Can you imagine a doctor observing a cancerous tumor
developing in a patient's body--and failing to warn the patient?
Of course not!
Yet some professionals-accountants, attorneys, consultants--do
the same thing when they fail to alert clients whose businesses
are headed for financial trouble.
The most critical factor that ultimately determines
the fate of an under-performing or financially troubled company
is the early determination that "business as usual" is not working--and
a strategic change is required. Early detection of financial problems
prior to the onset of the death spiral provides the operating
executives the most options. Financial distress, like cancer,
is a progressive disease; the sooner its symptoms are noticed
and acknowledged, the greater the likelihood that the business
will survive and return to financial health.
Unfortunately, by the time many businesses acknowledge
that they need help, it's already too late. Left unchecked, their
little problems have turned into big ones--and their big problems
have grown claws and teeth. An early warning from a trusted professional
could have nipped the problems in the bud. But ironically, the
same persons likely to notice the first signs of business illness--the
accountants, attorneys and financial consultants--are often reluctant
to speak up.
Why Do Executives Wait So Long To Seek Help?
Many factors may prevent a CEO from acknowledging problems
or seeking help. An important one is her ego. The chief executive
of a company, no matter how large or small, expects to resolve
problems on her own. The business runs on her authority. If evidence
develops that indicates a serious problem may develop from an
error of commission or omission by the CEO, a subordinate will
rarely expose it. If someone does speak up, the CEO is likely
to discount it--after all, the subordinate doesn't really understand
the business. The CEO needs to hear the "bad news" from an objective
outsider whose expertise he respects.
Other Reasons CEOs Have Difficulty Acknowledging Serious Problems
Most CEOs and owners are operations oriented. They are
concerned with the day to day tasks of identifying customers,
delivering products and services, billing and collection, keeping
the lights on, meeting the payroll, etc. Rarely is there the time,
opportunity or motivation to objectively assess the results of
operations from a detached and professional perspective.
Too often the colleagues, employees, and many professionals
with whom the CEO comes in contact do not have enough of the facts
to be able to offer constructive comments or advice.
The owners and CEOs of a deteriorating business
are subjected to very high levels of emotional stress--because
of the perceived threats to their financial future and their diminishing
control over events which they interpret as assaults on their
senses of self worth and self esteem. As a consequence owners/CEOs
typically exhibit one or more of the following emotional maladies.
Denial - they avoid careful analysis of the
problems because they are reluctant to deal with the consequences
of the analysis.
Anxiety - they are frightened and devolve
into a fight or flight mode; they frequently take precipitous
actions that haven't been thought through and have unintended
They are depressed over their situation,
become catatonic and are unable to make decisions or take decisive
They become delusional and create coping
strategies that have a very low probability of success.
As a result the CEO/Owner is not in a very good
mental or emotional frame to perform the hard work of analyzing
the company's situation.
And Why Are Some Professionals Reluctant to Warn
Clients of Impending Financial Trouble?
As many experienced professional advisors will attest, constructive
criticism can bring on unintended consequences. Many have tried
to warn their clients - with disastrous results. Sometimes their
warnings are met with indignation ("So! You think I'm incompetent,
is that what you're saying?"), followed by a terse letter terminating
Often the professional is forced to listen to endless
reassuring monologues - how the current problems will vanish when
that multi-million dollar private investment deal comes through.
You know the deal being pursued by the guy who knows a guy who's
got a line on some money.
So Why Bother?
It's true that alerting an executive to the warning signs
of an impending business failure can be an unpleasant task. Still,
there are strong arguments for why each of us should.