Eurozone Says No to Fresh Stimulus

European Ministers reject U.S. calls for budget injection as "not to our liking."

Eurozone finance ministers yesterday rejected calls for increased economic stimulus measures, despite a worsening outlook for the EU economy. They also rejected any easing of the requirements for joining the Eurozone.

Speaking after a meeting of the Eurogroup, which brings together the finance ministers of the 16 Eurozone countries, Jean-Claude Juncker, the prime minister and finance minister of Luxembourg, said: "We don't feel we need to pile deficit on top of deficit and add further to our debt."

Juncker, who chairs the Eurogroup meetings, added: "We would not want to give the impression we are considering putting together other recovery packages."

His remarks followed comments from Larry Summers, director of the U.S. National Economic Council, in an interview with the Financial Times, that governments should pump more public money into their economies to fight the recession. "Recent American appeals" for a European budgetary effort are "not to our liking," Juncker said.

Juncker said ministers had rejected any relaxation of the criteria for joining the euro, including the length of time that countries have to spend in the European Exchange Rate Mechanism II. "There is no question of changing the criteria," Juncker said. "The credibility of monetary union is at stake," he added.

Both Juncker and Joaquín Almunia, the European commissioner for economic and monetary affairs, said that assessments of Europe's economic outlook are now worse than they were earlier this year. Juncker said that the recession is "certainly deeper than what we saw at the beginning of the 1990s." Almunia said that "the recovery will take longer than we were expecting a few months ago," and that he now expects a "gradual recovery" to start in 2010.

What will you do to Save Your Job?

Man the Lifeboats !

Executives at the helm of your financial services companies are reeling from the subprime mortgage losses and to appear empathetic, they are opting to relinquish their multimillion dollar bonuses (for this year only) to save their jobs or their public image.

I can foresee the day when CEOs will be down to 1 0r 2 cases of Dom Perignon a week. Quelle dommage! Man the reflective glass barricades on the ground level, the stockholder wolves are at the door!

John Mack, the CEO of Morgan Stanley, announced during his company's fourth quarter earnings conference call on December 19 2007 that he would give up his bonus, that year. Unfortunately, even this strategy of trimming some of his own fat and lightening the executive load, as the ship sinks past the first fathom and goes deeper, doesn't always work.

Bear Stearns the investment bankers - Their CEO James Cayne, along with his CFO, Sam Molinaro, announced that the entire executive committee would not be getting their bonuses, this year. Unfortunately, this 'too little too late' gesture did not have the desired effect. It did not placate the shareholders, as they had hoped.

Bear Stearns announced on Tuesday that Cayne had resigned from his post as CEO of the investment house. To soften the blow, Cayne will remain in his humble position as chairman. In 2006, Cayne earned a cash bonus of $17 Million. Where did all this money come from? Your investments, of course. It makes you wonder why the annual bonus on your investment was restricted to a few hundred dollars. Well, an important man has overheads, he has to drink and eat, regularly! Oh no, wait, that's all on 'expenses'. I wonder what his expense account looked like that year?

Giving up their bonuses is not a job-saving strategy, it is a "face saving" strategy. An executive 'garage' sale, except what they are giving up is not theirs in the first place. It belongs to the shareholders and investors. An empty gesture when so many employees and investors are getting a raw deal; substantial financial losses, no bonuses and faced with being laid off. The executives are simply doing something politically correct by not walking off with five million to 17 million dollars, depending on who you are.

There is a big difference in the multi-million dollar bonuses that executives slice off for themselves and the few dollars being offered to placate investors, employees and shareholders. Investors and employees normally require 'bonuses' to earn a living wage. A far cry from the executive feeding trough, with its frenzy of snouts and diverse income streams. Don't be concerned. Most senior executives can live very happily on their 'expense' accounts, which can include the rent, energy bills and maintenance of a fine downtown apartment, close to the office and some petty cash to pay for the taxis, parking and maid service.

If they can struggle through to retirement, then they have a nice half million dollar pension per year to see them through and a large comfortable preferential stockholding to sit on.

The irony is, these executives may not have been elligible for bonuses this year anyway, given that their companies displayed such poor performance. That was certainly the case at Bear Stearns and many others. Like the sub-prime mortgage bonds and options themselves, its all just another illusion from the masters of hype, rhetoric and corporate magic; fireworks, smoke and mirrors to entertain the masses, and to distract them from the truth.

