As my fellow business writer Ian Campbell and I have suggested repeatedly over the last few months, recession is now well on the way — the National Association of Purchasing Management survey today only confirms this.

Since it is almost 20 years since the U.S. suffered anything more than the mildest of recessions, I thought it worthwhile, in the spirit of helpful Bearishness, to suggest some strategies that top management can use to ensure that their companies, and they themselves, survive the recession with only modest wealth impairment.

A recessionary environment is very different from the prolonged boom the U.S. enjoyed from 1995-2000 and indeed from any period in the U.S. economy since the mid 1980’s. For a start, the rate of market and technological change slows markedly. While there is little evidence that the rate of fundamental scientific and technological discovery slows during a recession, the rate of implementation of those discoveries certainly does, because capital spending drops so sharply. Thus it will no longer be necessary to undertake capital spending programs for a market which may or may not exist, like the capital spending on internet-readiness, in which so many companies indulged during the late 1990’s.

Capital spending ahead of the market will in a recession be not only unnecessary but suicidal. This is because, in any recession which extends to the stock market, new stock issues become impossible to undertake. Consequently, capital spending must be undertaken out of retained earnings (which will be depressed by the recession) or from debt issuance. Companies which have stiffed their bondholders over the last few years by leveraging themselves unnecessarily, allowing existing bondholders to suffer a drastic decline in credit quality, are likely to find themselves cut off completely from sources of finance outside the banking system, which will be suffering its own problems of loan losses from over-ambitious LBO and consumer lending during the boom.

If the recession is deep and long, many such companies, which have cut themselves off from both bond and stock markets, will go out of business, unless they have a very strong franchise which can be acquired by a sounder competitor. Even those companies which can raise modest quantities of finance from bond or banking sources must tailor their capital spending plans closely to available resources. Thus capital spending plans must be modest, must have a rapid payoff in profitability, and must represent a clearly needed facility for the company’s existing businesses, not a product line extension, even less a new “green field” project.

The main skill needed in a recession economy is execution. Sewell Avery, 1930’s CEO of the late lamented Montgomery Ward, was famous for making the stores spotlessly clean, training staff to the highest possible standards of service, and inventing “Rudolph the Red Nosed Reindeer” as a Christmas marketing ploy. Needless to say, these skills were not in evidence at Montgomery Ward in the years — so good for the world, but so bad for Montgomery Ward — , since Avery’s departure in 1954.

Execution in a boom is very difficult; skilled staffs are more or less unobtainable and young whiz-kids, if sent to run the Dayton store, will defect to your competitors. Everybody has stories of poor service from stores, telephone companies and service establishments generally in recent years, let alone from dot-coms. This is not because such companies don’t care about giving good service, although as the boom has worn on it has appeared less and less salient to them, it is because, employing ever more marginal or even non-English speaking labor, they are unable to maintain recession-established quality standards. In a boom, this does not matter much; everybody else’s service is bad, too, and if you lose a few customers there are plenty of replacements.

In a recession, every customer counts. Customers alienated in the boom will be quick to leave, their loyalty destroyed, if they find a competitor whose service and execution are better. Hence, to preserve your company in a recession, you must ruthlessly cull your staff, replacing the fly-by-nights and the dullards with the superior, competent people who will become available once the layoffs commence. You must also enter an era of tight management, obsequious customer relations, “six-sigma” service defect avoidance, and faultless execution. The ideal manager will not be a creative genius, he will be a combination of encyclopedia salesman and bean counter.

People management will also be necessary in the executive suite. In the last several years, top management has awarded itself ever larger and larger grants of stock options, reflecting direct but undisclosed transfers of wealth from the stockholders, with which they have established lifestyles of Pharaonic opulence.

In the New Economy, this gravy train has already more or less stopped, with the NASDAQ index down almost 40 percent during 2000, although there are still many old stock options out there, issued in 1995-98, which will allow for some pyramid building when they are exercised. In the Old Economy, however, with the NYSE Index, an Old Economy proxy, having risen by 6 percent in 2000, there are still stock option schemes which, while less exuberant than in the New Economy, wiping out only a third of Net Income (like Alcoa’s in 1999) rather than four times Net Income (like Cisco’s in 1999) still provide remuneration far in excess of that traditionally necessary to attract competent senior management.

Once the stock options gravy train stops, therefore, because even in the Old Economy stock prices must decline from their current giddy heights, two things happen. Senior management, reliant on its base salaries, is suddenly highly dissatisfied. And the more lifestyle-aggressive senior management, or those with more aggressive spouses, suddenly has an income far below their level of spending.

To solve this problem, top management needs to take two actions. The first is to abolish the stock option schemes, replacing them, for management you wish to keep, by higher base salaries and possibly an old-fashioned bonus scheme, tied to long term profits not the stock price, and set at 25 – 100 percent of salary, not 1,000 percent. To hell with the IRS – the difference between 20 percent capital gains tax and the 33 percent top rate of income tax to result from the new Bush tax code is just not that significant. Stockholders will be shocked at first, by lower reported earnings, but later, as scandals erupt in the media and they come to realize how badly they have been robbed by undisclosed stock option wealth transfers, they will thank you for it.

Second, the Board needs to fire the big spenders, those executives who have allowed their spending patterns to race furthest ahead of the income they can expect to receive in a recession. Such people are now highly counterproductive, for two reasons. First, they are likely to go personally bankrupt in a recession, which is embarrassing to the company and distracts them from productive effort. More dangerously, they will be driven to seek ways to augment their income, some of which, given their “easy money” outlook on life, may well involve defrauding the company and/or its stockholders. As a recession top manager, you simply cannot afford this risk.

In the recession, it is likely that you will have to lay off innocent, productive factory floor employees as you rationalize operations. Start therefore, by firing those far from innocent top managers who have most abused the boom. Aesthetically, it is pleasing to rid the company of these nouveaux riches. Practically, it will materially contribute to the company’s survival in a downturn; however valuable they were in the boom, these people are of no more use now. Hopefully, redundancy early in the recession, before their financial position is desperate, will sober them up and allow them to find productive, more modestly remunerated work elsewhere.

As well as managers, stockholders will be unhappy during a recession and, in this age of institutional stockholder activism, may seek to offer you as a human sacrifice. If you have followed the precepts above, your company’s results should be better than those of your competitors. This will not however have the pacifying effect you expect if the stockholders’ only benefit is a more gradual decline in the stock price. To the extent the company can afford it, therefore, you should restore the dividend payout to the level of 60-70 percent of earnings historically typical of a slow growth company (which, like it or not, you now are) and thereby substantially increase the cash received annually by stockholders. Together with the abolition of the stock option scheme, this will have a surprisingly mollifying effect on stockholder activists, and thus should enable you to remain gainfully employed.

A recession economy is a different world. For some, it means job insecurity, slow promotion and financial limitations. For others — the older, the well established, the careful — it means slow change, good service, and fewer big-spending 28-year-old billionaires. It is a tradeoff that can be strangely attractive.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

This article originally appeared on United Press International.