources is dedicated to the crisis management program. As we men- tioned earlier, most companies whom we have served had dedicated, talented employees ranging from as few as ten to as many as eighty people totally focused on crisis management leadership roles.
At Mellon Bank, CEO Frank Cahouet and his team led by example, starting their days at 6:00 A.M. and working sixty-hour weeks. The entire top management team met twice a week, Mondays and Fridays, from 7:00
A.M. to 9:00 A.M., to ensure that the necessary turnaround planning was being carried out satisfactorily.
Crisis management is about more than just the frequency of meetings, however; it is about a fundamental shift in mindset and a total commitment by senior managers, a point that the Cahouet team understood and deliv- ered by the personal example it set for the rest of the bank.
At LG’s multimedia division for example, during the Korean crisis, Nam took a substantial cut in his compensation and switched his upscale
company car to a lower-cost model. He also basically moved into the office.
Six days a week, Nam slept at the office and went home only for one week- end day. He visited company facilities at 11:00 P.M., ate late-night meals with his managers, and for six months managed his division through the crisis day and night. “I essentially spent my whole life at the office,” Nam recalls.22 With such a visible commitment by the top leader in the company, employees came to realize that this was not just about securing the next bonus—it was about saving the company. Their collective commitment paid off, and in 2001 not only had the multimedia division survived the crisis, but revenues had increased from about $1.5 billion in 1997 to $4.5 billion in 2001.23
Obviously, the level of commitment will vary in each company and cri- sis. Still, it is important for the CEO to set the tenor of the crisis manage- ment approach and to foster a team spirit among managers. Ultimately, it comes back to the CEO to set the standard for the company and lead by example. (See Box 4.2: The Ten Commandments of Crisis Management, used by one of our Korean clients during the 1997 crisis.)
Leadership is a critical factor in both crisis prevention and manage- ment. Our observations from working alongside those executives who have been successful and unsuccessful in steering their organizations through crises suggest a number of common behaviors or characteristics.
First, these leaders set bold, measurable aspirations, as President Nam did at LG by setting targets of multiple increases in cash flow. As we will see in Chapter 6, the management teams at Mellon Bank in the United States and Christiana Bank in Norway, for example, set equally high targets for cost reduction and profitability in those critical bank turnaround situations.
Second, they are ruthless about ensuring they have the right people in the right place and are terrific at building effective leadership teams. They often will reach down within the organization, and outside the company if necessary, to ensure they have the best skills in place to drive critical initia- tives. We have not been surprised to see 50 percent of leadership teams change during these episodes.
Third, these leaders are relentless on performance and results. They operate in a “no-excuse” mindset, where people are expected to make their numbers, without excuses and without a second chance. Leaders establish key performance indicators for all of their key people, receive timely infor- mation on those indicators, and ensure clear consequences (both positive and negative) for performance and nonperformance.
Finally, these leaders are totally committed themselves, focusing most of their energy on three fundamental tasks: driving the overall program; spend- ing significant time with key customers, suppliers, investors, and employees;
and communicating, listening, coaching, fixing, and cajoling people to push
the envelope and meet management’s aspirations and produce results. For most of these leaders, this has meant a significant change in lifestyle and many personal sacrifices for the duration of the effort.
BOX 4.2: THE TEN COMMANDMENTS OF CRISIS MANAGEMENT
How do you set the right tone for effectively conducting crisis manage- ment? One of our clients told us about the following “Ten Command- ments” that his company has used to focus management on the measures needed to survive. Since then, we have used these common- sense rules in many situations, with excellent results.
1. Accept the seriousness of the situation 2. Deliver results, not plans
3. Be prepared for a tough, multi-year effort 4. Explore all plausible options in parallel 5. Commit 100 percent
6. Be decisive; don’t delay tough decisions 7. Exercise top-down leadership
8. Remove key people who don’t “get it” or who don’t move 9. Tolerate no sacred cows
10. Stay focused until the job is done
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By taking these steps, managers can help to ensure that their companies sur- vive the first hundred days of a financial crisis and effectively manage its challenges—from cash shortages to supply chain disruptions to shaky stake- holder confidence. As we mentioned earlier, however, the ideal situation is when a company already has taken the necessary steps to prepare for a crisis before it hits; unfortunately, this is rarely the case. In fact, we asked a num- ber of our clients who have been through financial crises what they would have done differently to be better prepared had they known that the crisis was coming. We share with you the insights we have gleaned from these ret- rospective discussions in Box 4.3: Preparing for a Financial Storm—While the Skies Are Still Blue.
BOX 4.3: PREPARING FOR A FINANCIAL STORM—