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Criminal Fraud and Punishment

January 30, 2014 //
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Those who have followed this blog know that one of my favorite subjects is Fraud. Mainly the type committed by those who make the most and need the money the least: Management Fraud. But there exists, of course, a million other types of fraud, from con men to tax evaders. Which brings us to this tale of two famous or infamous fraudsters in the news recently.

Dennis Kozlowski was the CEO of a conglomerate called Tyco. Through acquisitions, Kozlowski grew Tyco into a giant public firm which was very successful and respected by Wall Street. He also managed to get paid tens of hundreds of millions in compensation from salary, bonuses and stock awards. But somehow this may not have been enough. Kozlowski was convicted of “stealing” from his company with an elaborate compensation package and outlandish expenses. These included a $30 million company owned NYC condo with, among other things, $6,000 in shower curtains and over $10million in artwork. You would want your luxury condo to look good after all. And let’s not forget the birthday party for his then second wife on the coast of Italy for which Tyco paid half of the $2 million cost. For all of this he was sentenced and just completed serving over 8 years in prison. One of the harshest sentences ever for a corporate executive. Kozlowski reported to a Board of Directors who were supposed to monitor his compensation and certainly understood much of what was going on. None of the Board were charged. Many business writers believed that Kozlowski’s punishment exceeded the crime in these circumstances.

Ty Warner, of Chicago, invented Beanie Babies and has been listed as having over $5 billion in net worth. But what does Ty do? He puts a mere $100 million or so of it into hidden Swiss bank accounts. Over a decade he uses different names including a foundation to evade U.S. income taxes. He has now paid our government over $70 million in back taxes, penalties and interest. The criminal trial just wrapped up. His lawyers argued that this tax evasion was the only mark on his lifelong business and charity record. Seems like a pretty big stain to me. The federal prosecutors argued for at least a year in prison as an example to others. The Chicago judge ignored federal guidelines of up to five years in prison and sentenced Warner to two years of probation and community service.

It was tax evasion that finally got Al Capone, also of Chicago. Tax criminals and corporate criminals should be treated the same. Ironically those who perpetuate most of these Frauds have the most money and the least reason to do so. It is very often more of a second thought or a game to them. So when caught and convicted, they should pay.

So what should we learn from all this? Individuals who commit fraud should be prosecuted with a criminal trial not just an out of court settlement. So often public corporations are afraid to deal with this type of unpleasantness and just announce that someone has left to pursue other interests. If those who commit fraud are not properly dealt with, it sets a terrible example for those who remain. It also allows corporate criminals to go off to some other organization and perhaps act in the same fashion. And it should not matter if the fraud involves expense accounts, kickbacks or tax evasion. Corporate America went through a rough patch with companies like Tyco and Enron grabbing headlines for all the wrong reasons. Some of the punishment was excessive in comparison to earlier times or similar crimes. What we need is consistent sentences based on federal or state guidelines. And even those with records as otherwise model citizens or major charitable donors should do prison time if that is the norm. Criminal Fraud should be followed with criminal punishment.

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Business Zoo 2013 Ending Thoughts

December 31, 2013 //
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With the end of any year, many people like to reflect on what has occurred and what may be ahead.

Thought #1 A Poem:

A great boutique hotel we enjoy is The Pillars in Fort Lauderdale, FL. Their Owner sent out the typical year end greeting and thank you for your patronage email. But, also citing the idea of people taking this time of year to examine life, he sent along a little gift. It was a YouTube video of the famous Rudyard Kipling poem, “If”.

You all know this short but powerful poem about hard work and dedication as the keys to success. But it is also a poem about how to deal with people and yourself, at times, in our complex world of relationships. Kipling’s words are as true today as when written a 100 years ago.

This particular poem also has special meaning in my family. I carried a paper version with me for a decade and then gave it to my son, Mike. Mike has now passed it onto to my grandson. And although the original words were written from  father to son, its meaning applies to everyone. I sent a copy of the email to a couple friends who were dealing with work/life transitions and they really enjoyed it.

So take a moment at this time of year to reflect. Maybe read a favorite poem or quote of your own.