It would appear that we have learned nothing about leadership from the sinking of the Titanic and the lifeboats are still for executive use only.

Indian outsourcing fears being burned

Indian outsourcing firms are turning down business out of fear of their customer companies going bankrupt and leaving them holding a bad debt.

As a result of the current economy and the rush to reduce costs, there is an upturn in companies sending work offshore to places like India. So you would think Indian offshore companies would be happy about the potential new business opportunities and be very aggressive about going after them. Unfortunately, that is not the case and the Indian companies are very aware of the fragility of the world economy. They do not wish to be the one's left holding the cheque.

Only a few Indian offshore companies are chasing these new deals because of this, according to Partha Iyengar, vice president and regional research director at Gartner India. In a Reuters story published March 3, Iyengar went on to say that "Indian firms need to focus on revamping their sales models to help generate cost savings and add value to the client's operations," but not everyone agrees with this reason for not chasing potential new business.

In a follow-up comment to the story, one Indian commentator brought up the concern that clients could go bankrupt by the time payment is expected, a very plausible and valid point. Although offshore outsourcing does provide some cost savings to client businesses, it doesn't guarantee they'll come out of the recession in one piece.

The Indians have proved themselves to be excellent and well respected business people over the centuries. Therefore, it seems like a sensible and justifiably cautious approach by the Indian outsourcing companies that they do put themselves in a vulnerable position that may get them dragged down with someone else's sinking ship.

Calculating the odds of being paid off - First step

"Will I still have a job tomorrow? and in the tomorrows after that"

With the world economy claiming to be in a far-reaching recession and companies announcing layoffs seemingly every day, the question of continuing employment looms large in every thinking person's mind.

Clearly, some employees feel that they are at greater risk of losing their jobs than others. What's not so clear is how to calculate that risk. So how do you become your own Risk Manager and carry out a risk assessment on yourself. Consider how you can devise a good method that would help, not only yourself but also other IT professionals, get a relatively objective handle on the odds of getting laid off.

You may be wondering why anyone would want to determine the likelihood of their losing a job. You may also believe that a 'layoff' risk assessment method could be a very helpful tool. Depending on your circumstances, outlook and character, many people worry unnecessarily about getting laid off and others who do get laid off, are often taken completely by surprise.

A risk assessment for layoffs could help IT professionals determine whether they are in the red zone (high) or the green zone (low) risk category, when job losses come around. Low-risk professionals will then be able to rest easy and carry on with their work and the high-risk employees can be proactively defend and entrench their positions, whilst actively preparing themselves emotionally, professionally and financially, for the moment when their jobs get cut.

As a first step, let us propose a list of possible variables that could indicate someone is likely to get laid off. Let us also propose another list of variables that could indicate someone is unlikely to get laid off.

Our goal is to develop an accurate and plausible assessment, one that will really help people get a grip on their futures. Coming up with such an assessment, can be difficult, for a whole variety of reasons. One of these reasons would be an incomplete or inappropriate list of variables.

If you examine the lists below and identify which of the variables are appropriate to your circumstances and discard those that are not. You can also weigh a certain number of the retained variables more heavily than others, because of their importance or criticality.

Examine also how the assessment is structured. Structuring it as a questionnaire would allow people to assign points for each negative variable (e.g. each strike against them) and subtract points for each positive variable. The conclusion would be easily calculated and greatly simplified. People with high scores are more likely to be laid off than people will lower scores.

Remember that the goal of this assessment is to help and support people, not to frighten them.

Variables that Could Indicate Someone Is Likely to Get Laid Off

1. Your employer is not meeting its financial plan. (he's broke!)
2. Your salary is at the high-end of the pay scale for your profession or function. (so much for ambition!)
3. A position or function you help support has been eliminated or restructured. (the horse died!)
4. You work on a project that has been cut or that you sense is going to be cut. (Zepellin restoration)
5. You gossip or complain a lot. (no wonder. Look at the previous options on this list)
6. The work you do is mundane or repetitive in nature (e.g. re-setting passwords or setting up routers) and could be outsourced to a third party. (or monkey with learning difficulties)
7. Your work is not customer-focused. (but I work in Security)
8. The function you work in is well/over-staffed (full of "fat" cats that need a trim)
9. You don't "fit in" with the 'culture' of your department. (You are sober)
10. Your company could find someone to replace you at a lower cost with relative ease (e.g. going to the bus stop line, rather than hiring a head hunter)

