Qeustion: Three or Four Interesting Facts about the Case.

How the Case Relates to the Manager Decision-Making. Which concepts we should one apply to this case?

Personal or Practical Experience you Have Had with this Case. How can you relate to this case in your experience as a student, employee of an organization?

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The CEO Can’t Afford to Panic

Gerald Smarten, CEO of Kaspa Financial Services, was presiding over the regular Tuesday morning executive committee meeting in the glass-walled conference room that looked east over Massachusetts Bay. The management team was wrestling with the complexities of acquiring Huadong, a Shanghai-based investment firm. He glanced at his watch: 8:10 already, and they still had three more agenda items to work through. “I just don’t trust their valuation of all of their assets,” said Sarah Hicks, Kaspa’s CFO. “The securities are straightforward, but—” She stopped mid-sentence as the building shook and a low rumble rose up from below. She and her colleagues looked at one another and then, almost as one, rushed to the window. Smoke was billowing out of the subway entrance across from Boston’s historic South Station. Traffic had stopped, and people were pouring into the street. “Oh my God!” exclaimed Ben Lee, the firm’s general counsel. “There’s a fire.” “Or worse,” Smarten said quietly. Just a month earlier he had attended a citywide meeting convened by the mayor to discuss emergency response plans. It had seemed so abstract then: Experts had talked about everything from hurricanes to pandemic flu to, yes, a subway bombing. No one seemed to really believe that Boston was a major terrorist target—snow emergency routes and swine flu containment tactics had been the order of the day—although the mayor had expressed concern about a strike at the liquid natural gas storage facilities on the waterfront. A Timothy McVeigh type in a speedboat could incinerate downtown, he had warned. Now, images Smarten had seen of bombings in Madrid and London flooded his mind. He tried to push them out. “A fire or an accident. I’m sure you’re right, Ben.” Behind him, Sal Persano, the senior VP of marketing, was fumbling with the remote control to the boardroom television. He pushed buttons seemingly at random, managing only to initiate a video conference with the firm’s London office. Hicks, meanwhile, had stepped back from the window and was tapping furiously on her laptop. “CNN is just reporting ‘an incident’ so far,” she said. “No details yet.” She continued to focus on the screen, surfing from site to site in search of concrete information. A cacophony of ringtones in the conference room competed with the sirens of emergency vehicles outside. The head of HR, Joan Kaczmarek, moved close to Smarten at the window. “It’s rush hour,” she said. “Our people are probably down there. I’ll initiate a headcount in all departments. What else do you want to do?” Smarten turned without answering her, as Persano had managed to get a news station on the large plasma screen at the far end of the room. The cameras showed them the details they’d missed from 20 floors up: Many of the people coming out of the subway were choking and bloodied. Certain words from the reporter cut through the confusion: “attack,” “chemical,” “fatalities.” But nothing was confirmed yet. Smarten noticed Dana Rossi, the chief investment officer, in the far corner of the room with her BlackBerry held to one ear and her finger in the other. He knew that Rossi would be on the phone to the trading desk two floors below them. Markets were faster than the media in spreading news—especially bad news. If this was a simple subway accident, there wouldn’t be a blip. If futures headed sharply down, it would indicate that this was part of something larger. Rossi returned Smarten’s gaze and shrugged her shoulders. He looked back at Kaczmarek. “Where’s Schlesinger? Get him up here now,” he ordered. As if on cue, Paul Schlesinger burst into the room, slightly out of breath. Everyone stopped talking to hear what their security chief had to say. “I just got off the phone with my contact at the police department. It’s a bomb. No indication of chemicals or radioactive material at this point. Extensive casualties and fatalities. There’s been an explosion at North Station, too,” he said. “It’s a coordinated attack. That’s all he can tell me.” “Do we evacuate?” Kaczmarek asked. She glanced at Hicks’s computer screen, which showed a reporter interviewing a woman with tears streaming down her dust-covered face. Simultaneous attacks on the city’s two major rail hubs at rush hour could mean hundreds of victims. “They want us to sit tight,” Schlesinger replied. “There’s chaos enough out there.” Smarten remembered the mayor’s final words at the emergency preparedness summit: “The city can’t do everything,” he had said. “You all have an important role to play.” At the time it had sounded trite; now, with people dying outside, the words held fresh meaning. “Paul, tell your contact that we want to know how we can help. In the meantime, we’ll get organized here. HR is working on a census. Keep us informed.” Smarten felt a sense of control returning. “He said they may want to use our lobby and cafeteria,” Schlesinger