Upfront: "Dangerous Markets: Managing in Financial Crises"

Mexico, 1994: Interest rates and foreign debt repayments soared, credit dried up, and hundreds of companies went bankrupt. Japan, 1990: The stock market crashed, bankruptcies skyrocketed, deflation and depressed spending ensued. Singapore, 1997: With the Asian financial crisis raging, Singapore's central bank made the fundamental strategic decision to position that country as the region's premier financial center.

These events may not have directly impacted your company, but you may not be so lucky in the future, say Dominic Barton, Roberto Newell and Gregory Wilson, authors of "Dangerous Markets: Managing in Financial Crises" (John Wiley & Sons Inc., 2002). They predict that serious financial crises will become more common, more severe and longer lasting as poorly managed emerging economies integrate with increasingly globalized capital markets.

According to a World Bank study cited by the authors, the 1990s saw twice as many financial crises as the 1980s. The line of underprepared countries seeking to link into the global capital network continues to lengthen -- a phenomenon that spells trouble for the future. But companies that see the warning signs, devise new competitive strategies, and embrace new standards and safeguards for their postcrisis future will weather the storms.

Barton, Newell and Wilson, senior partners with McKinsey & Co., observe that too many organizations fail to manage crises proactively. Instead, companies react to events on a day-to-day basis and lack a plan for navigating out of trouble. Proactive crisis management carries two major benefits. First, companies realize financial savings by minimizing the crisis resolution costs imposed on shareholders. And second, they reap competitive bonuses: If executives act swiftly when a crisis hits, they can seize new opportunities and secure a winning position when economic growth returns.

The book provides a road map that helps companies do just that, drawing on more than 30 examples of successful businesses in developed and emerging markets. The authors recommend executives in the early days of a crisis focus on managing their cash position, minimizing operational risk, conducting scenario planning, preparing to divest unproductive assets and maintaining the confidence of key stakeholders. Once the crisis sets in, organizations should reinvent themselves building on five strategic factors: changes in regulatory regimes, strengths of their competitors, customer needs, organizational capacity for change and changing social values. This process of reinvention requires a fresh corporate strategy that builds on an innovative portfolio of initiatives that leverage all corporate assets.