By Rick Nelson
Several years ago I asked our CFO, Casey Stenzel, to give a presentation to a group of senior leaders. Casey chose the topic “Doing Business the Right Way.” By way of antithesis, Casey posited the financial collapse of Enron to show how poor decisions, poor judgement, and ultimately lack of ethics can destroy even the most admired companies. His presentation has stuck with me these past several years and I wanted to learn more about the details of Enron and its demise. Casey told me to read The Smartest Guys in the Room. Trust me when I tell you: there’s a lot there!
Of course, the book details the financial manipulation and machinations that went on. Of course, it exposed the narcissism, hubris, and greed that comes to light in events such as the Enron collapse. And certainly, it did a great job of describing the failures of management throughout the organization. In short, a great book, full of learning.
But another major theme that jumped out at me was Personal Courage (or a lack thereof). The Enron leaders, peers, subordinates, vendors, analysts, and regulators all had a chance to push back on the shenanigans, but very few did. In some cases they feared for their jobs, or feared being wrong and damaging their reputation. Plus, run the right way, the business probably wouldn’t have provided the excessive compensation, bonuses, or stock benefit. Who would want to see that change?
In my 30-plus years of business, I’ve been there. I’ve seen things I believed were wrong and I failed to stand up. In a very personal example, I worked with and was very good friends with an executive responsible for a large division within a larger company I was charged with running. The leader was bright, passionate and knowledgeable when it came to his business. I was impressed with the way he hit the ground running and made an immediate impact on the Revenue, Gross Margin, and Net Income. Yet, something began to trouble me.
Several of the key financial metrics, namely Unbilled Revenue and Days Sales Outstanding, got larger and older each week, then each month, then each quarter. When I pushed for an explanation there always seemed to be a plausible one. More importantly, I wanted there to be one. I didn’t want to deal with the consequences of what I thought might be happening — specifically, manipulation of the financials. Over a period of 18 months I was warned by my business partners that something was very wrong. I was told by other business leaders that if they were allowed to account for revenue like this leader, they too would set new records. I was even told by my controller that the group was recognizing revenue for work the customer hadn’t approved or never agreed to pay for. In the end, that’s exactly what was happening.
How had I let it go on that long? Why was I willing to ignore those I trust most for the weak cover of a clearly bold-faced lie? Answer: I lacked the personal courage to take action. Initially, I didn’t want to be insulting and assert that the individual was untruthful. Next, I didn’t want it to be true because its truth meant the end of a long relationship and serious financial setbacks to the company. Finally, I lacked confidence that I could quickly right the ship if the leader was gone. (Now that’s backward thinking!)
In the end, It was exactly as the controller had laid it out. With the support of my colleagues, I summoned the courage and the confidence to take action. The leader was terminated, the contracts revisited and validated, the road to recovery set in motion. Today that business is healthy and thriving.
My failure to act quickly could easily have meant the end of that division, and it jeopardized the entire company. I will never let that happen again.
Today, when a situation doesn’t feel right, I consider the following three questions:
- There are at least three sides to the truth: Mine, Theirs, and Reality. Am I looking at and listening to all sides?
- If my instincts and experience suggest trouble, what is preventing me from acting?
- What are the consequences of doing nothing?
What I learned from The Smartest Guys in the Room is that a single incident generally isn’t enough to destroy a good thing — but the unchecked parlay of bad behavior is certain destruction.
Do your part.
Chairman, Launch Consulting Group
What kind of lessons have you learned about Personal Courage?
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