Thought #2 Endings versus Beginnings:

A favorite writer of mine, Steve Rushin is back with Sports Illustrated. In his year end column dated 12/30/13, he covered a favorite theme of mine. He called the article, In Closing, and his message was “It’s not how you start but how you finish”. He used both sports analogies like Auburn beating undefeated Alabama on a miracle last play and even Arthur Miller’s play, Death of a Salesman.

The way I discuss this concept, especially with young people, is to say that the beginning of anything, and even the middle, is not as important as the end. This can apply to a new work assignment, a new major project or even a crisis. When my former firm, USG Corporation, went through its first financial crisis, we spent three and a half years on the brink of bankruptcy. Most of that time was terrible, for me as CFO, for our crisis team, and the rest of our employees, vendors and stakeholders. At the end, we successfully negotiated a settlement with all our debtors which turned out very well for all concerned.

This also applies to your personal life. A new relationship or even a marriage may start off great but how does it end? A health issue may come as a major shock but with today’s technology can often end much better than expected in the past.

2013 was a tough year for many of our family and friends. Financial or health issues or both. But now that we are at the end of the year, let’s look forward to 2014 as a new beginning and hopefully one that ends a lot better.

So from the Business Zoo, the wish of a wonderful 2014 and a bunch of great endings for all of you!

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Merging the U.S. and Canada

December 19, 2013 //
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No, this was not the opening on The Today Show or announced on Fox or CNN recently. Rather this is the subject of a new book published by Harper Collins by a dual Canadian-American citizen, a Ms. Francis.

Normally, or never, have I done a book review on this blog. We will not start now but we will make several observations about the book and its main premise.

Ms. Francis’ main points involve the economic logic of the two geographic neighbors becoming more of a “more perfect North American union” to compete in the world’s economy. The two countries would have an economy larger than the European Union and a wealth of nature resources, energy, water and technology.  Each country would gain something to compete better in the global economy. And the two countries (and Mexico) already cooperate on a number of fronts.  All of that actually makes sense.

But, as with many grand ideas, this starts to fall apart in the detail and especially in what I will call the “softer” issues.

First and foremost is that U.S. citizens call our selves, Americans. We believe that we are the one and only Americans. Technically, of course, we have other neighbors like Canada that could say that but only we do. Why is that? Because we believe we are, to quote Ali, The Greatest! We really never think about Canada. If U.S. citizens are asked to name some famous Canadians, we might stumble on a sports figure like Wayne Gretzky or the younger kids might say Justin Beiber but we struggle to name anyone from up there. And do not ask us who the current Prime Minister is yet alone his party. We really do not think much about Canada or Canadians. Sorry about that.

Second, and Ms. Francis does mention this, is that both countries have strong regional issues. In Canada and in Quebec province we have the French. An equal language with English. U.S. citizens do not get that one at all. Of course, we have a third of our population whose primary language is Spanish, which the Canadians might find confusing. And as different as the U.S. is with its south and west, let alone its Texas and California, Canada has very unique cultural differences between the Maritimes in the east to the their own cowboys in Calgary.

But lastly and maybe the most importantly is a small Canadian secret. Ms. Francis talks about our two countries as best friends. As noted above, one of the friends knows or cares nothing about the other. But worst than that is something my old boss Don Brown taught me. Mr. Brown was born in Canada but spent most of his life and built his business in the States. One day, on one of our private lunches or helicopter flights together he asks me a question. Brad, you have traveled all around the world for my company and met a lot of people. Which country do you believe dislikes the U.S. the most? I assumed he meant France, since the French seem to dislike everyone so that was my answer. He smiled and said, No, it was his birthplace and our neighbor, Canada. The Canadians, he explained, are so close to the U.S. and all it offers but are not here. So they are jealous and secretly dislike the U.S. Over the years, I have asked a number of Canadian friends and they all privately agree.

So, no merger of the U.S. and Canada anytime soon!

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Signs of our Financial Times #2

December 10, 2013 //
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Earlier this year I wrote about two articles in the Wall Street Journal that dealt with our world of banking and debt.

