Bouncing back: in the aftermath of the terrorist attacks, black-owned business learn the true...

PRISCILLA JOHNSON HAS ALWAYS PRIDED HERSELF ON being prepared for the unexpected. But the CEO of Johnson Enterprises (JE), a New York-based executive recruiting firm, wasn't braced for a full-scale terrorist attack in the heart of the city's financial district.

On September 11, terrorists

crashed two hijacked planes into the twin towers of the World Trade Center, killing thousands of the buildings' occupants and raining death and detritus on the streets below. As mayhem erupted, Johnson Enterprises employees conducted business as usual, holding their morning staff meeting in their offices a block away. But when the 110-story towers of steel and glass collapsed hours later, JE was rocked. Shattered glass and debris enveloped the office. Employees ran for cover. Amidst the pandemonium, the firm had sent a candidate to interview for a vice president's position at Fuji Bank, which had been located in the south tower.

After an exhausting week of calls to clients and associates who worked in the zone now called Ground Zero, the recruiters went back to assess the damage. Papers and rubbish were strewn throughout the once-immaculate space. Dustcaked computers were still logged on. The screen of one monitor flashed an ironic instant message: "Hey, are you all right?"

Although the 18-year-old firm suffered no human casualties, it took quite another kind of pounding. Such clients as Fuji and JP Morgan Chase halted searches for new employees, slicing JE's revenues. (The firm makes money by charging com missions based on the salaries of the candidates it places.) In fact, Johnson estimates the firm's annual sales will fall by 30%.

"Our revenues are being affected tremendously on more than one account," says Johnson, who expects JE to gross revenues of around $850,000 this year, compared to $1.2 million in 2000. "Some clients are directly affected [by the attack], and the economy is beginning to shrink." Fortunately, in the weeks following the attacks, JE has seen an increase in business.

But the iron-willed CEO is determined to triumph in the face of the devastation. And even though Johnson never would have forecast a disaster of this magnitude, she wasn't totally caught off guard. JE had had space in the World Trade Center at the time of the 1993 terrorist bombing. After surviving that incident, Johnson put in place a contingency plan for her firm. She purchased a $1 million business interruption insurance policy. To cope with any emergencies, she moved her back-up computer system to an offsite location and upgraded her software so employees could access data from home. During the latest crisis, Johnson, who had to evacuate her residence and stay with her daughter in Kansas, was able to e-mail homebound employees as well as retrieve critical client information. And she expects to change the cash flow model: Instead of JE receiving commissions per placement, the company will get its clients to pay retainers.

Like Johnson, other entrepreneurs and professionals are picking up the pieces. The displaced are acquiring new office space. The wounded--even those with indirect sales from industries affected by the attacks--are rebuilding their finances in order to stay in business. From the BE 100s to one-man operations, CEOs have been forced to take a crash course in crisis management. Now that America is embroiled in a war against Osama bin Laden and the Al Qaeda terrorist network--a conflict unlike any the nation has ever faced--they must factor the unthinkable into their strategic plans.

SAVAGE BLOW TO THE ECONOMY

A savage blow has also been delivered to an economy teetering on the brink of recession. Maintains Bernard Anderson, the Whitney M. Young professor of management at the University of Pennsylvania's Wharton School and a member of the BLACK ENTERPRISE Board of Economists: "We were right on the cusp of a recession before the events of September 11. It is difficult for me to see how all of the developments that have occurred will have any impact other than to tip the economy into recession from a very weak state."

The cost of the attacks is staggering. Some experts believe the economic damage may exceed $70 billion. In recent weeks, the stock market, which was already seesawing, has become even more volatile. And hundreds of thousands of blue-collar and white-collar workers have been pink-slipped as the airline, insurance, and securities industries took direct hits. More than at any other point in the past decade, businesses, large and small, are battening down the hatches and cutting expenditures. Consumer confidence, now at its lowest point since the Persian Gulf War, has caused the engine of the economy--spending--to sputter.

At this point, no one knows whether the $15 billion airline bailout package, the $345 billion defense spending initiative, and the proposed $75 billion economic stimulus package--complete with a new batch of tax rebates--will help jump-start the economy. In any event, BE Board of Economists member Thomas Boston believes African American business won't receive much economic aid. "The government will really focus on bailing out larger industries," says Boston, professor of economics at the Georgia Institute of Technology. "We are sort of at the back of the bus when it comes to any kind of recovery package."

WINNING AT ALL COSTS

African American entrepreneurs did not--and will not--let the September 11 attacks torpedo their businesses. And, despite the new war, they're fiercely determined to grow their enterprises. The new battle cry: win at all costs.

