Issues + Insights Winter 2008

Past Issues + Insights

Dollar crash

Strategy: What is your plan if the dollar collapses?

Each US dollar is like an IOU. There are billions of these "un-cashed" checks overseas. What happens when they start coming home?

With the U.S. economy inching ever closer to recession, and the dollar at lows which haven’t been seen in decades on world money markets, it’s time for serious issues managers to take stock of their “what if” scenarios.  Not only is the devalued dollar impacting your mid-winter plans to go somewhere warmer and exotic, or to purchase that luxury car imported from Europe or Asia .  It foretells major, potentially, unwelcome changes in world economics that will impact your business.  No matter what your business is.  The question, as always, is:  are you managing the issue, or will this issue manage you?

Whether you’re thrilled with slide in the U.S. dollar because you get paid in Euros or Canadian dollars, or devastated because you’re paid in green backs, there’s no overlooking the fact that the slide in the U.S. dollar will have an impact.

But, has your issues and risk management process captured the full importance of the dollar’s doldrums?  Have you fully assessed the impact of a wounded dollar on your business strategy?

No doubt, your treasury folks have run some scenarios.  But have your crisis management teams, issues management folks, corporate communicators, business continuity, operations, marketing, production and HR people gotten the memo?

What happens if…

the U.S. dollar continues to fall?  Already, China has made threats to cash out some of its U.S. dollar denominated foreign reserves and to move them into a “stable” currency like the Euro.  And, why not?  Those foreign reserves have lost billions of yen in value just sitting there – just because they’re counted in dollars.  Of course, at the moment, this is an idle threat because such a fire sale of U.S. dollars would simply drive their value down even further – exacerbating the problem for the Chinese.  But, it’s a worrisome sign that people are talking openly about abandoning the green back.

The BBC World television news service, followed a few days afterwards by CNN International, pointed to a recent music video, featuring prominent hip hop artist Jay-Z cruising around New York City decked out in all the successful gangsta trappings, driving an H2 and flashing a big wad of 500 Euro bills, as evidence of the dollar’s decline.

The fall of the U.S. dollar is a problem for all of us.  Here’s why.

For decades, certainly since the end of the Second World War, the U.S. dollar has been the most trusted currency on the planet.  People around the world save dollars – in their bank accounts or under their mattresses – so they will have something of value when their own currency thunders in. 

Each U.S. $1 dollar bill circulating outside the United States – and there are billions[i] of them – is like a cheque (or check, since it’s American) written by the United States to buy something from overseas.  Now, normally when I get paid by cheque, I take the cheque to the bank – the cheque finds its way back to the person who wrote it and along the way I receive the value of the cheque in funds deposited to my account where I can spend them in my currency.  But people often behave differently with U.S. dollars.  Rather than return them back to the U.S. federal reserve for value, billions of dollars are horded in shoeboxes or foreign dollar accounts gathering dust.  Sometimes, they are traded from foreigner to foreigner.  Few of these I.O.U.s ever return to the United States for payment.

These billions of U.S. dollars circulating outside the U.S.A. represent a massive debt owed by the United States to the world.  Of course, this foreign debt is growing smaller day by day as the relative value of the dollars diminishes.  While this is good for the United States , at some point those holding U.S. dollar I.O.U.s will lose confidence in the currency and want to cash it in.  What will happen to the U.S. dollar when billions of dollar bills begin making their way back to the United States to be exchanged for value?

The dollar will tank even further.  And, no one wants to be the last person standing with a bag full of dollars, so the fall will be fast and furious once the panic starts.  While the U.S. will want to buy up these dollars to take them off the market and soften the fall, what will they buy them with?  They will have to dip into their own foreign reserves.

So, what happens to the U.S. if the dollar collapses?

For as many years as I’ve been interested, the U.S. economy has suffered from a massive trade deficit – it buys more goods from abroad than it sells.  Now, some of this is artificial, because trade statistics traditionally don’t count the sale of services – just hard goods – and the U.S. economy is the world’s leading service economy.  So, it may not be as bad as it sounds.  The country’s other saving grace, though, has been the strength of its dollar – even though it bought more goods than it sold, it bought them with “dollar cheques” which were rarely cashed in.

