Crisis Management Flashcards

What is the first step a turnaround professional should take when engaged with a deeply distressed company?

Answer: Conduct a rapid diagnostic to assess the severity of the crisis and available options

A rapid diagnostic — assessing cash position, debt obligations, operational performance, and stakeholder dynamics — must precede any action so the practitioner understands the true situation.

What is a 'liquidity crisis' in the context of corporate distress?

Answer: A situation where a company cannot meet its short-term cash obligations as they come due

A liquidity crisis occurs when a company lacks sufficient cash or access to credit to pay its immediate obligations, regardless of its longer-term asset value.

Which of the following best describes 'stakeholder communication' in a crisis?

Answer: Proactively managing the message to key constituencies to maintain confidence and cooperation

Proactive stakeholder communication during a crisis — with employees, customers, lenders, and suppliers — helps maintain trust and prevent panic that could accelerate the company's decline.

What is a 'going concern' opinion from an auditor?

Answer: An auditor's warning that substantial doubt exists about the company's ability to continue operating

A going concern opinion is issued by auditors when they have substantial doubt about a company's ability to continue operating for the next 12 months without corrective action.

In crisis management, what does 'triage' refer to?

Answer: Prioritizing the most urgent issues that need immediate attention to prevent collapse

Triage in turnaround management means rapidly identifying and prioritizing the most critical problems — particularly cash-related — that must be addressed immediately to prevent further deterioration.

What is 'reputational risk' in a corporate crisis?

Answer: Damage to a company's brand and stakeholder trust that can accelerate business decline

Reputational risk in a crisis includes customers leaving, talent fleeing, and suppliers tightening terms — all of which can compound financial difficulties if poorly managed.