Variables That Could Indicate Someone Is Unlikely to Get Laid Off

1. You've demonstrated your ability to adapt to new strategies. (Flexible as Yoga)
2. You have good relationships with different people throughout your company. (married to the boss?)
3. Your position is cross-matrixed to different leaders. (you are a bigomist)
4. You have a good rapport with your boss, and your boss is regarded highly by senior management. (you still own the negatives from the office party)
5. You work on multiple projects that are critical to dealing with existing business conditions. (your wife sleeps around)
6. Your skills are up to date, in demand and align with the IT organization's current and future needs. (you have killed all the competition in the office)
7. Your company would have difficulty finding someone to fill your shoes. (you are overweight)

The Survivors' Guilt

“But at least you still have a job.”

Yes, those who survive the all-too frequent layoffs are very grateful for their work, but studies show that the stress from all the upheaval can wreak havoc on their health, morale and productivity. And don’t expect them to work harder out of sheer gratitude

Working with the survivors is challenging. These people have lost good friends, vast quantities of institutional knowledge, pay raises, benefits. Plus, they are being asked to take on other people’s work and add it to their own heavy load. The company is expecting them to be upbeat about it.

There’s that low-level anxiety, vulnerability to colds and flu, aches and pains, sleeping difficulties. When you’re anxious, waiting for that next shoe to drop, your body stays in a kind of fight-or-flight mode. Your body is overproducing adrenaline and cortisol. The hormones you need to sustain yourself during a crisis and the substances your body is producing are very toxic.

There can be guilt that they were spared. This can manifest itself as, anger and depression. Clearly, there’s a huge increase in insecurity and that uncertainty is very destabilizing.

As part of a 10-year study of downsizing at a major U.S. manufacturer, looking at depression in workers, in surveys two years apart in the ‘90s.

Depression scores dropped by more than half in those who took a voluntary buyout. There was little change in those who left involuntarily, but, interestingly, depression scores rose slightly among the workers who stayed on.

From the company’s data on sick leave, it was found that managers and other higher-skilled workers took more sick leave, possibly to look for other jobs. Less-skilled workers, meanwhile, took less sick leave and absenteeism at the company declined as workers hunkered down, trying to hang on to their jobs. Remembering that this was in a job market much more favorable than that of today.

This points to research that layoffs often don’t improve companies’ financial performance – essentially the reason they are done in the first place – and to a 2003 study by the Institute of Behavioral Science that found that people who had seen co-workers laid off reported poorer mental and physical health than workers who had not been exposed to layoffs at all.

The whole metaphor breaks down. We’re a family. We take care of each other and you don’t divorce your children.

Reporting even worse health and attitudes were layoff survivors who were shifted to different positions or departments within the company.

One of the inherent dangers for companies is that handling layoffs badly can taint the perceptions of those who are left. They’re the ones the company is relying on to move the company forward, yet that depends on the respect that remains for those who have led the downsizing.

A lot was going on with the companies studied, including a merger, an increase in outsourcing and a move away from its “we’re a family” culture towards a shareholder-driven, profits first company. Workers took that as a betrayal, with comments that they were being treated as a number or an expendable commodity.

It’s hard enough for workers to concentrate when rumors are swirling at the water cooler and online and these can quickly turn toxic in the absence of reliable and reassuring information from the company but to see coworkers escorted from the building like criminals only severely hurts morale.

Though plenty of articles say productivity goes down for layoff survivors but it’s not that simple. It depends on how productivity is measured and the economic climate in which it occurs, e.g. any form of restructuring and change will take some getting used to.

Workers need time to grieve after a layoff, just as they would a death in the family and workers who have to take up the slack might require more support and training, which suggests there will certainly be a period of inefficiency until everyone is up to speed on the new tasks.

A recent US survey report bears a real sting. It’s based on surveys of 4,172 workers who survived corporate layoffs. In the study:

• 75 percent said their productivity has decreased.
• 64 percent said it's true of coworkers.
• 69 percent said the quality of the company’s products or services has declined.
• 81 percent said customer service has been hurt.
• And 61 percent believed the layoffs have hurt their company’s future prospects.

The bright spot in the survey, however, echoed the advice of many experts: You can lessen the blow by being as open and forthright with employees as possible. Workers who rated their managers as visible, approachable and candid, even when there was nothing new to report, were much less likely to report these declines. You really can’t over-communicate during these events.

