Uncommon Sense: Clueless in the Boardroom
The conclusion I draw from what I hear and read is that some senior business execs haven't the slightest idea of what goes into their financial statements, what makes the firm's performance good or bad, or even what constitutes good or bad. At least four former leaders of multibillion dollar publicly held firms are claiming they didn't know what their financials meant, or words to that effect.
I don't know if that excuse will fly but I can, at least in a small way, understand their argument. I was blithely using TaxCut software the other day and when I finished, it told me I owed the Feds another $1,500! When I did the tax report with pencil and paper, I discovered why it came out that way but, using the software, I had no idea; the computer did the work. Do computers so completely separate results from the activities that produce them, that the managers of a firm can't connect the two?
Maybe that is the problem Bernie Ebers, Ken Lay and their friends are having. SAP, PeopleSoft, Oracle or some other ERP program steers them to enter numbers and the result just falls out. If they make the slightest mistake in entering numbers, as I did, it makes them look like they don't have a clue about how to run the business. It's hard to accept that senior execs can justifiably claim ignorance about fundamental business operations, but perhaps it's true.
I recently overheard one of a group of businessmen asking rhetorically: "How should I know whether the financials are correct or not?" They all agreed, yet they all make decisions every day that affect how well the firms perform; what else could possibly be the basis for their decisions?
On a financial program the other day, the hosts were mourning the fact that the directors of a multibillion dollar firm were being penalized for allowing its financials and business practices to be corrupted. They asked: "How could the directors know what was going on in the firm? How could they possibly know the numbers were contrived? How could they possibly know demand was being manipulated to indicate nonexistent shortages?" But what are the responsibilities of the board, if they don't include those questions?
On the shop floor, you're pretty much at the mercy of your leadership. However, remember that if things seem too good to be true, they may very well be, and you may, accordingly, wish to reconsider your career. You certainly want to be very cynical about where you invest your 401K, lest you duplicate the experience the Enron people had with their retirement money. Ethical or corrupt, talented or incompetent, your leaders make decisions that affect you not only today, but for years to come as well. So you need to be very aware of where they are leading and why.
For the senior execs, you owe it to your employees to lead ethically and thoughtfully, recognizing that your decisions are going to impact the lives of employees, investors and customers. I'm convinced that most CEOs know very well what affects the firm's performance and they make decisions accordingly and, in most cases, well. I hope the cases making news today are the wildest exceptions and that punishments will be applied appropriately.
I also hope that the unfortunate actions of a few won't be spread over all the executives who do manage ethically and thoughtfully. And if you really don't understand the financials, you had better spend some quality time with your CFO soon!