Before tackling the five tactical measures listed above, management needs to develop a crisis management approach to the emergency, since by definition crises are not “business as usual.” Crises are all-encompassing and are a time when companies need to pull together internally across the corpora- tion, which is why we recommend using a highly structured approach. The core of this effort should be led by a “crisis czar,” with strong support from a “cash czar” and five crisis response teams: the information, cash optimiza- tion, operations, scenario planning, and communications teams.
The crisis czar—usually the president, COO, or owner of the com- pany—leads the overall restructuring program. When executives think of a crisis czar, they should think of someone with the vision and courage of Banthoon Lamsam, president of Thai Farmers Bank (TFB) and the first per- son in that country to successfully complete a bank turnaround. During the Thai crisis, he led his company in an aggressive write-off of nonperforming loans, which involved persuading the owning family to dilute its holdings in the company from 17 to 4.2 percent to recapitalize the bank. This allowed TFB to complete its write-offs a full year ahead of the required deadline of December 2000. As a consequence, Business Week magazine in 2000 named President Lamsam one of the stars of Asia.19
Or consider Yong Nam at LG Electronics or Y.S. Park at Doosan Group: Working six to seven days a week, they pushed their organizations for seemingly overaggressive short-term results while simultaneously keep- ing their eyes open for strategic opportunities. They were actively involved in both the planning and execution, negotiating with major suppliers, credi- tors, and potential buyers of parts of their businesses, and also calming and assuaging employees and customers. They were decisive, aggressive, and strong motivators of people.
Roustam Tariko also displayed the right leadership skills. When the Russian crisis hit in August 1998, Tariko moved his organization quickly to reduce major risks—such as recalling its valuable inventory of alcoholic bev- erages from the shelves of retailers around the country, pulling most of their stock back in three days—while at the same time identifying and acting on a major business opportunity to enter the consumer finance business in Russia.
If the crisis czar is the inspirational leader of the crisis team, the cash czar (often the CFO) is responsible for the company’s critical cash management.
In the first hours of the crisis, it is the cash czar who cuts spending and radi- cally reshapes the cash and working capital regimes. The cash czar must work swiftly and have the best people assigned to work on the team.
Once these two leaders are in place, the company needs to form five other sub-teams under them: the information, cash optimization, opera- tions, scenario planning, and communications teams. Typically, the opera- tions and communications teams would report to the crisis czar; while the information, cash optimization, and scenario planning teams would report to the cash czar. These crisis response teams typically range in total from as few as ten people to as many as forty or a hundred people, depending on the size of the company and the depth of change required. In larger conglomer- ates, they are often grouped together in a restructuring office or headquar- ters. In Korea, for example, during the first six months of the crisis, LG Group had about sixty people in its restructuring headquarters, Samsung Group had eighty people, and SK Group had about ninety people.20 In Indonesia, BCA had twenty people in its core crisis team at the peak of the crisis in 1998.
Information Team The purpose of the information team is to track the com- pany’s cash and debt situation. Its goal is to give the cash czar the most cur- rent and accurate picture of the company’s cash and debt positions. This usually requires that the team balance the twin requirements of speed and accuracy by applying an 80/20 rule to the data. This team also works with the scenario planning team to provide the crisis czar with the overall per- formance targets and key milestones for the entire crisis management team.
This is also the team upon which the other four teams must rely to build their own assumptions. If the company’s treasury group is a high-performing group, it should form the core of the team; otherwise, management should put the company’s best financial talent in its place. Information technology skills are also needed since existing management information systems are not set up for managing through crises. In situations we have seen during a crisis, a major “quick and dirty” change is required to the management information system (MIS). During a crisis, the MIS is the CEO’s naviga- tional “dashboard” that provides him or her with the necessary warning sig- nals to successfully steer to safety without a serious accident.
Cash Optimization Team The mandate of the cash optimization team is simply to free up as much cash as possible. While the goal of the information team is to understand and anticipate cash requirements, the optimization team should view its objective as maximizing cash on hand: The managers’ mindset should be that the company with the most cash wins in the post-crisis endgame.
For the cash optimization team to be successful, it must set stretch tar- gets and specify timetables for cash generation. The cash optimization team
should work with the operations team to help each business reach its tar- gets, and share the lessons that it has learned with the rest of the company.
Once the efforts show results, it should immediately ratchet up aspirations.
At LG Electronics’ multimedia division, for example, senior managers instituted what they termed the “stretch 1-2-3” principle. Midlevel man- agers were asked to set targets and timelines, and as soon as they achieved their goal the process was repeated and the bar was raised. After three or four cycles, managers began “stretching” themselves, setting their own tar- gets to take their units to the next level.
Operations Team The operations team is composed of two sub-teams. The first, the supply chain sub-team, is tasked to manage the issues that crop up in the supply chain with the goal of minimizing disruptions and ensuring as smooth a flow of products and services to the end customer as possible. The second, the divestiture sub-team, is tasked to review and rationalize the company’s business portfolio with the goal of creating as much value as pos- sible from the business portfolio. It must therefore be prepared to design and monitor cash improvement initiatives that are too large for the cash optimization team to handle, such as divestitures of business units, even core businesses of the company, if necessary. This is clearly the largest and most diverse of the five teams, requiring people with unique skills and varied backgrounds.
Because of the nature of the task, this is the team that is most likely to encounter resistance from the business units and from senior managers themselves. It is therefore even more incumbent on the CEO, crisis czar, and cash czar to ensure that senior managers are on board in terms of what the company must do to optimize its cash position and business portfolio. It is important to reach this consensus before decisions are made on specific lines of business to divest, in order to get everyone on the same page of manage- ment’s strategic game plan.
Scenario Planning Team The scenario planning team pulls together the mate- rial from the other teams and generates scenarios that will help the company develop contingency plans. From the earliest days of the crisis, its goal is to reduce as much uncertainty as possible. If senior managers have confidence in the company’s existing planners, then this group should continue as the scenario makers; otherwise, it should summon together the best strategic thinkers in the company.
Senior managers need to be frequently involved in this team’s reports and rigorously test the underlying assumptions. Given the rapid fluctuation of financial indicators and other news during financial crises, reviews should be driven by key events instead of following a regimented structure of monthly or quarterly meetings. Managers should also practice stress-testing
the scenario plans. At Emerson, for example, management consciously chal- lenges planning assumptions with seemingly illogical conditions to test its outer limits.
Communications Team The job of the communications team is to stay in close contact with key stakeholders: shareholders, customers, creditors, regula- tors, board members, employees and, of course, the media. It also must stay in contact with domestic and international financial markets. Its goal is to maintain stakeholder confidence in the company and its future prospects.
Because of the very public nature of its task, close involvement by senior executives in the communications team is almost always required.
Frequent and honest communication is essential. One day after the Sep- tember 11 terrorist attacks, for example, Phil Purcell, the chairman and CEO of Morgan Stanley (the largest tenant in the World Trade Center), sent out an e-mail to all customers expressing grief for the tragedy and assuring them that the company’s business was continuing to operate and that their assets were safe. In addition to a broad communications effort, a few critical investors, creditors, suppliers, and customers need to hear more detail from top management, and the sooner the better. Consistency of message is also critical, which is why all communications must go through this team. Con- tradictions, obfuscations, and partial disclosures are almost always judged negatively and taken as evidence of management’s inability to recognize the facts and manage them properly.