DEALING WITH RECESSION

Berikut ini, tulisan Professor Paul Strebel, bagaimana kita menghadapi resesi. Ada 6 rekomendasi, mudah-mudahan bermanfaat!


SIX RECOMMENDATIONS

By Professor Paul Strebel
(November 2008)


The slide over the last year from economic growth into recession has been dramatic. The end of 2008 looks very different from the beginning of the year. This calls for a radical re-orientation of strategic priorities to deal with the shift in the economic environment. What is the best practice for dealing with a recession? Here are six recommendations:

1. Liquidity is king
The critical role of liquidity is something that the banks have re-discovered during the current financial meltdown - admittedly a special industry in extreme circumstances. Yet no matter what the industry, if revenues drop sharply and debtors stretch out their payables, all of a sudden creditors can lose confidence and insist on immediate payment.
After 9/11 collapsed airline revenues, lack of liquidity for fuel purchases grounded Swissair in October 2001 and soon drove it into receivership. Liquidity planning is critical, based on an analysis of the payments schedule, creditor terms and debtor collectability. The liquidity plan must be stress tested to see whether it can deal with worst case scenarios. The best insurance is real cash reserves in a safe bank.

2. Reduce fixed costs and increase flexibility
The ability to rapidly scale back activity when the recessionary storm hits without incurring major losses, and then scale back up on the rebound is key to coming out ahead after the storm passes. The budget airlines, with leased fleets, highly flexible pricing and rapid response to changing market conditions, came out of the 2001/2 downturn well ahead of the slower-moving larger airlines.

3. If necessary, restructure boldly, sooner rather than later
A downturn soon reveals what parts of the business are not profitable through a full economic cycle. Hanging on to non-economic business puts strain on the profitable business, thereby diminishing its rebound potential. If restructuring is needed, it’s important to move sooner before the markets for assets and divestments begin to freeze up. Bold decision-making is key with a preference for simplicity in the final business model. HSBC, for example, began aggressively scaling back its consumer finance and mortgage business in the US well before the full subprime crisis unfolded, which has allowed it to stagger its subprime write-downs over time without panicking its customers and shareholders.

4. Exploit opportunities to re-shape the competitive landscape
For those with strong balance sheets and liquidity, recessions throw up buying opportunities of a life-time at bargain prices. Acquiring talent, assets, access to markets, or whole businesses, at distressed prices, can completely change the balance of power in an industry. Bank of America’s acquisition of Merrill Lynch and JPMorgan’s takeover of Bear Stearns, together with the disappearance of Lehman Bros., has radically altered the power structure in the investment banking industry.

5. Leaders have to manage themselves responsibly
During difficult times the poet’s admonition is critical: make sure to “keep your head when those around you are losing theirs and blaming it on you.” A calm, steady hand must be visible at the top when implementing the measures needed in points 1 to 4. To retain credibility, execution must be accompanied by socio-political sensitivity.
Leaders lose credibility when they go on a big expense-paid fox hunt in England right after announcing a multibillion government bailout, or continue to promise eight figure bonuses in a firm that’s losing money. Instead, socio-political credibility requires they forego their bonuses, like the top executives at Goldman Sachs and UBS, as well as Josef Ackermann at Deutsche Bank, did in 2008.

6. Board members have to be strong sparring partners
Board members have to control the conduct of the business on behalf of the shareholders while, at the same time, supporting management in the value-creating process. In particular, during a recession, they have to ensure that management acts on points 1 through 3 to ensure the security of the business, while also encouraging management to be alert for windfall investment opportunities. This calls not so much for diversity on the board, but for board members with industry expertise, who are willing to support the CEO with difficult downsizing decisions and act as strong sparring partners to assess the desirability of potential investments.
The board can make the difference, as it did at Credit Suisse when the risk management committee called for a radical reduction in exposure to mortgage derivatives in mid-2006, exactly when the CEOs at rival banks were pushing for higher returns with more investment in the same instruments.





Paul Strebel is the Sandoz Family Foundation Professor at IMD. He is Director of the High Performance Boards program and teaches on the International Seminar for Top Executives, the Program for Executive Development and the Orchestrating Winning Performance program.