Let your surviving workers know that they are here because they are the right people for the job. Let them that you believe in them and together they can work to get the company through these very challenging times. You’ve got to show them your respect, trust and appreciation. Help them prioritize their work. Let them know why they are there and let them know how they can help and how you are going to support them.

This is not the time to sit quietly in your executive office and neglect your people. They need leadership and they need it now. You have to be out there amongst them, letting them know what’s going on and have them feel that you’re fighting for them.

Reduced Security

An urgent demand for talent in several areas is eclipsing broad, knee-jerk reactions to greatly reduce budgets and cut staffing levels, projects and fixed asset purchases, without thinking carefully about the consequences and future requirements.

Undeniably employers made mistakes in past downturns, huge miscalculations founded in the white hot heat of cost-cutting that wounded them badly later on. It limited their ability to respond quickly and when the smoke cleared and the rebuilding started, they were left floundering.

It just shows how little IT management has learned since last time. Managers have not learned the lesson that it's not just about cutting spending, it's about managing the risks and being smart within their spending limitations. Know your boundaries and work within them.

One of the worst instancies if this in the IT security field. Current economic conditions are having a negative impact on the majority of security budgets. Many companies have initiated a hiring freeze or staff reduction exercise, necessary measures due to the financial crisis.

Security-decision makers in over 100 companies have been asked about their spending plans for the coming year and to gauge the impact current economic conditions are having on budgets. Of 159 respondents, 64 percent indicted that the economy was having a negative impact on security spending. Another 19 percent said the economy currently had no impact. Just 6 percent said the crisis was having a positive impact on their organization's security budget.

Security budgets will decrease for 35 percent of respondents and remain the same for 42 percent. Just 23 percent thought spending would increase in the coming year. Those numbers are a switch from last year, when more companies expected to increase security spending. In 2008, 38 percent of companies planned to increase their security budget and just 24 percent expected to see a decrease in spending.

One firm is actually in the minority and plans to spend more on security in the coming 12 months. "We are increasing from previous years. I would have to say the increase is around regulatory issues as well as general responsible security program expansion."

Security spending is often driven by compliance and policy decisions. This falls in line with what other companies also said, with a majority indicating that policy and compliance are the main justifications for security spending.

Security decision-makers were asked if they planned to increase or decrease spending in the following areas: Business Continuity/disaster recovery, data loss prevention, identity management, compliance and regulations, outsourced security systems, physical security, policy and risk management, and staff.

In all but one category, more than half of respondents expected spending to remain at similar levels.

However, when it comes to spending on staff, 41 percent expect to see a decrease in spending. Close to 60 percent have either implemented, or plan to implement, a hiring freeze.

Additionally, 35 percent of companies asked, indicated they have had to go beyond a hiring freeze and have actually reduced security staff, or plan to reduce headcount in the next 6 months. It will be interesting how this affects security in the coming months and whether we will see more outsourcing of protective measures. A dangerous path to walk and one that can only increase the threat to organisations.

Let's hope we soon see an end to these 'interesting times'

The race is on!

'When faced with the imminent danger of being attacked by a tiger, your aim is not to out run the tiger. Your aim is to out run your colleagues.' - Ken Budd

Keep the Recruitment Consultant on your side

Job seekers need recruiters more than ever. But in their efforts to nurture their networks and stay at the forefront of recruiters' minds, some job seekers are frustrating the very people they need to help them land a new job.

Executive recruiters tell me that job seekers are inundating them with calls and e-mails to inquire about the job market and seek advice on how to land a job in a recession.

The recruiters tell me that they want to help everyone who's contacting them, but they don't have time. The economy has made their jobs much harder. Drumming up business, hunting for candidates and convincing them to take a new job requires much more time and effort in a recession. As one recruiter put it: "Spending 30 minutes with somebody to give them career counsel is not always going to be feasible. If we accepted every request we got, it would kill our day."

What the recruiters are telling me—though not in so many words—is that some job seekers are really pissing them off. In their efforts to get time with headhunters, over-aggressive job seekers are actually alienating themselves from the very people they need to help them find jobs.

If you're looking for a job and you want to stay on good terms with recruiters, heed the following advice they shared with me:

1. Be respectful of recruiters' time.
Realize headhunters can't devote a half hour of their day to answering your questions about the job market and your résumé. Ask them for five minutes, and don't exceed that five minutes. Have a specific question for them, and if possible, have something you can give back, whether it's a contact or information about the market or one of the recruiter's clients.

