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.