Managing in financial crises

Conventional wisdom and the bulk of academic literature lead many executives to believe that financial crises are difficult to predict.

Conventional wisdom also argues that strategies for survival are hard to pre-plan, since the reasons for these financial meltdowns are specific to a nation, its culture, and its politics.

Those conclusions would lead managers to believe that the elements of a financial storm are impossible to understand, prevent, and manage until the storm actually hits. We disagree.

Based on our experience, we believe that the warning signs of trouble are common from nation to nation. To be sure, there are some regional and national variations. Yet, there are also common patterns of buildup and meltdown.

For this reason, we also believe that financial crises can be foreseen, their magnitude can be estimated, precautionary steps can be taken to prevent crises, strategic options can be devised and implemented, and corrective measures can be taken to lessen the storm's ultimate impact.
    
Managers need to know whether their own firms and the industries in which they compete are destroying shareholder value.

They need to understand crisis warning signs better than most currently do and take the necessary precautions such as aggressively managing their cash position, shoring up their distribution systems, leveraging their intangible assets, shedding non-core physical assets, and enhancing needed risk management and other skills.