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Lee Terry

The dos and don’ts of crisis management for CFOs

Twelve ways you can avert hitting the panic button.

April 16, 2012
by Lee Terry, JD

You are the CFO of a midsize widget manufacturer in Cleveland, having a quiet Friday, thinking about your golf game this weekend when your phone rings. It is a member of your board of directors. A special board meeting is scheduled for tomorrow to discuss the removal of the CEO and the vice president of sales because of a Department of Justice price fixing investigation and, separately, a former secretary’s sexual harassment complaint. She tells you to be prepared to discuss the impact of any board action on the financial statements and bank covenants.

What should you do?

  1. Don’t panic. This is not a time to think about resigning or reconsidering that Tibetan monk idea. You should move slowly and deliberately. Think of yourself as someone who went camping in the mountains, set up camp in the dark, and woke up to find that you had been sleeping on a precarious ledge. You need to take short steps and take those steps slowly.
  2. Do gather information. There is a tendency to think that the first news is the most accurate news and that the conclusions drawn from that news will not change. That is seldom the case. Things may get better or they may get worse, but they will not remain the same.
  3. Don’t be “that” guy. You know, the guy in the movies who gets slapped in the face by the heroine after he wails, “We’re all gonna die!” Be positive or at least businesslike, but don’t compound the problem by being a noisy pessimist or an annoying cynic.
  4. Do assemble a team. Too often CFOs or other crisis managers believe that only they are the only ones who can wrestle the problem to the ground. Isolationism and authoritarianism are bad governmental policies, and are terrible problem solving methodologies. Bring in others to help, including those who may share some blame. They can be the most highly motivated to set things right.
  5. Don’t point fingers. Divide and conquer is a strategy to defeat an organization, not to preserve or resurrect one. First impressions of blameworthiness often miss the mark, so it doesn’t help to alienate anyone who may be able to help.
  6. Do consult or retain experts. Most crises require lawyers and other specialized consultants to help solve the problem. Do not assume that your regular lawyer, insurance agent, or stockbroker has the experience or resources to deal with your crisis. Most likely they do not, but they may be in a position to help you identify someone who does.
  7. Don’t drown in the problem. Just because there is a crisis doesn’t mean that you should skip that Tuesday squash game or your mid-morning Starbucks break with the guys in marketing. Follow your routine even if the crisis seems to be consuming your workday. You will be a better crisis manager for it.
  8. Do think in terms of long-term and short-term solutions. Many crises are the result of systemic pressures that are not going to go away because they caused a smaller crisis that could have been managed. Recognize that there might be a bigger problem behind the scenes that is going to engender more crises down the road that may not be as easy for you to resolve.
  9. Don’t be a cowboy. Cowboys are the enigmatic personification of the American west — independent sorts who might kiss the pretty girl but then disappear forever, or maybe shoot the bad guy — or a good guy — just for the heck of it. So when you are in a crisis management meeting and everyone else disagrees with your suggestion or idea, don’t decide to implement it anyway on your own. If you do, you may find yourself in a new crisis pretty quickly, and you won’t have a six shooter or a horse to get you out of it.
  10. Do sleep on it. Whenever you are faced with a tough decision or a problem in the middle of a crisis, try to put off the decision until after you have had a good night’s sleep. While you sleep and dream, your brain takes the various bits of new data that you gathered that day and moves them around your mind, trying to find the places in your brain’s complex network of experiences, ideas, and solutions in which they fit best. You can think of it like disk defragmenter on your laptop except that the places your brain chooses actually help you solve problems. The net result is that you often wake up with a totally new solution to, or perspective on, the decision you might regret having made the previous day.
  11. Don’t insist on running the show or on not running it. Your personal attributes may be the best ones to manage a crisis — cool, calm, organized, thoughtful, deliberate, unemotional, insightful, intelligent, and interpersonal — or they might not. Your skills in finance and accounting might be the central aspects of the crisis, or they might be the stubby little tail on a very large dog. It may take a triumvirate of accounting, legal, and business expertise to solve the problem or it just may take a sharp lawyer. Be flexible and try to impartially evaluate how the crisis management team should be governed, and where you fit in that governance.
  12. Do stay realistic. It is not always possible to keep the company’s stock price up, stay out of court, avoid employee layoffs, preserve the management team, and maintain profitability. When a “bet the company” crisis first hits, you are standing in a pig sty with a bunch of unruly farm animals up to your kneecaps in something wet and brown. Just getting out without losing your shoes is a major accomplishment.
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Lee Terry, JD, is a partner at Denver-based Finance & Acquisitions Group, Davis Graham & Stubbs. He is a former SEC staffer who practices corporate and securities law. Don’t miss him at the upcoming AICPA National CFO Conference,
May 17-18, 2012 at The Roosevelt Hotel in New Orleans.