3 Principles On How To Solve Financial Crises
[LESSONS GARY CRITTENDEN LEARNED FROM 9/11 AND 2008]
Gary Crittenden is an executive director at Hunstman Gay Global Capital (HGGC), where he previously served as CEO and chairman. He was also a CFO for American Express and Citigroup, the latter of which he worked under during the Great Recession of 2007 to 2009.
During the 2021 CFO Summit, he shared three critical lessons he has learned about being a CFO during a financial crisis. We hope that these principles can even help you navigate the current financial crisis you may be facing.
LESSON 1: DON’T OVEREMPHASIZE THE DETAILS OF YOUR BUDGET
When Crittenden worked for American Express, he would often have meetings in the World Financial Center building, a tall skyscraper that overlooked the Hudson River. He happened to be in one of these meetings on the morning of September 11, 2001, where he sat no more than 100 yards from the Twin Towers.
Naturally, the catastrophic events which ensued had a devastating financial impact on many New York-based companies, including American Express. Despite this, American Express managed to produce eight straight years of terrific performance and growth as a company.
How did they achieve this? By limiting time spent on determining the details of a budget.
The reality is that most budgets become obsolete the day they are finished. Instead, companies should develop a budgeting and planning process that allows for flexibility and adaptability according to the financial landscape.
This is particularly important when businesses face financial crises. Just like in the aftermath of 9/11 and the current economic difficulties of the pandemic, flexible budget planning can make companies much more resilient and bounce back much faster.
LESSON 2: CONSIDER THE UNIT ECONOMICS OF WHAT YOU ADD TO YOUR BALANCE SHEET
Crittenden joined Citigroup at the beginning of 2007, months before the country plunged into the financial crisis of 2007 to 2009. While working there, he discovered many issues that Citigroup had with their financials, particularly that they were putting dollars and products on their balance sheet that created net income.
This may sound like a positive thing, but Citigroup failed to recognize the full cost of capital required to justify keeping those products on its balance sheet. The result? In the case of Citigroup, shareholder value was destroyed, the rapport between Citigroup and their customers was lost, and the CEO had to resign.
So, unless you consider the unit economics of what you’re adding to your business, you’re probably accounting for things that aren’t going to be helpful in the long run. And, as a result, you may end up investing in short-term gains that actually harm your bottom line.
LESSON 3: THE MOST IMPORTANT JOB OF A CFO IS LIQUIDITY
The most common reason companies fail is because they lack liquidity. So, while CFOs will help balance budgets and ensure revenue streams are well-established, their top priority is to make sure the company remains liquid.
Crittenden ran into this problem during his time at Citigroup. During the financial crisis, Citigroup attempted to acquire Wachovia, a financial services company based out of North Carolina. While the deal seemed to be going through, Wachovia made a last-minute decision to sell to Wells Fargo. Because Citigroup had invested so much into this acquisition that fell flat, they later had to be bailed out by the federal government.
BE BETTER PREPARED FOR YOUR FINANCIAL CRISES
Hopefully, you won’t have to learn these lessons first-hand and can rely on Crittenden’s extensive experience in the industry. By applying these three principles to your practice as a financial professional or CFO, you know how to navigate any financial crises facing your business.
If you’re reading this and do not currently have a CFO working with your business, we encourage you to learn about outsourced CFOs and how they can prepare your business for the future.