Since 2001, the U.S. has become increasingly isolationist in its political ideology – a trend that has obvious roots in geo-political events and security concerns, and may or may not also be linked to the dominance of the Republican Party.  Current opinion polls suggest that this may be about to change.

Regardless, as the U.S. retreated into unilateralism, many countries actively sought to develop alternative markets for their services, lest they be too dependent on U.S. markets and, therefore, forced to follow U.S. political whims.  As the dollar has fallen over the past few years, and as its fall began to rapidly accelerate, these efforts to diversify markets has quickened apace.  While most western economies remain closely tied to the U.S. economy, very few are as closely tied as they were before 2001.  Witness the fact that, while the U.S. appears heading towards recession, even Canada – its conjoined twin – is still having one of its better economic years in recent history.

If the dollar collapses utterly, fewer and fewer imported goods will be affordable in the U.S.A.   So, what?

So, Americans are well-known and properly respected for their self-reliance.  Will this positive attribute, coupled with an increasing sense of isolationism – both ideological and now economically-driven – mean further withdrawal within its continental boundaries?

If this happens, how will it help or hinder – your business?

[i] According to Richard Porter and Ruth A. Judson of the Division of Monetary Affairs, there were about $200 to 250 billion dollars circulating outside the U.S. at the end of 1995 – more than half of the $375 billion then in circulation worldwide.  “The Location of U.S. Currency – How Much is Abroad?”, Federal Reserve Bulletin, October 1996.

Top

Children held hostage

Tactics: Lockdown drills open door for disaster

A double-edged sword: standardized crisis responses are easy to follow... and to predict, creating opportunity for predators

It seems to have become almost commonplace – the violation of our children’s schools by violent gunmen.  Not just an American phenomenon, the past year has seen shocking incidents in Canada and Norway – both bastions of gun control, peace and good order.

Recently, I received a call from a client of mine responsible for crisis management planning at a small U.S. university.  His question was simple.  The answer, of course, is complex.

Should they develop – and rehearse – a lock down drill?

The by now familiar standard response of public schools in the U.S. and Canada , when faced with a violent intruder, is to institute a “lock down.”  Generally speaking, this means students and teachers lock themselves into their classrooms, close the windows and drapes, barricade the doors, and take cover where they can – under desks, in a distant corner, etc.  They will remain in this “duck and cover” posture until given the “all clear” signal by a trusted authority figure.

In the event of an actual attack, students may remain in “lock down” for many hours.  Often, for both security and investigatory reasons, they are released from lock down in a controlled manner by the police – one classroom at a time so that students can be searched, to ensure they do not pose a threat to others, and escorted to a secure area for debriefing and interviews.  This process can take considerable time.

Lock downs also occur when there is no attack.  It is commonplace in Toronto , for example, for schools to go into lock down mode whenever there is a violent incident, or a fear of a violent incident, or even a suspicious person in the general neighborhood of a school.  “Better safe than sorry,” is the operating principle.

The upshot of this is that the lock down drill is now as familiar to most public school students as is the fire drill.  In fact, more and more school boards require a number of lock down drills be conducted and assessed each school year.  Familiarity breeds efficiency in the face of crisis and a sense of comfort.  But, that may not be all.

While familiarity and efficiency may provide the lock down tactic with its greatest strength.  It’s greatest weakness is surely the very predictability that comes with it.  Unlike fire, which is a natural and mindless phenomenon, an armed attack by a homicidal intruder is a dynamic act, both proactive and responsive.  The criminal is an active protagonist who can and, as history has shown, will adapt his tactics to the situation.  Typically, these attacks have involved some amount of premeditation and planning.

It is unrealistic to believe the next school shooter will not understand the standard lock down response.  So, what?

So, if the attacker’s aim is to maximize the body count – or to inflict targeted damage on a specific individual or group – then he will know exactly where to find them.  Given a committed, prepared and psychopathic opponent, our now standardized response is to immobilize his targets in predictable locations.  This will not always be the best answer.