2. Don't send bland e-mails.
E-mails that simply say 'Hi. How are you? Do you have any new positions?' don't endear recruiters to job seekers. Cut-and-paste e-mails rub recruiters the wrong way because they're not personal. Recruiters are relationship people. Recruiters say job seekers may have a better chance of building a relationship with them if the job seeker catches the recruiter on the phone. Phone calls are inherently more personal than e-mails.

3. Don't call the recruiter at the same time every week.
Calling a particular recruiter at the same time every week makes them feel like a cog in your call cycle. And routine calls aren't very personal. Rather than calling them every week, stick to every couple of weeks, and vary the days and times you call.

4. Don't send recruiters your résumé every time you update it.
Recruiters say they are generally happy to give job seekers advice on their résumés. Just don't send your résumé to them every time you update it, expecting feedback. They don't have time to give you feedback on every version, and they don't want to see every iteration.

Getting on top - Dominate your Credit Risk

Until recently, when debt became more expensive and harder to come by, companies generally had a blasé attitude toward managing their trade-credit risk. Most corporations, big and small, don't have credit risk procedures any more sophisticated than the sub prime lenders did. In which case you are flying in dangerous territory with your defenses down.

A simple tip but one that's been largely ignored until recently: Be more wary before extending credit to new customers. Make them prove their creditworthiness. Currently, companies take more a of shy unassuming approach to trade credit by quickly granting it to every new client that comes across their threshold. Once aboard they hope for the best and follow the client's payment performance over time.

Companies too often get into the habit of not asking for any financial information from their customers in favor of speeding up a much coveted deal. Suppliers have been doling out credit based on what little information may be available on their privately held clients, despite the fact that private firms have a higher rate of bad debt. Even after a credit account has been granted, the supplying company may shy away from asking for financial data because they don't want to offend a brand-new client. Clearly the banks have a part to play in all this because they too have been willing to extend credit lines far beyond reasonable doubt.

Companies should ask for customer and bank references up front. Although, that information may be biased and unreliable because of the struggling financial institutions. Will the bank and lenders be there in the long term for their customer? Are they going to provide financing or will they make a quick exit and leave the company with a liquidity shortfall, which may or may not cause the demise of the company? Are the financial institutes responsible for the ongoing viability of their clients, i.e. the corporate companies. What support and backup can they provide a struggling company when they themselves are in difficulty. These and many more, are all questions vendors need to ask themselves when looking over a customer's bank information.

Companies should request that all customers, new and old to fill out a one-page credit profile every year. The sheet should include the company's cash position and the most up-to-date contact information. A type of credit probe which may or may not provide the correct level of information in the right format, in a timely manner. This will lead to more overhead in the accountancy dept or with the business analysts, but if addressed properly, it may provide early warning of difficulties.

If there is any good news to be had during this economic downturn, it's that everyone is in the same boat. Your customers are asking their customers for more financial information. It's now become perfectly acceptable to ask about a client's financial status because everyone is being scrutinized by every supplier. Its a big global circle of accountants, checking each others assets.

If it's impractical to demand financial information up-front, then come up with a triggering number for when your company will demand it. A simple threshold or framework will suffice. If clients cross the established and agreed amount, then they must provide their trade creditors with financial statements to validate their credit. The type and level of the threshold can vary depending on client, industry, item value, uniqueness, development costs, credit exposure, etc. Its not a numerical value, its a way of thinking about and controlling your risk exposure.

Another way to improve your credit /risk management is to conduct a detailed assessment and calculate each customer's probability of default. With such precise knowledge you can price your services accordingly, and by showing your client the calculations, you can easily justify a premium rate. Cash has always been king and currently it is even more critical to companies health and financial welfare, but many companies have no idea who they're selling to, never mind who owns the company or their cash position. Its never been more critical to know your customer.

Moreover, suppliers can no longer rely on traditionally held views that big-name companies are safe from sudden and dire financial problems even if they don't have strong cash flow. Many of these companies have lived on extended credit lines for years and are not asset rich. Other companies can have negative cash flow and positive net worth. They're sitting on land or occupy buildings that no one's willing to buy. If their credit is pulled and they end up going bankrupt, the asset value won't cover the debts.

