- Leading change
- Creativity and innovation
- Getting results
- Collaboration and teamwork
- Managing during crisis
- Giving and receiving performance feedback
- Increasing engagement
Skill Level Appropriate for all
- Sara Mathew joined Dun & Bradstreet as Chief Financial Officer in August 2001. Less than a year later, there was a problem. The company sales projections were down a bit, but nothing had really changed since she arrived, so why the drop in the forecast? And the answer turned to have something to do with this arcane accounting rule. Now apparently, there's several different ways accountants measure revenue, and it's important to pick the right one for your business. And when Sara arrived, and put in a new team, they realized D&B hadn't been using the right method.
So they changed it. And the new method happened to recognize revenue slower than the other methods. And that's why the sales forecast was coming down. So that made Sara curious. How far back had they been using the wrong method? Well, she had her team check and it turns out it was for almost a decade. Not exactly what a new CFO wants to find out in her first year. Well, Sarah knew the company would have to restate its financials and that meant reversing all the inappropriate revenues and the profits in the past, millions of dollars worth.
And there couldn't have been a worse time for that to happen. Just a few months earlier, Enron had filed for the largest bankruptcy in history. As a result of fraudulent accounting practices. She went straight to the CEO. And she remembers by the way, how he reacted when she told him. Restatement? You mean like the Enron restatement? Yeah, she told him, like Enron. But in our case, I don't think there was fraud, just a mistake. But I won't know for sure, or how much money we're talking about until we do a thorough investigation.
So he asked, well how long's that going to take? Now, what Sara was thinking was, well, heck, I don't know. I've never done this before. But what she said was, our next earnings release is in six weeks. I'll have it done by then. Now, at the time of course, she had no idea that no restatement of that size had ever been done in less than six months much less six weeks. Well, they started the work, but Sara couldn't help but worry about the size of the problem. I mean, hopefully, it would be small and inconsequential and get no negative reaction from Wall Street.
You know, what she was afraid of though, was that it would be big. And that the stock price could take a hit. Now, in a situation like this, there are three ways a leader can respond, right? Option one is to just ignore the problem. I mean, after all, they were using the proper accounting methods now, and it's possible nobody would ever find out about the past mistakes. All right, option two, pursue the work on the restatement but stop digging when the size of the problem gets too big to go unnoticed on Wall Street. And for a company the size of D&B, that number is about $50 million.
All right, option three is to keep digging until you find everything. Without regard to the size of the problem. You know, kind of let the chips fall where they may. Sara chose option three. So, they worked around the clock, and the team finished the job in six weeks, as promised. In the next earnings release, D&B adjusted its income, going back 10 years, and the grand total was a $150 million charge. But with no fraud. And despite that large number, the stock price actually held steady.
Now, the reason was that the restatement was big enough and got corrected fast enough that the analyst on Wall Street felt confident that there weren't any more skeletons in D&B's closet. So Sara and her team actually earned accolades from the CEO and even bonuses for getting their restatement done in record time. In fact, Sara went on to become the COO and eventually the CEO and chairman of Dun & Bradstreet. Now, she's since retired, but people still tell that story around the office to help employees understand, you know, not just the accounting policy, but also the rules of behavior.
You know, doing the right thing is actually rewarded at D&B. Now, here's the thing. There's always going to be pressure to make the numbers look as good as possible. And there's always a lot more judgment involved than you might think. But at D&B, anytime someone is tempted to push the envelope too far, they have an example to follow, right? The boss did the right thing, even when she probably could have gotten away with less. You know, I think I'll do the same. So, getting people to obey the rules starts at the top. The leaders have to demonstrate that behavior and when they do, make note of it.
And tell the organization about that. That's how they'll know to do the same.