'Kitchen sink' it
Start with some blameless impairments. The message for the investor relations team to send out: it was worse than we thought. Enlist your CFO to write off fixed assets, reduce the valuation of subsidiaries and goodwill, and take a pessimistic view of ongoing projects. Get as much as physically possible through the income statement while you are still in the grace period, and consider a placing or rights issue to build up your cash. This will give you a solid balance sheet, a nasty set of profit numbers to look wonderful against, and the potential for future special dividends or buybacks.
Lower expectations
What good is a target that is too high to dramatically outperform? The new guard of European bank bosses is leading the way here. Standard Chartered's (STAN) new boss set a pleasingly low return on equity (ROE) target of just 8 per cent by 2018: great stuff. Tidjane Thiam at Credit Suisse wants shareholders to scrap the ROE measure altogether. You'll want a return target, like banks' return on risk-weighted assets, where you can have a hand in the calculation, or where it is difficult to compare with rivals.
Get your remuneration right
Technically this comes first, but can't be understood without the other two. You'll want a high level of guaranteed pay to compensate you for the risk of moving jobs. You'll then set the key performance indicators for your executive share performance plan: that's where your manageable targets come in. Also, your initially conservative accounting approach gives you room for profit-boosting optimism in future: use it.
Squeeze costs, shut the pension scheme
Reduce departmental headcounts, move the back office somewhere cheaper, you know the drill. If you are unlucky enough to join a company with only a defined contribution pension scheme, too bad. But for those with a nice juicy final salary pension scheme that is open to new members, or future accrual, you'll want to get a consultation out pretty quickly to shut it. This will sap the growth in the company's liabilities and provide greater certainty to contributions. Not to mention removing a common bar to M&A activity and refinancing. Another option is to change the indexation of future pension increases. A little bit of CPI rather than RPI goes a long way, as public sector workers know. You may want to identify a back entrance to the office to avoid the picket lines.
Set a five-year plan, stay three years
The trick here is to be 'in it for the long term', with an impressive plan, while planning for the short term. Let's face it: we'd all like to make a lasting difference, but corporate culture now dictates that you will get kicked out in a couple of years for something that happened before your time, or outside of your control. In other words, don't consider yourself Sir Alex Ferguson when you are likely to be treated like David Moyes.
Let's return to reality for a moment. If the above parody feels at all familiar, that is as much thanks to investors' short-termism as is down to Machiavellian CEOs. Obsessing over quarterly improvements to fixed return metrics skews management incentives. It is instructive that Legal & General (LGEN) scrapped quarterly reporting last year. If we want company management to promote long-term value, we have to engender truly long-term thinking: but that's much easier said than done.