Now two more showed up and again reminded me of how our current improving financial times are just part of a never ending cycle. Things get bad, banks do not lend even when they should. Things seem better and banks want to lend and go crazy.

“Shift on NonConforming Mortgages” Wall St. Journal 12/3/13

Banks until recently were very concerned and cautious of who and how they lend money especially on the very mortgages that got them and the whole country in a mess. The article points out that now many banks, and yes, even the ones who were sued by the government and various states for their role in the mortgage crisis (like poor Bank of America), are now starting to make mortgage loans that do not conform to current lending standards. The article states that this might be the old interest-only loan again. Or a loan to someone whose income does not qualify them for the amount borrowed. Or where the bank will not fully document the borrower’s income or assets. To start, bankers claim these loans will only be made to their wealthier, high-end clients.

Well, I assure you this is where it started a decade ago, before we had our mortgage crisis. It starts small and limited. Soon banks, and the infamous mortgage brokers who feed the mortgage industry with new loan applications, will be making most of their loans that are nonconforming or do not meet standards. Last time it ended in a crisis. And we will likely have one in the future as these trends continue.

“Banks Brace for Tighter Regulation” Wall St. Journal 12/4/13

This article deals with the fact that now that the mortgage crisis is over (for this round), the government will finally force banks to limit their overall lending and investments in what we will call collectively “hedging”. In the mortgage crisis, you recall, banks managed to not only make what we called above, nonconforming loans, but they managed to bundle them and sell them multiple times and in parts and pieces to each other and make money doing it. Until they lost money doing it. So the new regulations will restrict how much of this type of trading or investing banks can do.

I have wondered for the last five or six years why these rules were not put in place already. But the banking industry has a very serious lobbying group and are a big source of fund-raising even for Congress people who claim to hate banks. So it has taken forever. It will be watered down.  Bank groups are concerned they will not be competitive with other global banks. And in the end, the new rules will accomplish, sadly, very little. And we will have banks too big to fail, failing again.

A friend in Florida just gave me further evidence to our future reoccurring  financial fate at the hands of banks, mortgages and the housing market. In the last month, he had two real estate people knock on his door and asked if he wanted to sell his condo. He is in a nice area and has an end unit which the brokers claim they have a buyer for.

Real estate agents cold calling. Banks giving out nonstandard loans. And the government unable to meaningfully limit banks and their practices. Have we seen this movie before?

It is just a sign of our financial times. But be care out there in the world of real estate, lending and banking. And in the Business Zoo!

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Private company Incentives-Special Payroll

December 4, 2013 //
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I  really enjoyed the last post about private company incentives and the infamous Donn Corporation Outings. So today we are adding another unique reward that few companies would ever use.  Again this occurred at Donn Corporation while it was private and for reasons you will soon see was quickly discontinued when Donn was acquired by a very public firm. ( Warning: Some former Donn Corporation managers may want to delete these from their spouses’ computers or create one heck of a backup story!)

The Special Payroll Account:

The Donn payroll manager, Opal, maintained what we called the regular office/management semi-monthly payroll. This payroll worked like thousands of other ones at other firms.  But Donn’s Chief Financial Officer (my old mentor George, then me and our trusted Administrative Assistant, Kathy) maintained the special payroll Account. Both of these payrolls were, of course, reported to the IRS and the applicable state taxing people, but the special payroll offered people some unique benefits. The regular payroll only covered annual salaries to a fixed amount of say $75,000. Any base salary or bonus over that amount was paid quarterly from the special payroll Account. This insured that no one in payroll or accounting or anyone in a small department would ever know any top managers’ total compensation. Likewise, no one would ever know Don Brown’s or his family members’ total compensation. The accounting was handled by charging the special payroll in a large lump with no detail.

All of this is perfectly legal but with one moral caveat. Many of the top managers insisted that we not mail these special payroll checks to their homes. Rather they would come by personally and get them. Some of these Donn managers maintained special bank accounts of their own where they would deposit these special payroll checks. These amounts could buildup. For example, if you had a base salary of $100,000 and a bonus of $25,000, your special payroll checks that year totaled $50,000 before tax and say $30,000 after tax. After 5 years that’s a $150,000 special bank account. These non-reported-at-home funds could be used for hobbies, to pursue other interests or perhaps even charity.

