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How finance leaders can overcome a crisis

Personal experience as well as that of others can be the key for finance directors to survive a crisis such as BP's Deepwater Horizon, say experts and leading CFOs.

When a major crisis hits a company, even the most experienced leaders may not respond in the most effective way.

Given how executives need to be emotionally attuned to what’s happening across their organisation, a corporate disaster can soon feel like a personal one. The stresses faced can then lead to a failure of leadership, if the right mind set isn’t in place.

But tapping into previous experiences and understanding how to keep calm and lead in the eye of the storm can result in effective crisis management. Harnessing those collective experiences of a crisis can even help refocus an organisation for the future.

Meeting the challenge

When an explosion at a BP owned oil rig in the Gulf of Mexico killed 11 crew members in April 2010 it triggered at Deepwater Horizon one of the world’s great environmental disaster,s as huge amounts of oil poured out of the uncapped well.

For Brian Gilvary, the newly appointed deputy CFO of the British oil giant, the immediate aftermath of the disaster was an important baptism on route to taking the top finance job at one of the world’s biggest companies.

At the heart of the crisis, Gilvary says he was able to learn from finance chief Byron Grote that he was playing understudy to, in how to refinance the group in the weeks after the explosion.

Gilvary says Grote’s master plan that saved BP was to tap the knowledge of HSBC chairman Douglas Flint, who headed BP’s audit committee. Flint advised Grote that an all-out pursuit to bring in as much cash, as fast as possible, was essential. “We were in a liquidity crisis and Douglas had come through that from the banking crisis in 2008 and he knew some of the things that you had to do,” says Gilvary. “When you’re trading CDSs like Lehman just before it collapsed you can’t access the markets.”

Shunned by banks that previously would have previously tripped over themselves to lend to BP, the answer was a rapid-fire asset sale to raise cash to reach Flint’s recommended $10bn to ensure survival of the group.

David Horobin, Crisis Management Cluster Leader at the Geneva Centre for Security Policy (GCSP), says CFOs and other senior executives need to understand firstly what constitutes a crisis for an organisation. “They need to make this distinct from an emergency whereby your institution would normally have adequate plans, contingency and experience to manage effectively as the “tolerance” levels have not been surpassed,” says Horobin.

He says the word “crisis” is often used erroneously, a true crisis is unexpected, potentially an existential threat to an organisation i.e. if mismanaged then risks to destroy the organisation – think VW, Facebook, German Wings etc. and requires rapid decision making- usually in a short time period. He adds that decision making is needed against background of ambiguity, complexity and uncertainty- which makes it a challenge for leaders.

Preparation is everything

Horobin says undertaking a comprehensive and collective risk mapping of threats is very useful as an exercise in itself – the CFO may have a different  opinion of what could constitute a threat to an organisation from the COO or CEO- discussing this in a dynamic and structured way is a very useful process and ensures a collective view.

“Understand who will “push the button” when the signals are indicating crisis- often this is unclear and valuable time can be lost whilst managers wait for others to act. Think of it as breaking the glass fire alarm- who , when,” says Horobin. “Recognise that most crises in the corporate world are a result of internal mistakes/mismanagement rather than external events —again look at VW as what would be a classic example and there are many other,” he adds.

Patrick Roberts, director of consultancy Cambridge Risk Solutions, says management teams often suffer from cognitive bias that gives the impression that a positive outcome is more likely, especially as systems in place will be sufficient to manage a crisis. “We need people to be open to the idea that something bad will happen, they are then more likely to develop a mindset prepared for a crisis and a more resilient organisation as a result,” he adds.

At the height of a crisis, CFOs should understand their specific roles, – who is going to make decisions and how. “They will be working in an abnormal situation and may need to think out of the box as normative procedures may not be adequate,” says Horobin.

He advises learning from others. “Much has been learnt from case studies such as BP Deepwater Horizon, EpiPen and examples from the aviation industry in terms of crisis management- but do not assume that what you plan for may actually happen but by doing the planning, testing and exercises you will increase resilience and tolerance capacity,” adds Horobin.

The more a Crisis Team practices together and understands the strength and weaknesses of one and other and the existing systems the better they will manage the disruptive event. “This of course takes time and commitment but many leaders having gone through such an event agree that this is essential”, says Horobin.

Benefits of a crisis

Post-crisis, Roberts advises running analysis on what worked well, what didn’t work well and what should have been done differently. “It’s always good to reflect on the experience to understand how the organisation can improve,” he suggests.

Managing a crisis well and even if it is disruptive at the outset you can gain confidence from stakeholders and enhance your reputation and value, says Horobin. “Work done by University of Oxford (Knight and Petty) states that a well- managed crisis can enhance share value by 7% overtime whilst a badly managed event can reduced shareholder value by 15%,” he says.

For an individual a crisis can have a transformational effect. BAE Systems CFO’s Peter Lynas’s career  took a big leap forward when he was made assistant finance director of GEC Marconi and within a week was taking on the project that he says was the making of his career.

As a key finance person on the in-flight entertainments system being developed for Boeing’s 777,  Lynas was for two years part of a team seeking ways to exit GEC’s largest loss-making programme. “We were being sued in various courts for breach of contract in America, not the most pleasant thing to have ever done. But by putting myself in harm’s way, it got me a lot of visibility,” he says.

The seriousness of the issue mean that it drew the attention of GEC board directors that Lynas was soon in regular contact with. “Putting myself in harm’s way, in a project that was really bad, got me a lot of visibility. It became a career opportunity,” he says.

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