Uncertain economy: What's a CFO to do?

• Author: Heffes, Ellen M.
• Position: LEADERSHIP - Chief financial officer - Interview

Readers don't need to hear yet again how bad the environment is for business. Unfortunately many of their companies are facing the threat of failing within the near future.

Most firms--not eligible for government bailouts--will have to somehow muddle through, finding the path--and the strength--and then taking the right actions to ensure their firms survive and are prepared for managing the future.

To tip the odds in favor of our readers' success, we asked Ram Charan to share some techniques that he's gleaned from his extensive experience in coaching some of the world's most successful CEOs and their companies.

In the Q&A that follows, Charan talks about the crisis and the role of the chief financial officer and the boards in this uncertain climate.

Charan is a well-known consultant and author or co-author of several books. His most recent is aptly Leadership in the Era of Economic Uncertainty.

First, talk about the environment--the magnitude of the economic problems.

RC: The current environment is unprecedented, and everyone knows that. What is uncertain is how deep it is and how long it will take to improve.

At this point in time, the domino effect of unemployment continues, and there is an economic funk in companies in terms of what will happen to demand for their products and services. The more unemployment is announced every day, the more concern there is about consumer demand.

There are no signs that this domino effect of decline is being arrested. That's what chief financial officers and chief executive officers have to contend with.

In this environment, one of the major reasons why the banks are reluctant to lend is because they fear which industry, which company, which segment is going to be hurt so badly that its risk profile will go up. That is also constraining lending among other sectors.

Generally, how should firms be assessing where they are and then devising a strategy to stay alive--one that works for them?

RC: This is a period where realism in real time matters. This means that every company CFO and some of their colleagues need to go out of their office and visit people who are final consumers of their offerings--whether directly or through customers in the intermediate links of the value chain.

They need to see it and feel it, and they need to determine where the demand is and where the behavior is leading.

For example, if you're a major parts supplier to the automotive industry, it's not only about visiting the owners...