added. “Whatever food we have is theirs for the taking,” Smarten said. “We’ll support the first responders and the victims.” “Actually, they’re thinking about our space for a triage center and temporary morgue.” Schlesinger stammered a bit. “He’ll be calling back in a few minutes.” Smarten took note of the ashen faces of the executives around him. He was sure he looked no better himself. He had managed through market crashes. He knew that disciplined traders carried the day; panic was the ultimate enemy. He sought to demonstrate that now and motioned for the team to retake their seats around the table. He looked across at Rossi expectantly. Smarten had managed through market crashes. He knew that panic was the ultimate enemy. “Wall Street pre-opening numbers are down sharply,” she said with a sigh. “I think we need to move as much activity to the New York and Chicago offices as we can—fast.” Smarten nodded. That decision was the easy one. They’d rehearsed it numerous times during disaster drills. An attack on Wall Street might close the markets, but one in Boston wouldn’t. Kaspa would have to stay open for business in order to fulfill its obligations to clients. The Boston office traded mostly foreign currency, and although other offices didn’t have the same level of expertise, they’d have to get by. But they had never rehearsed having the first floor of the Kaspa Tower transformed into a shelter for bleeding victims or the bodies of the dead. “What are you going to tell the police when they call?” asked Kaczmarek. “We have to help, don’t we?” He heard a slight note of panic in her voice. Smarten turned to his general counsel. “Ben, issues?” “I don’t want to sound coldhearted,” the attorney said with a glance to Kaczmarek. “But I am responsible for protecting this firm. If they ask and we volunteer our space, we may be open to a lot of liability issues. We should be covered by the Good Samaritan laws, but who knows what can happen with paramedics moving people in and out of here? Even if someone chokes on food we provide, we could be on the hook. Our facilities will suffer damage no matter what. If they commandeer our resources, however, I believe the liability rests with the city. I want to get an opinion from someone with more expertise.” Schlesinger piped up. “I understand the city will ask, but it won’t take. And we won’t have time to ask for a liability waiver or to get a second opinion. We’re going to have to say ‘yes’ or ‘no’ pretty quickly.” “If they ask and we say ‘no,’ Ben?” Smarten asked. “We should be clear,” the counsel replied. “From a legal point of view.” “Ethically, it may be another story,” Smarten deliberated out loud. “How do you—how do we—feel if someone dies because we didn’t want their blood on our fancy Italian furniture?” “How do you feel if our name and logo appear in every news report, YouTube video, and Wikipedia entry about this bombing forever?” Persano countered. “Investors may give us credit for being good guys who stepped up during a crisis, or they may pull back from placing their money with a firm whose name is tightly tied to a terrorist attack.” He glanced around the room to gauge reaction, then continued. “No one will know if we decline. And even if they find out, there are sound business reasons for saying ‘no.’ Joan, you must be thinking about the effect on the people who work here and who might want to work here in the future. No one is going to want to walk through a morgue every day.” Kaczmarek looked up from her PDA. “Nor will they feel very good about a company that ignored its employees and the community in a crisis. We have 23 people missing this morning. If the police and EMS need our space, I say we give it to them and do anything else we can to help,” she said forcefully. “London’s down 22%, with no bottom in sight,” Hicks interjected. “I hate to be callous, but Sal has a point. We’ve got to think about our shareholders. We want to be humane, yes, but we also have to consider the long-term interests of the firm and our investors. There are plenty of buildings around here they can use. This could tie up the lobby for days, and God knows no one will ever use the cafeteria again. And if we miss just one trade for a major client…” “Three of the 23 work for you, Sarah,” was Kaczmarek’s terse retort. Smarten stood at the window. The smoke made it look like an eerily foggy morning. His heart told him to open the doors, but in his head, he knew that this wasn’t his house; it was the office of the firm that employed him and expected sound stewardship of its assets. What Would You Do? READ MORE Schlesinger’s phone rang. He nodded his head at Smarten as he spoke and looked at him expectantly. It was 8:19—it had taken just nine minutes for the request to come. How should Gerald Smarten balance the needs of Kaspa and the community? James J. Dunne III ([email protected]) is the senior managing principal of investment bank Sandler O’Neill + Partners. On September 11, 2001, the firm lost 68 of its 171 partners and employees in the World Trade Center attacks. As the head of a firm that sustained tragic and personal loss on September 11, 2001, I can attest to the complexity of making decisions under extreme duress. The competing emotional and pragmatic