Experts also suggest sales and credit departments improve their communications between salespeople and the collections side. Your salespeople are trying to maintain the vendor /customer relationship at the same time as maximising their commission payments. This is a tightrope, and is a very dangerous situation for the company to ignore. It must be very, very tightly controlled. Don't allow salespeople to grant extended payment terms, without justification and authorisation, before checking in with their credit counterparts. Companies should use these negotiations to get more financial information out of their privately held clients and reprice future services if possible.

Moreover, salespeople may be able to offer the credit department more insight into a customer's financial situation. Therefore it is imperative that they have the influence, motivation and the time to actually get involved in credit and collections questions. Its a team effort and everyone better be on the team or the game is over.

Slash your credit exposure

The current credit slump and downturn gives companies an excellent excuse for demanding that customers share more financial information with them. This is not for the direct benefit of the customer but to keep on top of the clients' ability to pay and stay viable. You don't want the stream to dry up.

The distinction between dependable and unreliable customers has never been distinct and now it is even less so.

Corporate clients that are paying you on time may in fact be financially unstable and maintaining a good public image, could be delaying payments to other trade creditors. Should you be concerned?

At the same time, some customers may be withholding their payments, not because they're in dire straits, but because their banks is shortening their normal credit lines. More worrying is, if they are not willing to lend to them at all, in the near future.

Indeed, some companies want their suppliers to practically fill in as bankers, by extending payment terms and giving their working capital some room. Ifcustomers are asking their vendors to provide cash flow for them, then this is a very uneasy situation. If you have somebody who was once paying you every 30 days and is now paying you every 60 days, your own credit exposure is going to double. You have to evaluate if you want to take that kind of risk, at this time, with this customer.

It's never been an easy task especially now. Companies need to get a better handle on their corporate customers' ability to pay. Nearly one-quarter of publicly traded businesses worldwide are at risk of defaulting on their debt, according to some recent indexes of "troubled" public companies, whose default probability exceeds 1 percent. During the past 17 months, their risk-management firm's monthly barometer of 21,000 public companies in 30 countries has been creeping closer to the September 2001 all-time high of 28 percent.

What's less-known is how many private companies are at risk of defaulting on their promises to creditors. They tend to keep their vendors in the dark about even basic financial information. Their suppliers are sometimes stuck, relying on only basic bank information.

Of course, the rising number of hurting companies isn't news to accounts-receivables departments that have been well aware of their corporate clients' slipping ability to pay for several months. But there have been some surprises: Now, even customers once considered to be "excellent payers" are taking an extra month or more to pay their bills but then maybe their just taking advantage of your loose credit checks, risk profiling and accounting practices.

In fact, the trade group's latest monthly barometer of its members hit a record low of 40.1 in December. The survey asks 800 credit managers to rate favourable and unfavourable factors in their business cycle (unfavourable factors include rejections of credit applications, monetary unit {cash in} collections, and amount of credit extended). All those factors declined between December 2007 and December 2008.

The overall problem is, suppliers, especially small businesses need to tread carefully before pressing clients to pay up. Every company wants to keep their most valuable customers and not lose them to disagreements or hurt feelings over payment terms. The vendor-customer relationship is symbiotic, very personal and emotional.

However, no company wants to get burned by being too nice and seeing old invoices pile up or payments seized after a customer goes belly up. Trade-credit experts say that by the time you notice a customer is on the brink of insolvency, it's unlikely you'll get all the money that's due to you. So do your homework. Analyse your clients' risk profiles and get on top of your riskiest customers. Then you may have a chance to see the impending crash and minimize the damage to your receivables.

In particular, trade creditors want to avoid having to return payments received within the 90 days before a customer files for bankruptcy. Bankrupt companies can sue for those payments up to two years after they've entered bankruptcy court. So, if a company suspects a client is close to going under, the company can demand cash on delivery, payment in advance of a shipment, or a letter of credit. All of which are methods of payment that are not subject to preference claims.

Another way to avoid unexpected losses: Ask bankrupt customers to add your company to their critical vendor list. Depending on the bankruptcy judge's ruling, this group of vendors may be paid immediately over other suppliers if the debtor can show that the vendors' products or services are crucial to the company's survival and turnaround efforts. At this point the ship is on the rocks and you may just be looking around for flotsam to cling.

Lay-offs and litigation - lawyers win both ways

With potentially costly legal claims by dismissed employees soaring, employers need to make sure their job reduction and elimination plans are substantiated.

