Lastly, I want to talk about where to start and what to do. I do not want to be accused of only raising problems. A crisis of this kind requires five precise steps and Sumitomo appears to have taken them all. This implies they now have the situation under control.
Five immediate steps to take
1. Firstly, establish who is in control of what. This usually involves moving all decision making up the ladder. There is no time for arguing over decisions. Someone must have absolute authority over every problem.
2. Secondly, establish a strategy for the assets, financing, limits, and legal liability. At this stage you are curing any misconduct. The failure to do so will create significant new liability.
3. Thirdly, execute cuts in the positions, people, change prices and announce new limits. This establishes stability.
4. Fourthly, determine an internal and public position that protects shareholder or stakeholder financial interests. Financial protection must be above the right of the shareholders to know.
5. Lastly, launch an investigation and strategic analysis similar to the one I have described today.
Long term implications
The first four items on the short term list should take as little time as possible. The long term investigation may take a long time but it should not drag beyond a few months as employees will feel on hold and are expecting changes to be forthcoming. The company cannot get on with its business. The need to move quickly must be balanced with the reality that there may be advantages to dragging out the analysis to stall legal or regulatory pressure. Sumitomo may be facing this dilemma.
We have now completed all the stages of uncovering problems and what needs to be done first. Sumitomo and others are at the point of facing the difficult questions we have raised and it remains to be seen whether all of the questions will be asked. It remains to be seen whether the problems will grow or be repeated in the future.