In Crisis Management, published in the Harvard Business Essentials series, Richard Luecke argues that managing a crisis has to begin before the crisis happens. He adds that the most important thing is to avoid whatever can be avoided.
The trouble is that, when it comes to business crises, not everything one would like to avoid can be foreseen — all the more so in an environment as hostile as Brazil's, where doing business is a daily challenge and judicial reorganisations and bankruptcies make the news almost every week.
Last week, the dental market was caught off guard. In one stroke, by force of a court ruling, tens of thousands of dental surgeons, thousands of clinics, hundreds of courses and lecturers and dozens of manufacturers found themselves facing the prospect of a sector-wide crisis that nobody saw coming.
On Wednesday of last week (19 August), the 8th Panel of the Federal Regional Court of the 1st Region (TRF1), sitting in extended composition, held by a majority (3 to 2), in a public civil action filed in 2019 by the Federal Council of Medicine and other medical bodies against the Federal Council of Dentistry, that Resolution CFO No. 198/2019 — which recognises Orofacial Harmonisation as a dental speciality — is invalid. The prevailing opinion held that professional councils may regulate and supervise the practice of a profession, but may not create new powers without a statutory basis.
Setting aside the merits of whether or not a dental surgeon is authorised to perform invasive aesthetic procedures, what strikes me as worth reflecting on at this moment is how a crisis can take hold in any company, out of any unexpected event — in this case, out of a court ruling.
The judgment has not yet been published, and publication is essential for a decision to take effect. For that reason the ruling does not yet produce effects and Resolution CFO No. 198/2019 remains in force. If the CFO fails to obtain a court decision suspending the effects of the judgment, a whole set of procedures that today underpins the revenue of clinics, courses and manufacturers will no longer be able to be performed, and financial distress, insolvency and perhaps bankruptcy will stop being distant hypotheses for a great many people.
So how does one prepare today for tomorrow's problems?
In the same book, Richard Luecke sets out five steps for developing a contingency plan. They are:
1. Put together a planning team. Someone has to be in charge of thinking about the fire before it starts. In a mid-sized company that means sitting the decision-making partner, the finance person who knows the cash position, the accountant and the lawyer around the same table. These are the four people who will have to decide together when the problem arrives.
2. Assess the extent of the problem. The question here is arithmetical, not legal. How much of my revenue depends on the activity at risk? How many contracts, loans, leases, salaries and instalment plans are secured against that revenue? Anyone who cannot answer that in numbers has no way of sizing anything up.
3. Develop a plan. A contingency plan is, in practice, a set of decisions taken in advance and in writing: what gets cut first, what gets renegotiated, what is communicated to the market, which alternative revenue streams can be switched on and how quickly. A decision taken calmly costs a fraction of the same decision taken under pressure.
4. Test the plan. Run the simulation. If revenue falls 40% in sixty days, how long does the cash last? If the bank accelerates the debt, what happens? A plan that has never been put through a bad scenario is just a nicely formatted document.
5. Keep the plan up to date. None of these five steps would have prevented the TRF1 ruling. But every one of them changes, and changes a great deal, what happens after it.
In twenty years advising companies in difficulty, I have learned that the difference between the company that survives the crisis and the one that does not is rarely the size of the problem. It is the reaction time. Most of the clients who reach us in critical condition did not get there because of the event: they got there because of the sixty, ninety or a hundred and eighty days that passed between the event and the first serious decision taken about it.
Whether or not you work in the dental sector, one thing is certain: it is never too late to try to avoid what can be avoided and, in doing so, to design contingency plans that will soften the crisis when it comes.
Ricardo Petereit