Nothing in life is free. While companies are jumping to reduce head count because they see an opportunity to save money in the short term and a way of openly validating those savings i.e. the economy is sinking. Be aware, they should be prepared for the possibility of punitive legal actions against them by aggrieved workers, and they need to consider how they can underwrite the accompanying legal costs.

The number of litigation actions is rising in tandem with the pace of job reduction and eliminations. These cases are boom-time for the defense and employment lawyers. They're seeing a major spike in their business that will not abate anytime soon. Its an ill wind, that usually helps some lawyer or other.

The main categories of lawsuits are those in which employees claim their dismissal was discriminatory, usually based on age and those, which requires advance notice for mass layoffs and plant closings.

Attorneys advise that cautious planning when making layoffs will help avoid a trip to court. They suggest that when you do decide to commit your company to a layoff of any size, then take good advice and plenty of time to make sure it's done right.

The Finance Dept. and accountants may not be directly involved in executing layoff plans, but with the risk of a sizable legal judgment, it gives them plenty of reason to stay involved. If only to satisfy themselves that the plan is legally and therefore, financially sound.

The first step in any staff reduction exercise, should be creating a detailed business plan that explains the need. Included in this will be;

• what facilities or businesses will be affected,
• the number of positions affected,
• what type of positions will be lost (What effect will this have on the future business)
  
• when the layoffs will occur, and
  
• how they will be announced,
  

All this must be clearly defined and approved before any actions are taken. There have certainly been some times when the legal or finance dept. have had to tell management to either come up with a more defensible reason for the layoff or rethink the decision. Analyse and assess the risk.

Juries will side with the employees when the employer doesn't have adequate documentation. Internally everyone is in such an emotional and stress driven crisis mode when they're involved in workforce reductions. Therefore, things that they may think are obvious to the world, are not. It pays to get an objective, knowledgeable view on these things.

The potential for discrimination lawsuits makes it essential that employers create an objective selection process for deciding which employees to let go. If 25 workers are dismissed and 20 of them, say, are over age 50, the chances of a lawsuit will rise dramatically. Its not to say don't do it its just to say, be prepared to defend your decision in court.

Is you wish to be seen to be logical and fair about the selection process, then some lawyers suggest that executives create a list or matrix of criteria for evaluating employees. This can include;

• years of service,
• qualifications,
  
• experience in the field,
  
• job performance,
• team working ability,
  
• disciplinary history.
  

A weighting should be assigned to each criterion, and each employee should receive a numerical rating in each category. Clearly if only one person is allowed to do this, then it will only be one persons opinion and that is difficult to defend.

To avoid subjective bias and statistical anomalies, companies should consider hiring a statistician to objectively evaluate the layoff selection criteria and ensure that none of them is in itself discriminatory.

It may prove difficult to avoid exceptions to the process. For example, a job-performance measure may take into account employees' past three annual reviews, but some people will have been hired more recently. Diligently document and explain in detail any reason for deviation or breaking from the official process.

But even a thoroughly objective selection process, while defensible in court, is no guarantee a lawsuit won't be filed. As a further safeguard, companies should conduct an impact analysis of how layoff decisions will affect the makeup of each protected class of employees. If a protected group is disproportionately affected, the plan will look discriminating and the company may want to alter it accordingly.

A company's legal concerns don't end with the selection process. Executives who deliver the bad news must tread carefully with their word choices so as not to come across as apologetic or sugar-coat the real reason the employee is being dismissed.

By saying, 'This isn't your fault, this is our fault,' you will be falling on your own sword." The employee can easily use such a loose statement against the company in court.

Watch out for a rise in the number of whistleblower cases coming from former employees. As more and more people get terminated, there's going to be more and more litigation and cries of protest.

Red Flags - Customer's falling credit status

When it comes to credit risk profiles, watch closely for these red flags in the companies you depend most on for financial stability, your customer.

The stringent credit markets make spotting a soon-to-be insolvent company increasingly difficult. It's difficult to determine who's really on the edge and ready to go out of business, versus who is having tough times and struggling, but will survive.

To avoid losing future payments, companies should be on the constant lookout for red flags. Signs that a customer is having serious financial problems. The following don't necessarily indicate that a client is on its knees or in contingency mode. But depending on how any of them are relevant, should trigger a warning bell for your credit department. Worst case, the customer deserves close monitoring, and perhaps their payment terms renegotiated.

