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.
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.
Are These Numbers Real?
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.