Many schools I’ve visited do not even have locks on the doors.  Those that do, have flimsy hardware that would be easily defeated by a violent attacker.  Other classrooms in newer buildings feature glass panels in the doors and even windows into the hallway.  No school I have visited has doors or walls capable of stopping a supersonic, copper jacketed bullet – a commonly available type of military ammunition used in assault rifles.

Most classrooms do not have secondary exits that lead away from the hallways.  Many have windows, though, and most public schools are not more than three storeys tall – making it possible for students and staff to escape outside if a shooter was wandering the hallways.  But in every plan I’ve seen, such an escape is not foreseen.  No plan I’ve seen includes practicing a window escape – nor provides for the installation of equipment (portable steps, heavy blankets, chain ladders, etc.) that would make such an escape easier.

As I said to my client with the university, I think having a lock down plan makes sense – so does practicing it.  Let’s face it, if you haven’t practiced it, no one will understand it and it is unlikely to work well in reality.  So if you’re going to have a plan, you must practice it.  And, having a plan is better than not having a plan because it gives you options.

But, as I have always said, “If ‘x’ then ‘y’” scenario-based plans are prone to failure.  ‘X’ rarely happens the way you’ve scripted it – even less often when ‘X’ represents an intelligent, motivated protagonist capable of adjusting his plan on the fly to inflict the maximum damage possible.

Because I know what happens during a school lock down, I can only assume the attacker does too.  So, what?  So, that gives him an advantage.  If he is smart, and these attackers have proven to be smart, though psychotic, individuals, he will use that information to adjust his plan.

The key to a successful response is flexibility.  Flexibility demands that the onsite crisis manager, whether it’s the school principal or a police responder, must understand the situation, exercise sound judgment, make fast, effective decisions and be able to lead students, teachers and others effectively during the crisis.  All of this is possible only with a pre-crisis investment in time and resources in the form of training and technology.

Wouldn’t it be nice, if the doors, walls and windows around our children’s classrooms would withstand a determined assault long enough for police responders to engage the attacker(s)?  Wouldn’t it be nice if we could see how many attackers were involved, where they were located and what they were doing?  Wouldn’t it be nice if we could use automated fire doors to isolate the attacker in a given wing or area – ideally, an area without potential victims.  Wouldn’t it be nice if we could evacuate students and staff from the East wing while we knew the attacker was far away in the West wing?  Wouldn’t it be nice if we could communicate with every teacher and every classroom to gather information and deliver instructions? 

Wouldn’t it be nice if we had invested in creating flexibility – rather than just mandating paper-cutter drills – the next time something horrific happens?

My Answer?  Yes, they should develop a lock down drill and they should practice it – while continuing to develop their all-risks crisis management capability and to invest in the technology and training required to create the flexibility that will provide crisis managers, police, students and staff with options if something bad happens.

Top

We've been away... far away!

My apologies for the absence of Issues + Insights over the past few months, but we – I – have been unusually busy with a number of other initiatives that have taken me away from the newsletter.  First off, there have been a number of exciting client projects that have been my principal focus during this time.  Second, is the ongoing research project into the behavioral attributes of crisis leaders.  Third, was the launch of a new blog Coffee with Mark Towhey which took a while to get figured out, but is now up and running – I encourage you all to drop in and share some thoughts over a cup of java sometime during your busy work day.  Finally, I’ve been out of country since the beginning of October working on a fascinating project with the United Nations – aimed at increasing the capacity of the Afghanistan Border Police to protect that country’s sovereignty, people and economy on a sustainable basis.  If you’re interested, you can read more about that in my blog.

Anyway, after an absence of some months, I+I is back and we have a backlog of strategy and tactics to share and discuss over the next few months.  Just in time for the back end of a long hard winter!

Mark

thecrisisgroup Bookstore

We've also launched a bookstore for all those books that clients keep asking about!  Find it online in our Insight Centre

Top

 

©1998-2007 TOWHEY Consulting Group Inc. All rights reserved.