When the large, public firm USG Corporation acquired Donn, several long-time Donn managers immediately quit rather than risk their marriages with the pending disclosure of their full salary checks. Some of us actually intermingled and disclosed our regular and special checks at home and did not have this problem.

But Donn’s owner, Don Brown, understood human nature and incentive rewards more than most Human Resource professionals. Mr. Brown also understood the little bit of larceny in the hearts of mankind that the Special payroll allowed some people to pursue in private.

This is probably another example of a private company incentive that is best not continued! But a great and true story.

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Private company Incentives-Outings

November 6, 2013 //
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In my book, The Business Zoo, I often compare and contrast how large public companies handle an area versus small, private firms. Some of the most vivid and striking differences involve how they motivate and reward their employees. Large, private firms, with all their Human Resource people, are often more rigid and follow exact guidelines. Private firms, historically, have more creativity and latitude. Here is a favorite example from my days at the very private Donn Corporation.

The Men’s Outing and the Women’s Dinner:  (Warning: These activities occurred and were named before our era of political correctness.)

The Men’s Outing was just that. All the 250 plant and office men at the main Ohio plant, on a Friday, traveled by buses to a nearby state lodge.

The bus ride down started at 7am and was always a treat especially for any innocent office guy who accidentally ended up on one of the plant guy buses. Beer was consumed before the ride as the neighborhood bar, Kelly’s, opened, probably illegally, at 5:30am that one special day each year. Beer was consumed on the bus ride. Beer was, at times, discharged or eradicated on the bathroom-less bus. Beer cans, empty, occasionally were ejected from the bus window, always in a safe and thoughtful manner. I know this firsthand.

My first year at Donn as I walked to the office guy bus, one of the plant managers grabbed me. His nickname for many reasons, was the Bear, and I knew from day one, he was not fond of me. Whenever I passed him in the Donn hallways, I would say Hi and the Bear would say f__ you. It took me months to actually understand what he was mumbling. This day he uses my real name and asks if I would do him a favor. My golden opportunity to bring him into my circle. I say, of course, Bear! He hands me a roster for plant bus #2 and says I am now in charge of making sure everyone is on it and to maintain order! Before I could decline or even asked him a question, the Bear disappeared! This was hard for such a big man to do. I took my roster, got on the plant bus #2 then tried to read the roster and take attendance.

A beer can, full, just misses my head. I made myself invisible for the next few hours. I still am abnormally uncomfortable while on buses. Fortunately, no one was seriously injured or went missing that day from plant bus #2.

The next year I drove, by car, with my old boss, George, to the Outing. Once at the state lodge, you could play golf, go fishing, ride horses, and of course, drink beer. No official Donn business took place.  All the lodge activities, facilities and meals were free to the Donn employees. At night you could play cards, go on nature walks, drink beer or terrorize the other unfortunate guests or those in the nearby community. Although officially no one except a select few senior people, like the owner, Don Brown, or George, were allowed to drive there, somehow a number of our employees managed to make their way to the local towns and bars to, of course, drink beer. But to insure there were no serious problems, the Bear and the other plant managers would visit the local police and sheriff units and drop off a donation (read  alcohol) a few days before the Outing. This somehow bought them a get out of jail free card and the ability to a arrange a private midnight pickup at the local holding cells. Each year at least of couple Donn guys were so reclaimed. It would have been bad form not to have one of the employees return home.

The next morning after breakfast the buses departed for the Westlake plant. The two hour bus ride back was much more somber and quiet. The beer had all been consumed and any stray cans removed by the plant managers so the employees could return to their families with at least a modest level of sobriety.

On the ride back each Donn employee was given a very nice gift (a small handbag, a folding umbrella) to take home to their spouse or girlfriend. This was how Don Brown included the family and thanked them for letting their guy go away overnight. Mr. Brown usually thought of everything.

