Crisis means Danger with Opportunity

Crisis means Danger with Opportunity - 25th February 2009

The mood at the 2009 World Economic Forum at Davos, Switzerland appeared to be one of shock. A major concern was about the possibility of social unrest throughout the world as the credit crunch slowed commercial trade.

The Davos participants and speakers however, seemed to agree that the current international financial architecture crafted at Bretton Wood in the midst of the Second World War was now out-dated and could not function effectively in supporting the realities of a global economy.

The Bretton Wood framework had evolved into a system of currency relations at the beginning of the 21st century where, the huge current account deficits of the United States became the source of export-led growth for other countries especially in the Asia-Pacific.

Chinese Premier Wen Jiabao expressing the Chinese perception of crises being a moment of opportunity arising from a dangerous situation remarked, "A fall in the pit is a gain in your wit."

India even now is loaded with opportunity for international investors. Even with a global economic slowdown, the demand for consumer goods in a population of over a billion people would remain significant.

What sort of companies will be able to seize opportunities in such uncertain economic conditions? The debacle of so many U. S. financial institutions appear to suggest that good corporate governance practices failed to improve management of global business risk.

But appearances can be deceiving. Independent directors are meant to be on board as guardians of risk. However, the reality is too often, too little time allocated in evaluating business risks. The boards of directors of most of the damaged financial institutions looked impressive, but independent directors at these institutions failed to anticipate the accumulating risks that wounded their companies.

The lesson here is, the companies best able to exploit the opportunities arising will be those with a strong board of directors that allow independent directors to devote sufficient time to go thoroughly into understanding and evaluating a company's operations and hidden risks.

Now is the time for companies to strengthen corporate governance. The mechanism of pay, incentive and bonuses for managers, executives and key personnel need to be structured to transform them into advocates carrying out the company mission. The operating system should be re-engineered through embedding of corporate ethics that weed out self-serving private opportunists from the team of leaders, managers and staff.

The time honoured culture of "my word is my bond," in a commercial world founded on trust appears to have changed into a world where the prevailing view is one of "if there's a market and it's legal, I will trade with no questions asked". Companies that practice social responsibility will find the commercial trust created turning into financial profit. Quality at a reasonable price is what the market demands. Trust me on this.

The financial world must reconnect with the needs and wants of real clients, customers, and employees on the ground so they can hear the sub-prime rumblings of discontent from the human beings making up the community in which real business and wealth creation takes place.

It is free markets and not value-free markets that create a system of sustainable wealth generation. So companies that are socially responsive to real consumers and clients will find a ready and will buyer for quality products. This is the golden opportunity for establishing market trust in you.

Siddha Param
International Business Consultant
E-mail:siddhaparam@worldwidebusinessconnection.com

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