There are those who say that it takes a different kind of CEO to run a company in a recession or, if you will, in a turnaround mode. The same CEO who is good at hiring people, building plants, buying companies, and launching new products can’t suddenly shift and start firing, closing, selling, and downsizing.
I’m not sure that I agree, because one of the attributes of a truly effective CEO is his ability to cope with change. But heading a company in slow growth times certainly does require a different mind-set, and some CEOs won’t be able to make the transition or can’t bring themselves to do it fast enough or tough enough. I’ve been on that side of the street myself, and take it from me, the job is hard work and not much fun to manage in rough weather. But when the recession is over and you have come through, you are usually better for the experience.
For what it’s worth, here are seven principles that I’ve learned from observing hard times CEOs at work (and there are a lot of them around these days). You probably already know this litany, but reviewing the list again can’t hurt because the odds are that we still have a way to go before good times roll again for everyone.
1.Husband your cash. If you have a little cash around, you can do lots of things; if you don’t, and can’t get any, you are in deep trouble. John Whitney, one of our best teachers at Columbia Business School, teaches a course called “Turnarounds” and earned his nickname “Cash Flow Cowboy” not only because he is an Oklahoman, but because he constantly preaches, “Cash is king. Cash is everything.”
2.Hug your banker. Remember him? Now is the time to get your elusive relationship manager into the act. Teach him about your company, its needs, and its assets. Show him your long-range plan. Buy his lunch. If you are frozen out of your old bank, start lining up some new banking friends. Go see them; don’t wait for them to come to you.
3.Push the numbers. Your 1992 profit plan was put together in the fall of 1991-an eon ago. Things have changed all over the place. What are realistic numbers now for each of your profit centers? What is the worst-case scenario that you can see ahead? And remember, downtrends don’t suddenly turn up; they usually keep on going down.
4.Put in a customer protection plan. As CEO, take time to review your sales and marketing posture personally. Go see some of your critical customers. Read a few sales reports. Travel with a salesman. The worst words in the world to hear are, “We just lost the [fill-in-the-blank] account.”
5.Coddle your people. When salaries are frozen, the bonus outlook is zilch, and things look bleak, that is when you lose your winners to the body snatchers. Rethink your incentive programs; maybe you should give a few special valor awards. Redouble your personal recognition of the indispensables on your team.
6.Think positive. As the top golf pros will tell you, the time to make big gains against the field is during bad weather. Now is the time when you can improve market share, steal a customer, revise your distribution system, bargain with the union, and put in a new money-saving policy. If you can get your hands on some money, now may be the time to buy, to build, to acquire, to promote-because the majority of your cash-strapped competitors can’t.
7.Avoid catastrophe. These are delicate days. Don’t let that one careless step drag you agonizingly into trouble-the unanticipated bank covenant breach, the unnecessary walkout, the preventable litigation, the unwatched quality deterioration. Murphy’s Law has never been repealed.
All CEOs and all companies have a constant series of crises to face up to. The dynamics of today’s society create sudden changes that come from sources beyond a CEO’s control-international politics, legislation, technology, competition, and of course the sagging economy. A CEO must realize that change is inevitable, learn to cope with it, avoid catastrophe, and then return to his basic plan without undue flap.
8. Be firm. In a turnaround, it may be necessary to dispense with delegation of authority.
I suppose there a thousand other things you can and should do to drum up new business, to find new savings, and to become more efficient. Every company has a few rainy day projects that can be activated. Now is the time to take a look at all the ideas. Now is the time to get everyone in the company involved.
Call me Cassandra, if you will. You still pay your full dividend, your stock price is higher than you dared hope, and you personally know a politician or economist who says they have the magic answer or that we have turned the corner. I tend to doubt it, and polls show the man on the street does too. Times are tough all over. After losing seasons last year, 17 big-league baseball and football teams fired their managers.
Maybe you should take another look at that worst-case scenario.
Formerly the CEO of F.&M. Schaefer (1972- 1977), Robert W. Lear teaches at Columbia Business School, where he is Executive-inResidence. He is an independent general partner of Equitable Capital Partners and holds directorships with Cambrex Corporation Inc.; Crane Company; Scudder International and Scudder Institutional Funds; Korea Fund; Medusa Corporation; WICAT Systems Inc.; and Welsh, Carson, Anderson, Stow Venture Capital Co. His latest book is How to Turn Your MBA Into a CEO.