By Digoy Fernandez

IN the typical Western corporate setting, the initial reflex action in severe downturns like what we are beginning to go through is to lay off staff, close down plants, and cut both expenses and benefits in an effort to pare down costs. Of course, if one multiplies this action thousands of times over as companies across the international spectrum tighten their collective belts, the more pernicious effects of a severe recession become like a self-fulfilling prophecy. The more people lain off and plants closed result in lower spending power all over the world’s markets, making the downward spiral not only inevitable but also longer lasting. There was a trigger, to be sure, and this was the debacle in the sub-prime housing loans and the discovery of crappy credit swap default loans in the portfolio of many an otherwise respectable financial institution. But the period of fault finding is over. Now is the time to think positive to get ourselves going, even if the economy is headed the opposite direction.

With the loss of jobs coming along like a tidal wave, it boggles one to attempt to visualize the effect this will have on consumer spending, the subsequent decline in production, the ejection of families from their homes, and a general sense of malaise. What is one to do then, when faced with an unpalatable situation such as this one?

In our country where the family system remains alive, it is easy to think of a dispossessed family moving back into the parents’ household, or being given the use of an underutilized asset. Not so in many Western countries where homeless or church shelters often provide the only possible fallback for a family that hits bottom. At the very least, in the more socialized economies, there will always be welfare to lean on…but even this is not a bottomless fund and many governments may prove reluctant to support an army of dispossessed people who will not be able to find work.

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By Digoy Fernandez

THIS particular blog will not bore you with statistics nor will we provide a chronology or a timeline for the present economic crisis. I have received enough forwards, looked into a myriad number of web-pages and articles about how the crisis began and how it is playing out. Instead, I would like to dwell a bit on the motivation that drove otherwise sensible bankers and finance whizzes into making catastrophic (in retrospect) decisions on a truly grand scale. In a word, we find that, in almost all cases, the common denominator was GREED!

Someone commented that bankers and finance men (and women) who are currently in their 50s or 60s and above, would be boggled at the type of financial products developed and marketed during the past two decades. These so-called financial products tend to confuse the traditional finance people, schooled as we were in the basics of borrowing and lending. But the new mavens have gotten to the point of fashioning intricate debt or credit instruments that have become less based on fundamentals and more on an ability to flip the products through the mill, earning one a hefty commission in the process.

In the good old days, our bosses told us to know our clients very well, and to know their companies and products to the point of being well-versed in the nuances of these businesses. We did cash flows of the firms’ products and their cycles, and we knew when and how much to lend to these corporations. Lending and investment were based on good old fundamentals.

Unfortunately, the traditional way of doing business was deemed too arcane and too sluggish for the financial wizards of today. Born and schooled in an age of instant gratification, they tended to live in a world divorced from the Main Streets of the world. In another publication where I write with a group of the country’s top finance people, I have long tended to look askance at financial derivatives and financial analysts who track a company based on quarterly results. Because of this tendency to focus on quarters, top executives have also been inclined to take short cuts or measures that would ensure good quarterly results, often sacrificing a firm’s long term prospects in the process. I am not sure if there is a direct correlation, but the pressure to produce regular rosy reports has probably tempted not a few CEOs to sweep problems under the rug…like hiding them in innocuous sections of the contingency accounts of the balance sheet.

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By Digoy Fernandez

ONE of the unintended casualties of the current global financial meltdown may be corporate social responsibility programs. CSR projects are not exactly favorites of the sharp scissors of most budget cutters, who also cast an evil eye on what they consider as expensive programs like Training and Manpower Development, the upgrade of Information Systems, and the like. In fact, for CSR and the others mentioned to survive the budget cutters’ wide strokes, these would need strong sponsors from the upper reaches of top management or the ownership. Otherwise, kaput!

When CSR programs get short shrift, it also sends a signal to various publics of the corporation that the company has ceased to care about some of these sectors and is buckling down into self-defense (or self-preservation) mode. There are many ways of cutting down on expenses without sending the wrong signals to the public. In fact, I am particularly enamored of a continuously running short feature on CNN and Discovery Channel showing a denuded piece of land in Malaysia that was replanted in 2004, and that has began to show signs of becoming a true wildlife habitat just 4 short years later. This is the kind of project that can be replicated by companies, groups, and individuals: regenerating parcels of land — small to large — and reclaiming them in the interest of the environment.

In fact, the project that finally won the Grand Anvil for the bank I worked with was conceived by this author way back in the early 80s when the country was reeling from the economic and financial crisis that accompanied the assassination of Ninoy. In short, I suggested that companies or groups each adopt a depressed community, and work with them in developing skills that could eventually be made use of by the trainor / adopting units. Our own parish council has some programs aimed at helping the depressed sectors assigned to us, under the concept of Stewardship. For example, used paper could be given to these people to be recycled into stationery or other paraphernalia that both the company and the public could make use of.

It is unfortunate that the rapacious greed of a few high flying financial mavens finally caused them to crash, bringing along with them practically the whole world economy. It will be a long time before companies begin to think of CSR again…which would be very very bad indeed. Let us hope that enlightened individuals and companies manage to rise above the projected morass and think of how they can help those who may be in worse shape then even they are.