The Women’s Dinner was actually that. All the women at the Ohio office and plant were taken to a very nice local restaurant. The Dinner was to include only one alcoholic drink to insure respectability. If only we had that rule on the Men’s Outing buses! But to help make the evening more enjoyable a senior manager, George in the early days and later me, would go over early and buy a round of drinks on the Company and then leave. The Dinner was not on par cost-wise with the Men’s Outing but it was a lot more civilized. We never had to go to the local police stations at the end of the Women’s Dinner. The ladies really enjoyed the event and I miss those Dinners more than the rowdy Outings.

In my next twenty years with two large public firms, there were no events quite like Donn’s Men’s Outing or the Women’s dinner. And maybe that was for the better!

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The Noble Peace Prize Mistake

October 28, 2013 //
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The Noble Peace Prize made big news again recently. Not for who was granted the award. The people who inspect and deal with chemical weapons certainly deserve recognition. But this year the news was about who did not receive the Prize, a 16 year old young lady from Pakistan, who survived a murder attempt from the Taliban because of her outspoken views on women and education. We all know her as Malala.

She has appeared on worldwide television. In the U.S. she has been interviewed by Diane Sawyer, Jon Stewart and CNN. On Ms. Sawyer’s special, Malala came across as very mature for her age and extremely well spoken. Noble Prize or not she is a wonderful example for young people everywhere.

Which brings me to my point and why it was a mistake to not award her this Prize. The five Peace Prize committee members, who average 67 years old, looked at almost 300 different possible individuals or groups. The committee, which is organized in Norway, does not reveal its final selection process. It has been suggested that Malala was very young to win this prestigious award. This is because they Don’t Get It!

The goal of the Noble Peace Prize is to recognize those who promote peace and to spread that message. Like an Academy Award Oscar, many past recipients are old and did their work in the past. And that is ok. But here the Noble Committee had a chance to capture the imagination and excitement of the youth of the world and send them a message through this young lady. It is the young people today who can remake our world, not my boomer group. It is these same young people who are so involved in social media whether it’s Twitter or Facebook or whatever. This is how the world works nowadays. This is how you can sell a product or a service or even better here, the cause of Peace.

When my generation of baby boomers grew up the U.S. had just won another world war and we were shocked to see what happened with our involvement in Vietnam. Today’s young people have seen our country engage in a decade of wars in the middle East, often with no clear outcome.

So wouldn’t the thought of a very brave and special 16 year old young lady winning the Noble Peace Prize have had a lot more immediate and  longterm impact on the mission of Peace?

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Management Fraud and Executive Expenses

October 21, 2013 //
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I was reminded recently that I had not written in awhile about one of my favorite topics, Management Fraud. Our focus here and in my book, The Business Zoo will concentrate primarily on those people who should know better, people who already make excellent money and who often believe they never did anything really wrong. This is called Management Fraud. Sometimes this can take on giant proportions like kickbacks from suppliers and sometimes it can seem almost like petty cash when it involves travel and entertainment expenses.

As is my practice with potential crimes, we will leave the company and person’s name out to protect their families any further embarrassment. We call this tale: Grooming a Senior Corporate Executive’s Expenses.

As individuals rise to the top of the senior corporate ranks, they get many benefits and privileges. Besides higher pay, bonuses, and stock options, they often are awarded private lunch club memberships, and in the old days, golf country clubs, company cars etc. But this is not enough for some people. For whatever reasons, a certain Senior Corporate Executive working with this company needed more. So the Executive started charging some personal expenses like hair stylists. To make matters worse, the same Executive spread over several expense reports, the cost of a holiday party at their home for their staff. That was against company policy as well. The sum total of all this was very minor compared to the Executive’s salary and bonus. What is also interesting is that the people who dream up and do things like this, are never someone you would expect even if you knew something about Management Fraud.

Expense accounts for senior executives at public companies would make exciting reading, if published in the Wall Street Journal. This actually happened to the, now imprisoned, former chairman of Tyco who charged the infamous thousands of dollars shower curtain. Sadly, senior executives’ expense accounts are often prone to these types of vulgarities. Why? Because for some the higher up in a firm they get, and the more they get, the more they actually believe they deserve.

