Over the past several months, headlines all over the world have alerted us to the recessionary fallout from the sub-prime, liquidity, and credit crises; and the housing bubble. Many believe that all of the above created a perfect storm that the Federal Reserve can tame.
If we allow history to be our sage, however, the crisis we're approaching is one of systemic short-sightedness, and the remedy does not reside in legislation or a government bailout. Rather, companies must be willing to confront their mistakes and make public resolutions for a lasting fix. In this scenario, the opportunity for corporate and financial communicators can be harvested from the lessons of the past.
Over the past three decades, each economic meltdown has been iterative in its resemblance to the next one to come. In the 1980s, it was speculative real estate lending; in the 1990s, it was the dot-com bubble; and in the millennium it was Enron, Tyco, and WorldComm. In the aftermath of each, the outcry from regulators, consumers, and politicians had similarities. And, after each, there was at least one company sacrificed as a permanent memorial to the myopia. First it was Lincoln Savings & Loan, then it was Arthur Anderson, and now it's Bear Stearns.
Each of these seismic business seizures was predictable both in hindsight and foresight. Residing in each generational failure was shaky business models, poor business and communications transparency, and paltry risk management protocols. At the same time, however, the tipping point that fueled market excitement and growth represented a genuine, organic opportunity, if managed and communicated honestly.
Perhaps Charles Prince, the former CEO of Citigroup, summarized it best when commenting on structured finance and other off-balance sheet vehicles, "When the music stops... things will get complicated. But as long as the music is playing, you've got to get up and dance." It is the "complicated" part that has kept many hiding underneath the corporate covers rather than seeking opportunities to be thought leaders.
While the legislative and executive branches of government and the Federal Reserve mull over solutions to our latest economic predicament, it is incumbent on those that seek to survive and thrive in tact to do the following:
Always have a steady eye on opportunity and the speed limit. Develop and communicate internal and external standards for embracing market opportunity and business growth with clear recognition of the appropriate risk.
Be clear that critical stakeholders are watching closely and expect more information on risk management. Clearly explain your top-line risk management protocols in terms that enable the investment community and regulators to form conclusions they can use to make in-formed decisions. If rating agencies are beginning to expect it, be sure stakeholders already do.
Create an 18-month plan and be publicly accountable for it. Establish incremental goals in managing and embracing risk, and share the plan with those willing to listen.
Like all economic crises, this will pass. And companies that decide where it intends to be a year from now will gain in the long run.
Harlan Loeb is a managing director at FD, the strategic communications unit of FTI Consulting, and is an adjunct professor of law at Northwestern Law School.