J. Donald Rice Jr. exemplifies this spirit. When Rice Financial Products Co. (No. 10 on the BE INVESTMENT BANKS list with total issues of $10 billion) was named the 2000 BE Financial Company of the year, he and his partners proudly posed for this magazine's cover photo in the corridor of their office space on the 52nd floor of the north tower. The hard-driven CEO was at home when he heard that a plane had plowed into the north tower. He began making calls to his 15 employees to make sure they were safe.

Then he focused on business. That afternoon, Rice, partner Brian Nevel, and associate Richard Pengelly roamed the city purchasing new computer hardware. Rice then converted his spacious home into the company's nerve center. By the next day, Rice Financial was up and running, with staffers manning new IBM computers, trading securities, and crafting deals. Within four business days, the firm had moved to new downtown digs.

The investment bank had been a World Trade Center occupant for seven years--one of a few African American financial firms with space there--and took great pride in having completely renovated the space into a sleek functional showplace. Now, Rice feels like he's in transient housing. "This tragedy is very personal," grouses Rice. "I feel like they came in and blew up my second home."

Sentiment aside, Rice says his firm can cut deals any time, any place. If it doesn't, vultures will circle before picking its bones clean. Case in point: For months, the firm had been in the process of putting together a $140 million municipal bond derivative transaction with West Basin Water District in Carson, California, among the largest deals of its kind to be done this year. Immediately after the attacks, says Rice, heavy-hitting Wall Street competitors tried to swoop into his territory and take the business.

To protect his franchise, Rice and Pengelly took the first plane available to Los Angeles--five days after the attack--and met face-to-face with the clients, assuring them that his firm was open and ready for business. With the help of West Basin board members R. Keith McDonald and Tyrone Smith, Rice closed the deal within two weeks.

Bernard B. Beal, CEO of M.R. Beal & Co. (No. 4 on the BE INVESTMENT BANKS list with total issues of $46.5 billion and this year's BE Financial Services Company of the Year), is another dealmaker who didn't allow acts of terrorism to destroy his resolve. Located a few blocks from the World Trade Center, Beal and his staff were forced to leave their offices, unable to engage in trading activities or properly serve clients. "It was really tough," maintains Real. "We lost a lot of business when Wall Street closed. We lost hundreds of thousands of dollars because of the attack."

To make matters worse, Beal had to market commercial paper for Ronald Reagan Washington National Airport, in Washington, D.C., which was shut down after one of the hijacked planes crashed into the Pentagon and reports revealed that the White House had also been a target of the terrorists. In short, he had to convince institutional investors to buy securities of an airport that federal regulators had shut down for an indefinite period.

Not to be deterred by the crisis, Beal did what he does best: work the phones. "[Washington National] was in trouble and Standard & Poor's was in the process of downgrading its credit," says Beal, who called more than 25 institutions, trying to persuade them to buy the issue. "We finally found two buyers. I convinced them the federal government would not go into default. It would either open [the airport] or buy it." The size of the transaction: $35 million. His instincts were right. Reagan National reopened on October 4.

DEVELOPING NEW STRATEGIES

Beal's firm may also do well by doing good. The firm became directly involved in the relief effort by helping one of its clients, Numotech Inc., a Northridge, California, medical device company, get critical supplies to burn victims. On September 12, M.R. Real managers Jamir Couch and Jarius DeWalt spent hours on the phone and visited government offices in an effort to transport 1,000 units of their client's innovative wound-care product, the Numobag, to a major New York hospital. Couch worked closely with staffers from New York Sen. Hillary Rodham Clinton's office and the Federal Emergency Management Agency (FEMA) to figure out how NASA could use its planes to fly the devices from California to New York--even though airports had been shut down for security reasons. Eventually, the Numobags arrived at the hospital via ground transportation courier services. For Beal, the commercial benefit may be generating sufficient investor interest in Numotech to complete a $10 million private placement. "The hospital's request of the product for New York burn victims hasn't helped [us] directly, but it does let people know it's a useful product," says Couch, the firm's vice president of institutional sales. "[This has] broadened our test markets of California and Florida to New York and it's a real-life situation. Prior to this, the product was tested on diabetes patients."