Pushing your expenses seems like an easy way to get what you believe you deserve. Compounding the problem is this little understood fact: the expense reports for senior executives are reviewed and approved internally by other senior executives! Now some senior people actually do review each other’s expense reports as though they were important; others well, not so much. Sometimes very senior people like a Chairman or CEO, by necessity, have lower level executives review their reports. As CFO at one of my public companies, I reviewed and approved my boss’s expenses. But what should be common knowledge to the Executives at large public companies is that Internal Audit will review or spot check all the senior executives‘ expense reports. And every year or so someone gets caught. And usually for something stupid.

Our Senior Corporate Executive’s improper grooming and party expenses turned a spot check into a multi-year full blown review of all expense reports and departmental spending for the person and their staff. The Senior Corporate Executive and a direct report abruptly left the company “to pursue other interests.” This dreaded corporate jargon phrase usually means they were fired and had to go pursue something else.

Perhaps they learned a lesson and went straight on their expenses. But nowadays with less goodies, like country clubs, I doubt it.

The moral here is simple. Everyone in business and life needs a type of “moral compass” to tell themselves what is right versus wrong. You need to develop this when you are young and starting out and, by the time you are a Senior Corporate Executive, you won’t cheat on your expenses!

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Shutting down Congress and other Sequester Ideas

October 7, 2013 //
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Normally I, like some people, try to avoid politics. But this government shutdown is just too much to ignore. So some thoughts.

Shut down Congress first. The actors in television shows about teachers who turn into mean-spirited meth dealers are more popular than our elected Congressmen. And every week we learn something new and unpleasant about those in our legislative branch of government. I am not referring to just those who text improper pictures. Congress is exempt from the new Affordable Care Act because they have a much better, super medical plan. Congressmen and women who serve one term get this medical plan for life along with their salary as a lifetime pension. Then this last week we learned that when one of them dies, even years out of office, their spouse gets another one year salary as a death benefit. Why do they get all these things? Because they pass the laws that allow them to get them. We complain how corporate executives have too many benefits but at least a Board of Directors is involved, whereas here it is self awarded.

So shut down Congress without pay or benefits.  Not just their staffs who are being gradually placed on leave, but the big bosses.  As my wife would say, give some of this money to those who have served in our military services. We would still save money and we would not lose much if they were all gone for awhile.

The other related thought was to prohibit the President and Congress from talking to any media person until this budget issue is fixed. Without our never ending, 24/7, on 200 channels, news coverage, I am not sure we would even have a Sequester problem. Could you image some of our forefathers scheduling news conferences to rattle on about all this. Not Andrew Jackson, nicknamed Old Hickory; he fought duels with rivals not shout-outs on CNN or Fox. Most of our early Congressmen had real jobs or farms to work and could not afford to waste the endless media time that our current crop eagerly does. This plan might cost some young newscasters their jobs but I am wiling to take that risk.

Finally, I have believed forever that although we are the most fortunate and wonderful country in the world, we may be one of the most amateurishly managed one as well. We elect and often re-elect felons to office. Our main criteria seems to be that they are almost all lawyers by background but who rarely worked in the practice of law or anything else for that matter. We generally hate to elect business people or self-made successful people of any kind.

Maybe we need to re-evaluate our criteria for our elected officials. Less lawyers. Avoid those who love the media. Elect those who have really done something useful in their prior careers. Having them at least wrestle on YouTube would also be fun and make them more popular!

Thanks for listening. I feel better!

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A Good Board Director

September 30, 2013 //
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I have recently complained about Board of Directors especially in large, public companies.  But occasionally, I have run across some real, value adding, hard working Board members. Here is the story of one.

Cole National and its Misplaced Cash:

Cole National was founded after WWII by leasing spaces in Sears stores to make keys. It expanded over the years to leased optical departments and then to one of the first mall kiosks with their Things Remembered Shoppes, which sold items and performed services like engraving.

Cole was a client of my employer, Arthur Andersen, when they expanded rapidly and lost control of their business. One summer, AA&Co. sent several of us to help Cole out. This led to my first ever, face-to-face meeting with a Board member.

