Back to Reality
Campa Fernández, José Manuel
As a result of the crisis, many companies have seen their ability to carry out strategic plans greatly reduced due to financial pressures. This article analyzes how the finance function went off track and overstepped its legitimate bounds, leaving many companies exposed and vulnerable. The author proposes three essential attitudes and principles that finance sector professionals must adopt, and the actions to go along with them, to get corporate finance back to where it always belonged -- supporting the company's core business activities through financing and sound financial advice.
For Love or Money
Almandoz Rios, John
All organizations have some form of institutional logic defining what is taken for granted and what is appropriate or legitimate behavior. Most banks, for example, tend to be driven by a financial logic focused on profit maximization, which has served shareholders well, but if taken to the extreme, can lead to damaging consequences, as evidenced by the crisis. Drawing on extensive research the author has conducted into community and green banking start-ups in the United States, Almandoz finds that the greater the proportion of founding directors with financial and banking experience, the more likely those founding teams are to pursue profit-maximizing goals rather than demonstrate a meaningful commitment to a community; they hesitate more in their commitment to start a bank, as well as abandon the team for self-interested reasons. As banks seek to redeem themselves in light of the reckless mismanagement that destabilized the entire global economy, the author draws out several lessons for creating a new community bank, which serve as useful reminders for any business seeking to reconcile its mission with the needs of customers, while also reconnecting with communities in vital and lasting ways.
A New Age of Accountability
In light of the financial crisis, shareholder activism is growing around the globe, leading to Say-on-Pay policies, which give shareholders the opportunity to voice their opinions on executive pay, and put pressure on boards to justify and explain pay packages more clearly to shareholders, if not redesign them completely. In several high-profile cases, large companies have failed to obtain approval of pay packages for their CEOs due to such activism. Given the trend toward implementing Say-on-Pay in the United States and several European countries, the author collaborated on research to determine the real effect of such policies on companies and their performance. The research shows that while Say-on-Pay may not curb excessive remuneration, it does provide a host of other measurable, positive benefits for companies and their shareholders, both in the immediate and longer terms. Apart from these benefits, she argues that Say-on-Pay can be an effective way for strengthening corporate governance and accountability within the firm, outweighing the time and costs they require.
Seeds of Change
Responsible investment is moving from being a niche in the asset management universe to increasingly becoming mainstream. In Europe, especially, it appears to be taking off. This article identifies some of the key drivers and the challenges that responsible investment poses to investors and managers as they try to take this novel field and embed it into their institutional practices. Looking to the future, the author highlights three areas that he believes will need close attention: new financial strategies to deal with problematic industries; the role of Chief Sustainability Officer will become increasingly strategic; and the transparency requirements being demanded for public companies will need to apply to private ones, too, otherwise the diffusion of these practices will only be partial and their impact greatly reduced. Though much remains to be done, the author believes this is an opportune moment for institutionalizing responsible investment and ushering in a new, more sustainable age of capitalism.
The CFO Role Just Got Bigger
Sagnier, Pablo; Baón, Luis
The upheaval in the world of corporate finance brought on by the global financial crisis is transforming the role of the CFO, who is assuming bigger responsibilities to deal with the changes taking place inside and outside of companies. Based on a series of panel discussions held with the heads of finance from large global corporations representing various industries, the authors identify the new profiles and functions that are emerging for the new breed of CFO. No longer confined to CAPEX decisions, CFOs are becoming highly sought after for their advice on areas not traditionally considered to be part of their job description, including investor relations and building confidence with employees and other stakeholders. Having enlarged their remit, CFOs are the ones whom others go to for answers and guidance on matters beyond financial concerns. This article lists the greater competencies needed for CFOs to meet the new demands being placed on them.
Drawing on extensive research on the rare crises faced by Novo Nordisk and the Roskilde Festival in Denmark, this article presents a framework for thinking about attention. It identifies several steps that companies can take to improve their attention quality. Attentional triangulation encompasses three dimensions: stability, vividness and coherence. Managerial decision-making to prevent rare crises lies at the intersection of these dimensions. By implementing a system of attentional triangulation, companies improve their capability to pick up on signals that impending crises give off before they happen.
Reputation & Communication
González Herrero, Alfonso
No industry or company is safe from crisis. Every company's reputation is potentially vulnerable to accidents, strikes, cyberattacks or data theft. How well a firm's reputation and balance sheet hold up in a crisis will depend on how well the firm communicates with stakeholders and with traditional and online media. The old-style approach to crisis management was reactive: Companies hoped that nothing would go wrong and that, if it did, management would have the competence and know-how to handle the situation. Experience shows, however, that good crisis management requires forecasting and planning. In this article, we look at key issues companies must address in order to safeguard their reputations.
Guide to Taking the Reins
Pin Arboledas, José R.
Let's not kid ourselves: crises happen, even with contingency plans in place. And it's in high-pressure situations like these when true leadership is tested. Citing numerous case studies, the author provides a guide to help managers lead their companies when the unthinkable happens. It starts with taking responsibility and assembling the ideal management team for the crisis at hand. This means communicating in a personal way, with transparency, consistency and a long-term vision, so as to prevent uncertainty from crippling the organization. Companies also need to learn from a crisis, in order to prepare for the next storm brewing on the horizon -- because, like it or not, other crises will inevitably arise.
Cleaning Up Your Act
Schwartz, Mark S.; Cragg, Wesley; Hoffman, W. Michael
Executives who ignore the ethical dimensions of crisis management expose themselves to serious risks that can lead to the collapse of their firms. The authors use the 2010 BP oil spill in the Gulf of Mexico as a cautionary example of what happens when a company fails to make decisions based on and directly connected to a set of core ethical values, such as trustworthiness, responsibility, caring, citizenship, respect and fairness. They outline how to construct an ethical corporate culture, which will make firms better equipped to deal with a crisis when it occurs, so that they emerge stronger and more respected as a result.
Learning to Walk Before You Can Run
Innovation is a discipline, a body of knowledge like any other. Unfortunately, our understanding and practice of innovation today is roughly where our understanding of the “quality” discipline was two or three decades ago. Consequently, we see a lot of executives stumbling in their initiatives. The good news is that, like all disciplines, innovation can be learned, practiced and mastered. As all innovation happens in a community, and the fundamental basis for the superior performance of any community is having a common language, then managers need to learn the lingua franca of innovation – its structures, principles and concepts, methodologies and processes, frameworks and tools. As such, the first step to create a community of innovators is to teach them the lingua franca of innovation. Only then will the community be able to practice and master the discipline of innovation.