Crises in the Financial Function
Closer to home, FDs were treated to three sessions highlighting the need for that kind of steadfastness under fire in their own businesses. Eric Tracey knows a thing or two about problems in the finance function: he’s been a “trouble-shooter FD” at two high profile corporate calamities, construction group Amey and leisure business Wembley. Using anecdotes from his time with these businesses, he warned delegates facing hard times about the biggest danger of all: denial. In both cases, the board believed that the best possible outcome would come to pass. As FD, his first job was to convince them it wouldn’t.
“Days after joining Amey, I had to stand in a room of angry banks and lawyers and say, ‘I have no basis for believing in these numbers [the latest management cash flow forecast], but I need money’.” Shock tactics that awoke the board to its dilemma.
Tracey then explained how to get out of a hole. The first few days of the crisis are critical – an FD must get a true sense of the situation, work out where the biggest problems are and look for any positives. Second, you need to know who are the most important stakeholders – including those inside the business.
Then it’s about rebuilding credibility with them, which means being honest, open and positive. “If you can fulfil your promises, own up to mistakes and communicate clearly, you’ll do well,” he said. Other tips? Use advisers well. Look for “sacred cows” – symbolic gestures, like curbing executive bonuses, that will help win over key stakeholders. And always have a “plan B”, of course!
That last point was the theme of Doug Ross’s presentation on incident management – subtitled “how planning for failure can boost your chances of success”. Too many businesses, he explained, expect everything to run smoothly and don’t stress-test their assumptions (Terminal 5 being a prime example). “By taking a dispassionate look at the undertaking and asking ‘where might it all go wrong?’, organisations are much better placed to respond and recover swiftly,” he said.
His consultancy, Square Peg, has a five-step process to improve scenario planning. First, “face the music” – conduct imaginative risk assessments that factor in unlikely but high risk crises. Second, put necks on the line – make sure people know they are responsible if something goes wrong. Third, drill ruthlessly – there’s no substitute for practicing responses. Fourth, embrace central command – an organisation’s leaders should see problems coming and direct the response. Finally, accept that what doesn’t kill you makes you stronger – and apply those lessons in the future.
Looking further afield, Justin Urquhart Stewart of Seven Investment Management took FDs on a whistle-stop tour of the credit crunch and the global economy, highlighting how important some of Tracey and Ross’s lessons will be over the coming months.We are facing a “perfect storm” of the end of a growth cycle, inflation, lack of credit and geopolitical threats, he said.
Sticking with one of the Forum’s key themes, he explained his three-part recipe for survival. “You have to plan better – too few organisations look carefully at what might happen in the future or articulate clear aims for their business,” he said. “Then you have to apply a process to ensure that what you plan to do happens as you want it to. Finally, you need discipline to keep your plan on track.”
And his forecasts for 2009? A global slowdown is inevitable, although we will recover eventually. Credit confidence will remain an issue. There will be a key battle between a need for growth and the danger of inflation. Sterling will continue to be weak. And we’re now facing some serious questions about global trade. In short, FDs need to take the Forum’s lessons on crisis management seriously.