views shared by the various players in the case are valid; there’s a lot on the line. It’s not possible to truly separate business concerns from community or ethical ones. You just have to gather as many facts as possible, seek advice from people whose judgment you trust, and make the best decision you can. In this case, I would let the city use the lobby. To be sure, there are drawbacks to that call. Being physically displaced from your headquarters comes at a cost—psychological and, most likely, financial. Mishandling a trade is no small matter, and neither is damaged employee morale. At the same time, making a humane decision can give morale a tremendous boost. At my firm, we united around the cause of honoring those lost and supporting surviving families. At least one partner attended each funeral, and we made countless phone calls and prayers and visits to families of our lost. We paid base salaries for the remainder of 2001 to surviving families, and we paid total compensation exceeding each individual’s best year. We offered medical benefits to families for a minimum of five years—unintentionally setting the standard among World Trade Center tenants. We are fortunate enough to still offer the families coverage today. We tried to do the right thing on principle. The powerful, often lasting positive effects of making a humane gesture in times of crisis outweigh the short-term negatives. It galvanized my organization and generated goodwill that helped us through some terribly dark days. Acting ethically during a crisis does affect the bottom line. In our case, it may have saved the whole enterprise. Acting ethically during a crisis does affect the bottom line. In our case, it may have saved the enterprise. As a fixed-income trader early in my career, I was, and am, a “numbers guy.” Yet business is not solely about money. If Kaspa’s ability to trade was compromised by the decision to open its doors to the city, another firm might step in to help. Competitive dynamics change when something tragic like this occurs. Shortly after 9/11, some of our competitors shared revenue with us on transactions in which we had zero involvement. Bank of America donated office space that we used in the early months of piecing the company back together. After a crisis, executives need to continue employing analytical and tactical thinking. Being a results-oriented businessperson is more important at a time like this than ever. But you need to be sure you’re weighing all the factors in your deliberations, not just the numbers. Leonard J. Marcus is the founding codirector of the National Preparedness Leadership Initiative. He is also a lecturer in health practice at Harvard’s School of Public Health. He can be reached at [email protected]. I’ve been on the scene during a number of incidents like the one here, observing and analyzing the behavior of leaders, and I can fully identify with Gerald Smarten’s dilemma. There are valid reasons for saying “yes” or “no” to the city’s request, and his senior staff is clearly divided. He has only a few minutes to reflect before he must take action. Smarten is familiar with appropriate crisis response in situations that are limited to his firm or industry. He quickly agrees, for example, to Dana Rossi’s recommendation to move trading activity to the other offices. But he struggles when facing a novel threat that requires him to think about Kaspa’s connectivity with the city. That isn’t unusual; many of the private-sector participants in emergency preparedness summits my colleagues and I lead tend to focus on narrow, high-probability risks. A terrorist attack in this country is a low-probability risk—until it happens. Smarten needs to focus on the resilience of his staff and, by extension, his firm and the city as a whole. Resilience has three components: individual (personal coping strategies); social (support from family, friends, neighbors, and coworkers); and institutional (support from the police and fire and emergency medical services). The essential core is the individual component. Smarten needs to focus on the resilience of his staff and, by extension, his firm and the city. In the face of a threat, especially a novel one, we all go to the “emotional basement”: Our primitive “fight, flight, or freeze” survival response takes over. Smarten gets quiet; Persano fumbles with the remote; Hicks burrows into her computer. These are all evidence of panic. Fortunately, Smarten begins to climb out of the basement when he directs his team into action. He uses routine and planned activities to start moving the group back toward more normal, and then more strategic, thinking. To answer the city’s request, Smarten needs to answer this question first: Which course of action will help Kaspa’s employees and the citizens of Boston regain equilibrium fastest? Which choice will help the most people bounce back? If Smarten and Kaspa Financial Services embrace the city’s request as a human and civic responsibility, I believe that they will be rewarded. They’ll earn greater loyalty and engagement from employees—after all, 23 of them could be among those helped by the triage center. And investors will appreciate that resilient individuals will be able to better carry out their fiduciary duties.