Financial services firms were not the only concerns affected by the attack and the ensuing war. For instance, Frank Mercado-Valdes, CEO of African Heritage Network, a television production and syndication firm that ranks No. 82 on the BE INDUSTRIAL/SERVICE 100 list with $35.5 million in gross sales, watched his company's revenues nosedive. "We lost revenue because, during the last three weeks of September, [television stations] were airing nonstop coverage of the disaster," says the entrepreneur, whose grandfather served as a laborer on one of the World Trade Center construction crews. "We lost roughly $1 million in billings in September due to ad cancellations and inability to air pro--gramming." To recoup losses, he's applying for federal disaster relief funds from FEMA for his company, which is located near Ground Zero.

Other companies have taken measures to fortify their operations as well. For example, Priscilla Johnson is pursuing low-interest-rate loans offered by the Small Business Administration. Moreover, she plans to boost revenues and cut overhead through her Top Diversity Talent Website, a new, low-cost avenue through which employers may identify promising prospects. Says Johnson: "Our logic is we can sell a less expensive product to more people."

This new wartime climate has sparked black insurers to rethink their product mix. "[The terrorist attacks] generated a whole new market for catastrophic life insurance," says Verdun Arnaud, senior vice president and actuary for Golden State Mutual Life Insurance Co., which earned the No. 3 slot on the BE INSURANCE COMPANIES list, with a net investment income of $7.9 million. (The industry defines a catastrophe as an incident in which two or more deaths occur.)

A LONG-TERM FOCUS ON INVESTING

The ever-turbulent stock market has produced a new crop of jittery investors. The week after the attack, the Dow Jones industrial average fell 14.26%, the worst weekly percentage loss in 61 years. The following week, it rebounded 7.43%, which gave investors a bit of encouragement. But before the nation even thought of going to war, the market was prone to wild fluctuations. Individual and institutional investors are showing a growing fear of uncertainty: They drained roughly $20 billion from stock funds from July through September, more money than has been pulled out during any other quarter on record.

But money managers caution investors not to bail out of the market during these calamitous times. Since World War II, the market has consistently rebounded after political and military crises (see chart, "Are You Ready for a Market Rebound?"). A lot of investors, however, are ignoring this fact and continue to pull money out of equities in search of greener and safer pastures.

Depressed investor confidence and a topsy-turvy market have impacted firms like Ariel Capital Management (No. 3 on the BE ASSET MANAGERS list with $5.2 billion in assets under management). "We were down 10% [the week following the attack] when the market was down 14%. We lost about $700 million--almost a year's work" says Mellody Hobson, the firm's president. "We're telling investors not to panic. We're hearing a lot of war language and nobody knows what it means."

Hobson is especially concerned that African Americans--especially first-time investors--will pull out of the stock market at one of its most opportune times. According to the 2001 Ariel Mutual Funds/Charles Schwab & Co. Black Investor Survey, which compares the investment attitudes and behaviors of black and white households earning $50,000 or more, African Americans display much more anxiety about market volatility than their white counterparts. In fact, the survey revealed 32% of African Americans have had their long-term confidence shaken by market turbulence, compared with 15% of whites. (See chart, "How African Americans View Market Volatility.")

In fact, nervous investors who decided to take their losses and sell shares of stocks and mutual funds right after the terrorist attacks may have severely shredded their portfolios. One month after the attack--on October 11--the market bounced back, recovering the $1.38 trillion lost because of huge dips after the terrorist attacks. And two of the three major indexes, the Standard & Poor's 500 and the Nasdaq Composite Index, rose above their precrisis closes of September 10.

Does all of this activity mean investors are out of the woods? Not by a long shot.

The market was extremely volatile before the attacks--and that was after significant pruning of interest rates by the Federal Reserve. Even though Greenspan and Company recently brought interest rate down to 2.5% from 6.5%--the lowest rate in nearly 40 years--expect the financial markets to continue their erratic behavior. They have been driven by the uncertainty in current events-ranging from the U.S. bombing of Afghanistan in an effort to cripple the Al Qaeda network to the anthrax scare. All this will continue to keep investors off balance.

In fact, experts agree with Hobson: Don't panic. Standard & Poor's suggests four tips for investors who are grappling with market turmoil:

* Implement a well-thought-out investment plan--and stick with it.

* Don't make investment decisions based on short-term market drops and gains.

* View a market decline as a buying opportunity.

* Talk to investment professionals and seek out those who have handled volatile periods in the past.

Hobson espouses the same tried-and-true philosophy of patient investing that Ariel is known for. In fact, the value-oriented firm continues to research everything from mundane entities that make laundry detergent and condiments to riskier companies in the hospitality and specialty retail industries. "We suggest that you don't do anything differently than you did before the crash," she asserts. "Why wouldn't you buy the same stocks you bought yesterday but at a cheaper price?"