Changing Payment Patterns.
Perhaps the most obvious clue that something could be financially amiss, but one that cannot be ignored, particularly these days. Previously reliable customers that suddenly start missing due dates warrant attention: If your customer is falling further and further behind in making payments on their invoices, that certainly should be a tip off that something may not be right.

Renegotiation requests
If a company asks to spread payment windows from 30 days to 45 or 60 days, this should raise eyebrows. Hone your credit skepticism on requests to reschedule payment agreements, such as paying off one service over four months rather than all at once, as previously agreed upon.

Shifting Buying Habits.
Even if regular customers are paying on time, are they still purchasing? Examine and analyse the trends. If their previous buying was consistent, but their manner of placing orders has changed, this could suggest trouble. Also, keep a lookout for regular customers that suddenly start buying more. Pre-bankrupt companies have been known to stock up on inventory, knowing they won't be liable for the goods later on. This is a very unpleasant maneuver and should be stopped. Fix your customers' credit /risk profiles and keep them within their credit thresholds.

Rejection levels, Haggling or Higher Demands.
Is your customer returning items more often, or unjustifiably asking you to make deductions off invoices because of damages? Customers that start making unreasonable demands on delivery are sending you a warning. Your customer, may start saying his company expects a discount if a shipment doesn't arrive within very tight deadlines, especially if he knows that you can barely meet. Be warned and look behind the request.

Shrinking Cash Flow.
Keeping a close watch on your customers' cash balances over time, is what the good companies do all the time, if you have access to their financial statements. Find out how much they rely on equity, short-term debt, or long-term debt and adjust their credit /risk profile accordingly.

Large Accruals.
Many distressed companies carry sizable accruals on their balance sheets, so these figures need to be explored and justified. First you need to get access to their balance sheets, that in itself may cause difficulty and could also give an indication of solvency.

Tight Lips.
Customers that previously shared financials with your company, but now suddenly claim it's against their policy to share financial data. This should only make you more determined to find the true picture but if in doubt, err on the side of extreme caution. Shorten their credit lines until they come up with strong evidence to convince you.

High DSO (Days Sales Outstanding).
Companies that have fallen behind on collecting their own receivables may be unable to contribute to yours.

Managerial Shuffling.
Unexplained or questionable changes in management could mean that there's a disagreement between executives and the company's board or owner. More obvious signs of trouble in this regard would be the hiring of a chief restructuring officer or turnaround company. Its a warning flag, but at least they are addressing their issues. Tighten credit lines in the short term, til the re-structure is effective and things improve greatly.

Persistent Rumors.
Credit experts recommend keeping your ears open for any negative news about your customers, which may be the only way to garner helpful financial information about privately held clients. Pay attention to news articles, whispers from your sales teams, and other companies' credit managers. There are industry-specific credit groups that are invaluable for uncovering past-payment records of customers, search for them and make friends with them.

Tax Liens.
A tax lien against a company is the number-one indicator that it's going under. If a customer has postponed paying its taxes, you're not likely to see its overdue payments either. Sound the alarm!

Navigating in the Credit Crisis - Top 6 Lessons Learned

Recent Ernst & Young Financial Institutions report on the credit crisis reveals that the top 6 lessons learned are as follows;

1. Liquidity (cash) is King - 90% agreement in financial institutions (100% agreement in the real world)
   
2. Risk needs to be examined across the organisation - 73% (Co-operation means no more secrets, fewer surprises and the avoidance of expense rescue efforts)
3. Stay tuned to industry trends, dynamics and cycles - 60% (Look outside & Listen! Use the radar, dashboards and the crow's nest if you have to. There are icebergs about and they will do more than freeze your assets)
4. The people factor - 40% (You have professional, intelligent staff on board, so use them appropriately. You pay them for their knowledge! They know stuff! Talk to them!)
5. Prepare for the unexpected - 35% (Analyse, Assess and Mitigate against risk. Think the unthinkable. Develop Backup, Contingency and Business Continuity plans. Jumping onto the iceberg at the last moment is not a good option)
6. Don't believe 3rd Party rating agencies or your own marketing hype - 23% (Simplify! The devil is in the complexity. Find the true facts and stick to them. Do your research and check in to reality occasionally, between those long business lunches)

Day 1, Lessons 1 - 6 in the Business school 101 course.