My assignment at Cole was to help with their massive cash management situation. For a month, all I dealt with were their many bank accounts scattered around the U.S. Perhaps we should call it their cash unmanaged system. Why? Due to their focus on rapid growth through acquisitions and new stores, they had lost control of their cash. At the same time due to heavy debt and a retail downturn, they were losing money and their stock price was falling. When this happens, even an often reluctant Board of Directors is forced to got involved.

Cole had not been able to track their cash flow or even reconcile their three hundred bank accounts for over six months. You may think this is a very rare event, but I can assure you that companies often lose control of aspects of their businesses.

So what did we find? Retail stores were being opened so fast that their sales and cash were piling up in some small, remote bank and never being transferred to headquarters. With some of the recent acquisitions, large cash escrow or down payments were placed in bank accounts that were never closed out. There were accounts with large untouched positive balances and some accounts with large overdraft balances and fees. This situation was a textbook on what not to do with cash.

But the worst was the Main Retail account that was supposed to receive all the transfers from the stores. It was not just a cash nightmare, it was an accounting one as well. Cole was trying to account for the sales of their lock and key business separately from their optical and other products by using the proceeds into the overused Main Retail Account.

In the end, we found, in today’s dollars, about $500,000 of cash the Company did not know about; a very big deal when they were having trouble with both earnings and their banks. All of this went into a dozen page report that listed account numbers, misplaced cash balances, and even proposed journal entries to correct things.  I also wrote new procedures for managing and reconciling both the stores and Main Retail account.

Which brings us to the Board of Directors. Our reports were submitted both to Cole’s Controller and their head of Internal Audit. Apparently, the Finance Committee of their Board also received a copy. On one of my last scheduled days at Cole, their Controller comes over and says that a member of their Board Finance Committee wants to meet with me about my report. At that point of my life, I assumed this was like meeting with another client executive, no big deal. I had not yet been trained on the almost mystical importance of such men. Only in my later years, did I learn the vast power of Board wizards and the need to constantly care for and feed them (both data and food).

A meeting is arranged with the Board member. I assumed the two of us would sit down across a desk and chat. But no, the meeting will be in the Board room. And besides the two of us, the Corporate Controller, the Manager of Corporate Accounting, the head of Internal Audit and I am not sure who else shows up. This is before Power Point, so the only media is my dozen page report which everyone seems to have a copy of. The Controller introduces me and asks me to summarize my report’s highlights. The dialogue goes like this:

Me: we found dozens of overdraft bank accounts.

Director: is this true?  The Cole people nod yes.

Me: we found dozens of accounts with untapped cash.

Director(louder): is this true? Cole people nod yes.

Me: in total we discovered over $500,000 in unknown cash.

Director(louder yet): is this true! Another yes nod.

Me: we reconciled 300 bank accounts for 6 months.

Director(pounding on table): I guess this is true! Yes nods.

Me: we wrote procedural recommendations on all this and how to reconcile the Main Retail bank account which will take someone 1 week a month to do.

Director, turning to me, shouting: 1 week that is crazy!

Me: it took me a week the first time, now I am down to three days. The person I just trained will need 1 week.

Director, yelling at Cole people: adopt these new procedures in a hurry and never let this happen again!!

Director, to Me, smiling: good job, thank you.

What did I take away from that first Board member encounter at Cole and what have I learned later after many encounters?

Then, Board members must often get really involved!

Later, not. If this was true, Boards and companies would be much better off. Directors rarely get this involved and, if they do, it’s because there is a terrible crisis.

Then, the Cole managers seemed afraid of the Director.

Later, sadly true. We are told that Management serves at the Board’s pleasure. But fear is not good in a Zoo or a Board room.

Then, Directors yell at Management but are nicer to, and even compliment, outside Advisors, like me.

Later, Directors are often too nice to and influenced too much by Advisors. Directors rarely yell at or confront company managers even when they should. This is especially true in a full Board meeting with dozens of people.

So what are the overall takeaways from this Business Zoo tale? For managers, when you meet Directors, know your material and act confident, not afraid. And for Directors, get more involved in the details, even if its only Cash; it will be noticed by management and can really help.

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