Today, investors, professionals, and entrepreneurs alike need to be armed with timely information they can act on and a comprehensive plan that takes into account the unforeseen. Together, these elements are the basic requirements of commanders who lead troops into battle. In these uncertain and precarious times, nothing less will do.

--Additional reporting by Angela King and Cliff Hocker

Resources to Help Your Company Plan For a Crisis

The September 11 terrorist attacks imparted one lesson: Don't dare take anything [or granted. To help you develop a contingency plan to protect your company from manmade and natural disasters alike, check out these Websites of a few key agencies and organizations:

* Federal Emergency Management Agency (www.fema.gov)

* U.S. Small Business Administration (www.sba.gov/disaster)

* The Service Corps of retired Executives (SCORE) (www.score.org)

* The Kauffman Center for Entrepreneurial Leadership (www.entreworld.org)

* Contingency Planning & Management magazine (www.contingencyplanning.com)

* Business Contingency Preparedness (www.businesscontingency.com)

Are You Ready for a Market Rebound?

In most cases, the stock market has snapped back significantly after
crises ...

                                                  Percentage Change in
                                                  the Dow During Crisis

Pearl Harbor                Dec. 6-10, 1941             -6.5%
Cuban missile crisis        Oct. 19-27, 1962             1.1%
JFK assasination            Nov. 21-22, 1963            -2.9%
1973 oil embargo            Oct. 18-Dec. 5, 1973       -17.9%
Nixon resigns               Aug. 9-29, 1974            -15.5%
U.S. invades Grenada        Oct. 24-Nov. 7, 1983        -2.7%
Gulf War ultimatum          Dec. 24, 1990-Jan.
                              16, 1991                  -4.3%
World Trade Center bombing  Feb. 26-27, 1993            -0.5%
Oklahoma City bombing       Apr. 19-20, 1995             0.6%

                                                      Change After
                                                       Six Months

Pearl Harbor                Dec. 6-10, 1941             -9.6%
Cuban missile crisis        Oct. 19-27, 1962            24.2%
JFK assasination            Nov. 21-22, 1963            15.1%
1973 oil embargo            Oct. 18-Dec. 5, 1973         7.2%
Nion resigns                Aug. 9-29, 1974
U.S. invades Grenada        Oct. 24-Nov. 7, 1983        -3.2%
Gulf War ultimatum          Dec. 24, 1990-Jan.
                              16, 1991                  18.7%
World Trade Center bombing  Feb. 26-27, 1993             8.5%
Oklahoma City bombing       Apr. 19-20, 1995            12.9%

Note: Table made from a bar graph.

Source: NED DAVIS RESEARCH
How African Americans View Market Volatility

... but black investors are concerned about today's turbulent
investment environment.
                                                   African
                                                  American    White
                         You expect occasional
                            market corrections       88%       95%
     These days the stock market is a lot more
           volatile because of Internet stocks       68%       59%
     The stock market continues to be the best
                 place for long-term investing       67%       82%
Volatility will have little impact on reaching
                your long-term financial goals       52%       68%
                         The economy is headed
                            toward a recession       52%       40%
          Volatility has shaken your long-term
                confidence in the stock market       32%       15%
               The Internet stock boom is over       31%       43%
    President Bush will have a positive impact
          on your personal financial situation       22%       56%

Note: Table made from a bar graph.

SOURCE: THE ARIEL MUTUAL FUNDS/CHARLES SCHWAB & CO. INC. BLACK
INVESTOR SURVEY

RELATED ARTICLE: A tragic loss of life.

The mind-numbing loss of human life is the most horrid aspect of the September 1t attacks. More than 5,000 people are missing or dead, victims of the hijackings and assaults. These individuals represented productive lives across the occupational spectrum--from wage-earning blue-collar workers to wealthy white-collar professionals. They, in part, kept America's financial and economic machinery humming.

An enormous source of intellectual capital was lost with the deaths.

There was LeRoy Homer, 36, a decorated Persian Gulf War veteran and president of the Organization of Black Airline Pilots. He was the co-pilot of the United Airlines flight that crashed in Pennsylvania

Michael Berkeley, 38, successfully ran his own firm, The Berkeley Group, in the World Trade Center. The company was involved in securities brokerage, private equity investments, and golf course development.

Calvin Gooding, 42, a Wall Street veteran who rose through the ranks to become the only black partner at Cantor Fitzgerald LP.--the mammoth bond-and stock4rading firm that lost two-thirds of its 1,100 New York employees.

The aforementioned are but a few of large numbers of the African American casualties of the attacks. They, along with all victims of the tragedy, represent individuals that businesses, communities, and families can never replace.