In our modern culture of sound bites and instant analysis, we are sometimes so quick to digest events and move on that we often miss the big picture. A case in point is the current rush to put the blame for the Enron collapse squarely on the shoulders of its accounting firm, Arthur Andersen.
It is not my intention to take sides on this issue. After all, there's more than enough culpability to go around, and both firms - and their shareholders - will likely pay the ultimate price for their company's "misconduct." That is to say, neither firm may even exist this time next year.
Clearly, the accounting industry has some major problems, and some sort of stronger oversight is definitely needed. The conflict of interest problems created by the Big Five's collective move into more lucrative consulting businesses during the past decade definitely needs to be addressed, particularly given the almost sacred trust Americans put in annual corporate audits. Fixing this is a definitely a "must do."
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For public companies, quarterly earnings statements drive everything the company does and, if they're not careful, it can become a daily, if not hourly, obsession where senior management is engaged in squeezing nickels rather than on their primary mission. |
But let's not get carried away putting the primary blame on accounting firms, no matter how guilty they may be. After all, they're still only accountants.
What's with these CEOs who have elevated their accountants to the role of strategic business advisor? Or what about (non-financial services) companies that promote their CFO to CEO?
All of a sudden, things like tax implications and managing the float seem to become more important than the fundamental mission of the company, because that's where the CFO's background is. For public companies, quarterly earnings statements drive everything the company does and, if they're not careful, it can become a daily, if not hourly, obsession where senior management is engaged in squeezing nickels rather than on their primary mission.
That's a bigger threat to the long-term health of a company than an interest-conflicted accounting firm because it's more widespread.
Tire companies make tires, tool companies make tools, and when their leadership starts making strategic decisions based more upon money management rather than on responding to market conditions by making the best tires or tools, that company is headed for problems. You can bank on it.
That's not to say that money management is not important. Clearly, it is, but counting the money just isn't as important as making and selling your product, whatever that product may be.
That same is true when you're making a decision on where to locate your new manufacturing facility or distribution center. Most executives will make that decision based upon operating costs, work force quality and availability, transportation infrastructure, things like that.
In other words, the location has to make sense from a long-range business perspective.
They shouldn't make the decision based primarily upon the financial incentives a community or state is willing to offer, and most executives don't. That's because most executives have a strong sense of perspective, and they realize that financial incentives, while a part of the overall equation, are not the most important factor in the decision making process.
Even the most generous financial incentives won't make a bad decision good. It's all a matter of perspective.
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