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To give a sense of the ground that Dangerous Markets covers, the authors' provided their viewpoints on some important topics:
 | | Why financial crises need to be managed proactively Answer |
| | | | Why financial crises happen Answer |
| | | | How to manage in a financial crisis Answer |
| | | | What the private sector must do Answer |
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| | | Why financial crises need to be managed proactively | | The monetary, social, and political consequences of financial crises can be devastating, with economic costs alone measured by as much as one-quarter or one-half of a nation's GDP. They also have long time horizons, affecting countries and companies for years in many cases.
"Yet," the authors write, "too many companies and too many countries fail to manage their crises proactively: unfortunately for shareholders and taxpayers, they react day to day and usually lack a viable plan to navigate their way out of the financial storm that has engulfed them. Crises are often seen as random, catastrophic events, yet every client with whom we have worked regrets not having been prepared adequately. Crises are not going away."
From the authors' global perspective, they see at least two major benefits to managing a crisis proactively. First, there are real financial savings in minimizing the crisis-resolution costs imposed on shareholders and taxpayers. Second, there are genuine competitive benefits as well, if executives can act swiftly when a crisis hits to seize new opportunities and secure a winning position as economic growth returns in the post-crisis world.
Therefore, both companies and nations have a huge economic self-interest in getting crisis management right. While some elements may seem out of control, others are manageable with the proper planning and resources. | | | | | | Why financial crises happen | | Barton, Newell, and Wilson believe that in the future financial crises will be more frequent, more costly, and longer lasting for two basic reasons.
First, with increased globalization of capital markets there is the increased risk of contagion, aided by the breakdown of boundaries between national financial markets and the growing linkage of the world's financial markets. Second, the long-overdue market liberalization of many economies is often naively designed and then poorly managed, which in turn throws countries into a global, competitive market for which they are unprepared.
The authors believe firmly in the net benefits of dynamic market forces and globalization, but the collision of these forces with weak economies and weak financial systems exposes the rot lying beneath the surface of many countries, and will only increase the rate and intensity of crises in the future.
Too often, the authors see companies and entire sectors of an economy that are destroying shareholder value year after year – companies unable to earn their cost of capital – and sowing the initial seeds of a crisis.
Too often, banking systems are fundamentally weak, especially in emerging markets where the banks play a disproportionate role in the national economy compared to less volatile capital markets. These weak national systems are linked inefficiently to global capital markets, increasing the cost of capital locally to all borrowers – individual consumers, businesses, and governments alike.
And too often, the authors see weak corporate governance or inadequate financial accounting and transparency. Invariably, weak financial regulators lack both the needed skills and political independence to do their jobs adequately. | | | | | | How to manage in a financial crisis | | Dangerous Markets is designed to help senior executives manage in a national financial crisis while preparing to compete in a global marketplace. Initially, both companies and countries tend to be paralyzed by a financial crisis. Then, CEOs and public policymakers are overwhelmed, with too much to accomplish.
Drawing on more than 30 examples of successful companies in both the developed and emerging markets (e.g., the United States, Switzerland, France, Russia, Turkey, Korea, the Philippines, and Indonesia), the authors provide a roadmap:
In the early days of a crisis, companies need to understand and manage their cash position, minimize operational risk, conduct scenario planning, prepare to divest unproductive assets, and maintain the confidence of key stakeholders.
Next, corporations need to reinvent themselves in the face of changes in regulatory regimes, competitor strengths, customer needs, and social values. A new corporate strategy typically is required, one that builds on a new portfolio of initiatives and options.
Finally, executives need to build specific skills and drive corporate governance practices to world-class standards.
| | | | | | What the private sector must do | | Barton, Newell, and Wilson argue that financial crises present the private sector with a unique opportunity – based on its own financial self-interest – to reset the basic standards and safeguards that should prevent or reduce the impact of future crises on their shareholders, customers, and employees.
Standards and safeguards can be strengthened along three distinct but related levels – corporate self-governance, market supervision, and government regulation – that the authors believe are essential to protect economies from crises. It is the private sector, however, that the authors contend must take the lead to create a new, market-driven financial architecture, with global standards and safeguards that are broad in scope and ambition.
The authors call on the private sector to create a financial market self-governance organization. On a global scale, such an organization would go a long way toward setting and monitoring these standards and becoming a central database for information, education, and skill transfer.
Furthermore, the authors make proposals that must be debated by private sector leaders: universal standards to determine when banks fail to afford more protection to depositors and taxpayers; moves to strengthen local capital markets and lower the cost of capital to all users; corporate governance, transparency, and accounting standards that would be enforced globally; universal agreement on the skills and experience CFOs and their risk management teams must have; and private insurance for loan portfolios to take the pressure off underfunded and poorly designed national deposit insurance schemes. | | | | |
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