Having served both private and public sector clients on crisis-related engagements extensively over the past five years, we think there are at least five major categories of readers in both developed and emerging market economies who have a direct self-interest in reading Dangerous Markets: first, CEOs and senior management teams at banks, other financial institutions, nonbank corporations, and family-owned businesses; second, boards of direc- tors; third, investors of all types, including large institutional investors, pen- sion funds, mutual funds, and foreign direct investors such as private equity firms and corporates investing in businesses in other countries; fourth, public policy officials, including ministers of finance, central bankers, heads of bank supervisory and restructuring agencies, officials at multilateral financial
institutions, and legislators who must approve changes in laws that result from the crisis; and finally, the extended policy establishment, including journalists, academics, political analysts, and other thought leaders and decision makers.
Senior Management
We believe that CEOs and their senior management teams will find Danger- ous Markets useful from their own self-interest of saving their companies—
banks and nonbank companies alike—and capturing significant strategic opportunities during a financial crisis. Executives need to understand how global forces at work in the financial markets are changing their local and international competitive landscape and affecting their cost of capital.
Managers need to know whether their own firms and the industries in which they compete are destroying shareholder value. They need to under- stand crisis warning signs better than most currently do and take the neces- sary precautions such as aggressively managing their cash position, shoring up their distribution systems, leveraging their intangible assets, shedding noncore physical assets, and enhancing needed risk management and other skills. CEOs and their senior management teams need to know how to posi- tion themselves for the post-crisis endgame and seize the strategic opportu- nities that arise in all crises. Often, the most urgent task for new owners is to turn around a failing bank or company, bringing in a new management team when the old one fails in a crisis situation.
Boards of Directors
Boards of directors at healthy companies, failing companies, and those in between will need to read this book. Boards of directors, including those of family-owned businesses, need to understand the same global forces at work, the same crisis warning signs, and where management needs to focus its attention. Boards can be critical preventive mechanisms to avoid crises.
In the worst case, if a company destroys shareholder value and does not take adequate steps quickly to reverse the trend with a new strategy or better operational performance, then the board needs to step in to exert its author- ity over management on behalf of all shareholders.
Boards need to know what management’s tactics should be in the early days of a crisis and what its strategy is to ensure a winning endgame position three to five years after the crisis subsides. Moreover, boards need to under- stand the increased value of good corporate governance and transparency to investors, regulators, and other stakeholders. Boards typically need to inten- sify their defense of shareholders’ interests in a crisis environment.
Investors of All Kinds
There are many kinds of investors with many different investment strategies around the world, but they all need to understand many of the same things that boards of directors need to know. Most savvy investors understand the forces at work globally or locally, depending on their portfolios, but too few have a rigorous strategy in place for understanding and analyzing crisis warning signs that could ultimately lead to future losses. Many fail to see the warning signs of shareholder value destruction embedded in the real microeconomies of the countries and major sectors in which they invest.
Investors need to be able to determine whether current management teams are up to the task of executing the tough tactics demanded in the first hundred days of a crisis and whether an effective crisis and post-crisis strategy is in place that will position the company to secure a winning endgame role. Is management looking at all the right strategic opportunities to take advantage of regime-shifting events? What kinds of changes in corporate governance and accounting are underway that will enhance the value of the company? Should investors exit while they have some prospect of recovering part of their invest- ment, or should they invest more to take full advantage of the strategic oppor- tunities that crises present that may not have been there before?
We also believe that investors as a group have an important role to play in driving necessary changes to help strengthen the overall global financial architecture and should be much more proactive in this regard.
Public Officials
Public officials at both the national and international levels need to read Dangerous Markets to get a better sense of the dynamics and powerful changes that occur in the private sector when a financial storm is unleashed in their countries or their financial sphere of influence. Senior finance min- istry officials, central bankers, financial regulators, heads of restructuring and workout agencies, and international civil servants at the IMF, the World Bank, the regional development banks and the International Finance Corpo- ration (IFC), the Bank for International Settlements (BIS), the Organization for Economic and Cooperative Development (OECD), the Association of Southeast Asian Nations (ASEAN), and other international bodies need to have a deeper understanding of the drivers and potential solutions of a finan- cial crisis at the microlevel, not just at the macrolevel where most of their attention historically has been focused.
Many public officials are often thrust into a financial crisis suddenly, without the proper skill sets or experience base to do their part to manage a crisis on behalf of the constituencies they are supposed to represent—the taxpayers around the world who typically don’t have a direct voice in crisis
resolution. Officials scramble for best practices and lessons learned, but there is not a lot of material available and not a lot of time to read it. Many of them reinvent the wheel each time a crisis hits.
Extended Policy Establishment
Finally, those members of a country’s extended policy establishment should also be interested in Dangerous Markets. As thought leaders and decision makers in their own right, journalists, academics, political analysts, foreign policy experts, labor union leaders, and other interested individuals should find this book to be a useful road map as well. Their professions and lives are often directly affected by financial crises, and they have the same need to understand the warning signs, know what management teams in both the real and financial economy need to do to survive and manage in a crisis, and ultimately contribute to the dialogue about the need for better standards and safeguards to prevent future crises as the other four groups of stake- holders.
In the pages that follow, we present our views about how to anticipate, manage, and prosper in financial crises. Many of these views go against con- ventional wisdom. We provide CEOs and their management teams, investors, boards of directors, public officials, and the extended policy establishment with a practitioner’s perspective on the means by which they—as executives caught in the swirl of a financial storm—can see warning signs and survive, execute the correct tactics, devise new competitive strategies, and embrace new standards and safeguards for their post-crisis future.