CEO Summit on Saving an Industry in Crisis

The daily newspaper industry stands at a precipice. Rocked by declining print circulation and advertising, disruptive Internet technologies and competition from a variety of new players and industries, the traditional bedrock of American journalism faces a classic change-or-die scenario. Whole swaths of the American populace have abandoned newspapers or are growing up without the habit of reading them. And while the Web sites of news organizations are attracting more readers than ever, the online advertising business is nowhere close to making up for the steep slide in print.

At times akin to group therapy and at other times resembling a business-school class, the summit took shape in three general segments: Specific financial forensics for determining the depth of trouble a company might be in; a discussion of management tactics for leading a company on new paths; and participants trading frustrations, ideas, best practices and suggestions for collaboration.

How precarious is each company's position?

According to James Shein, Ph.D., turnaround specialist and professor at the Kellogg School of Management at Northwestern University, companies should start by plotting their place on a "Phases of a Crisis" chart. The earliest stage is indicated by a company essentially blind to eroding conditions undermining its business. This is followed by acknowledgement but inaction, followed by faulty action in hopes of a quick fix, followed by full-blown crisis and finally dissolution of the enterprise. According to Shein, failure to take action at any point on the curve means the enterprise inexorably moves to the next point. As an organization moves down the crisis curve, it will find executing a recovery plan more difficult, and will have less time to do it.

Shein, who researched the basic financials of the public companies represented at the summit, concluded that as a whole the industry is at or approaching full-blown crisis stage, though individual companies are in various phases on the continuum. And he is pessimistic about their ability to halt their fall without outside help.

"The biggest hurdles to progress the industry's senior leadership, including some of the people in this room." Shein told the group. "I am not sure you can take a look at your industry with fresh eyes."

Shein urged the executives to begin with cold-blooded examination of their financials, including:

• Determining if a firm's return on assets still exceeds its cost of capital.


• Deconstructing its balance sheet by eliminating accruals and GAAP accounting, because they are backward-looking and could mask looming cash shortages.


• Creating forward cash-flow analyses in 13-week increments.

But he said that few chief financial officers know how to do this exercise properly.

Proper identification of a company's stage on the crisis curve helps indicate how much time a company has to act, and how drastic its steps will need to be. Worksheets were given to the executives to determine for their companies an index known as Altman's Z score, designed by to help identify how close a company might be to bankruptcy. According to Shein, all but one of the public companies represented at the summit are below the safe range. (Bloomberg makes available Z-scores for all publicly traded companies.)

Shein and Steve Miller, a turnaround specialist who currently is executive chairman of auto-parts maker Delphi Corp., stressed that moving quickly is critical. But they said simply cost-cutting is not likely to be the right response.

"Cutting staffs will reduce costs, but it won't happen fast enough, and will erode the product," Miller said in a luncheon speech. "You have to reinvent your business model."

How does one lead a turnaround?

Miller, who worked with Lee Iacocca at Chrysler Corp. when it received and ultimately paid back federal loan guarantees, said executives need to be decisive and that success often takes an outsider to come in and shake things up.

He and Shein urged executives to spend the majority of their time on strategic initiatives for re-invention, rather than on current operations. Among specific leadership recommendations:

• Act like an entrepreneur; stop thinking first about why a new approach won't work.


• Create a portfolio of initiatives; recognize that some will fail and kill those quickly.


• Don't wait for every data point before taking action. "Ready, fire, aim" should be the operating principle, Shein said.


• Use downsizing as a tool when necessary to achieve a larger strategy, not simply as a cost-cutting goal.


• Figure out how to leverage core competencies into new directions and new niches.


• Be honest with employees, and get ideas from those on the front lines.


• Don't sit and cower and weep about your problems. Inspire.


• Collaborate with outside entities that can bring expertise or resources.


• Pay attention to, and leverage, the brand.

An Array of Views

Participants, who represented small and large organizations throughout the country, readily acknowledged their predicament, yet differed on emphasis. Many focused on the problem of advertising online yielding far less than in print:

"We don't have a crisis of audience," said one, noting the growth of online readership. "We have a crisis of revenue" in monetizing that traffic.

"We need to be at the intersection of buyer and seller in our communities," said another, although not offering specific strategies to achieve this.

One participant expressed the lone view that the crisis was cyclical, not structural, and that hefty cost-cutting is all that is required to tide companies over until there is recovery.

Fewer attendees spoke to changes on the content side, though there were a few calls for radical rethinking of newsrooms. One suggested hiring experts, such as a scientist or a bank regulator, in place of some reporters, to highlight expertise.

"It's no longer the broadcast model," said another. "We have to have a conversation with the audience ... We need reporters who are willing to act as moderators" of that discussion.

One participant demonstrated that kind of change throughout the meeting, live--blogging the event for outsiders, who could participate on the blog via Twitter.

And it fell to one of the oldest participants to strike the most optimistic note:

"The Internet is the best thing that's ever happened to us," he said. "We have immediacy, and we have unlimited space. The problem is that we have been very slow to react to this technology. But it's an opportunity."

Next Steps

Participants agreed to reconvene in six months, and to explore additional collaboration. Some spoke of joint investment in research and development of both technologies and products, others of more formal means of sharing information.

"Why can't we be the disruptors?" asked one. "We have nothing to lose."


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The summit conference was enabled by a generous grant from the McCormick Foundation and funded by API's J. Montgomery Curtis Memorial Seminar Fund.