The Hindu Business Line : Markets, dark and deep

HOW to mange in times of financial crises? Dangerous Markets, by Dominic Barton and his co-authors, provides the answers. Financial crises are simply too important and too costly to shareholders and societies to leave unmanaged, states the preface. "Too often, we see companies and entire sectors of an economy that are consistently destroying shareholder value year after year, sowing the seeds of a future crisis." How true! Also, "Too often, we find fundamentally weak banking systems, especially in emerging markets, playing a disproportionate role in the national economy compared to less volatile capital markets." Read on:

Conventional wisdom defines the direct costs of a crisis as the new costs that are being assumed, but this is not often the case. A more correct interpretation would be to think of the losses as `sunk' costs and the so-called direct costs as a transfer payment from taxpayers to depositors in a banking crisis. A political process of allocating pain between citizens.

Bubbles are relatively rare and happen most frequently in non-tradable goods, such as commercial and residential real estate, where supply grows slowly. They also happen in stock exchanges, generally due to exuberant feelings of optimism that are usually dissipated, as information about the sustainability of a price run-up is made available.

Financial crisis can be broken down into four phases that have different themes: Managing the initial liquidity crisis, returning to financial stability, restructuring the economy, and re-entering the global marketplace. Unfortunately, some countries do not make it through all of these four phases, become stuck in one of the early phases, and subsequently often go back into crisis.

Imcumbent management teams are impeded typically by a crucial problem: they are entangled and obstructed by their past decisions. Unless they develop amnesia, they will waste time and resources revisiting old decisions.

Understanding real cash flows has been elevated to an art form in many countries, requiring intense reviews of accounting appendices in annual reports to come close to having an informed point of view. You have to dig pretty deeply into annual reports to find that companies can generate negative cash flows, including dividend payments, for years.

Most of the public organisations that have crisis prevention as part of their perceived mission unfortunately cannot keep pace with the world's financial markets. Large bureaucracies have laudable objectives to promote financial stability or to rid the world of poverty, but they are not focused strictly on preventing financial crises.

A must read for CFOs.

(Books courtesy: Landmark, Chennai. www.landmarkonthenet.com)

A scientist's story

THE Brainfever Bird, by I. Allan Sealy, is "a tale of international intrigue and biological weapons, a literary thriller of incredible beauty, bursting with life, dreams and wonder". The contents are brief — White City, Red City and White City. And the prologue starts thus: "Youth is a country. I used to live there. The inhabitants are determined to emigrate, exiles long to return. But the borders are sealed... " More:

There's a dust haze over the city that hasn't moved for a week. In the morning the disc of the sun comes up khaki at six and in the evening at six it goes down the same khaki edged with fool's gold. Dust mantles every surface. A black dog will change colour if it falls asleep outdoors.

A man stands before a domed griddle tossing a roti from hand to hand so it thins to muslin; the final toss makes a handkerchief of it. It flies up and hangs in the air, spinning into fineness. The rumali hovers, a soul. Caught on the back of his forearm and flipped onto the griddle. "It's not really bread, it's a state of mind."

"What are you doing when you research germs for weapons?" "You are trying to maximise delivery." "You mean kill as many people as possible?" "And as few germs as possible." "So really you're some kind of super-orthodox Jain?" "Maybe. You don't want the germs to die in the warhead. You have to consider storage, application, spread, reception." "Reception?"

The shopkeeper has his eyes on a small screen on the counter. He is telling a customer what should be done with the new bomb. "Nuke them." He says: "The best weapon is surprise."

`Russia have science.' Signs. `You have science too.' A weapons programme, Lev thinks bitterly. `We have scientists,' Laiq corrects him. `This much scientists, this much science.' He marks off one big and one tiny measure along the edge of the table...

Reserve it for a holiday.

War doth teach

LIFE is a battle. So, fight it. But Brian Tracy says `think and act strategically'. His book `Victory!' revisits examples that span more than twenty centuries, and demonstrates how the same elements of strategy that have dictated the outcomes of history's most famous battles can be used to achieve triumphant success in life too. He gives all the dozen principles such as those of objective, offensive, mass, manoeuvre, intelligence, action, simplicity, and so on. A sampler:

Clear objectives, backed by detailed plans, vigorously executed with boldness and persistence, lead to success time and again. Unclear or fuzzy objectives, often accompanied by confusing or contradictory plans, lead to underachievement and defeat over and over.

In Robert Green's book "The 48 Laws of Power", he says, "When in doubt, act audaciously. Audacity will get you into trouble now and then, but even more audacity will usually get you out." All great success is achieved as the result of offensive action, doing something different, and usually faster and more forcefully than your competitor can react.

People have a natural tendency to fall in love with their own ideas, and with the ways of doing things to which they have become accustomed. Psychologists call this your `comfort zone'. To escape the lure of the comfort zone, you must stay open to new ways of achieving the same goal and be willing to try new approaches when the old ways of doing things don't seem to be working anymore. The rule is this: "Be clear about your goal or objective, but be flexible about how you achieve it."

Your goal should be to join the top 10 per cent in your field. You should do an analysis of your field and determine what the people in the top 10 per cent today are earning. You should then find out what it is they are doing to earn that kind of money. You can ask them directly and they will probably tell you. Do what they do until you get the same results they get.

You cannot become more productive by simply increasing the amount of work you do or the number of tasks you complete. The paradoxical fact is this: You will never get everything done. There is no way that you can complete all of your tasks. You must get this idea out of your mind. You can only be happier and more productive by simplifying your life.

The best managers in the best-managed companies practice tight financial discipline at all times. No matter how much they earn in profits, they watch every penny of expenditure.

A book that you can take to the battlefield.

(Books courtesy: Fountainhead, Chennai. E-mail: fhbooks@satyam.net.in)

Tailpiece

Cop: "Don't you know that you should mix drink and drive?"

Driver: "Yes, sir, that's why I had it mixed for me."

hindubusinessline@hotmail.com

D. Murali

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