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Basil Chen, M.B.A., is a
certified management accountant who has held various leadership positions in
public and private Canadian companies. He currently teaches at Centennial
College’s School of Business and is a Ph.D. student with the Center for
Values-Driven Leadership. Here Basil shares a case study in integrity and
decision making.
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As I sat back in my office
on a Friday afternoon looking out of the window before a long weekend, a nagging
thought crossed my mind - we are not going to make the Q3 sales numbers as we
had promised to the investors.
I walked across the hall to
the office of VP, Sales and Marketing and said, “Carl*, I don’t think we can make
the Q3 sales numbers this quarter. You have indicated many times that there is
a big sales order coming this quarter. When is it coming?”
“Basil, you worry too much,”
he said, reassuring me that it would all be okay. When I protested that we only
had a week before the quarter’s end, Carl said, “Ok, give me 48 hrs.”
The weekend passed, and on
Monday I found a pleasant surprise waiting at the office: a purchase order for $2.5 million on my desk.
Unbelievable. It was from a loyal client of the company. I read the Purchase
Order (PO) numerous times before I faced the truth: It was too good to be true. I knew this customer extremely well and
also knew that they did not have a need for such a large order.
I called my counterpart, the
Controller, in the customer’s company. I said, “Hi Tom. Thanks very much for
the large order; needless to say $2.5 million will go a long way in easing our
cash flow.”
There was a long pause. “Before
you start celebrating I suggest that you speak to Carl,” Tom said.
“What do you mean, ‘Speak to
Carl?’” I said. Long pause.
“Speak to Carl, please,” he
repeated.
The situation didn’t add up:
it seemed Carl was manipulating our end of quarter numbers to meet our
stakeholder’s expectations. This goes against Canadian business law, good
common sense, and our corporate integrity – but I didn’t want to accuse my
colleague if I could nudge him toward making the right decision himself.
I stuck my head into Carl’s
office and told him congratulations on the PO.
“What did I tell you?,” he said jubilantly. “We
will make this happen.”
“Let me be very direct – Is
this a real sale? Are they going to return the entire shipment next month and
we’ll end up issuing a credit note?”
Carl’s face turned red. He
retorted, “People return products all the time. What’s the problem?” With that
he ended the conversation.
I went back to my office to
contemplate what to do. Moments later I saw the president making a beeline
directly to my office without her shoes - just in her stockings. She walked in
without knocking and slammed the door shut behind her. She looked extremely
distressed.
“Are you questioning our
integrity?” she asked. “Be positive and accept the good news,” she told me, and
walked out of my office.
The picture was very clear
now – we had missed the sales target for Q3, but with the help of a loyal
client we were inflating the numbers. My plan to nudge Carl toward a better
choice had failed, because our president was personally endorsing the decision.
Now what?
I decided to give Paul (our
external audit lead) a call. I couched the conversation very carefully,
indicating that it had been a tough quarter and perhaps he should have a chat
with the president in light of the fact that promises were made to the market
and we may not make it. And perhaps it may be wise for him to come in and do a pseudo
review to have revenue assurance. Paul thought that was indeed a good idea.
After the phone call from
the external auditor, the company decided not to book the $2.5 million sales
and faced the music from the market.
Unfortunately, in Q4 and
the year that followed the dysfunctional behavior persisted - I then
danced to the music of my heart and exited the company.
The truth is, corporations,
and the leaders within, regularly face these sorts of decisions. It may seem
that the ends justify the means – that saving shareholder value is worth a
small compromise of the truth. But the real truth is that these decisions
eventually see the light of day and can have real impacts on the reputation and
future of our companies. Making a tough decision because it is the right
approach, the approach that maintains and even illustrates your integrity, has
dividends in the end.
*Names have been changed.
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