81st Edition – August 23, 2020
The future is certain. It’ is only the past that is unpredictable.Old Soviet Joke
1. Here We Go Again
The ex-CEO of Hertz has to return $2 million in bonus money stemming from SEC charges that he aided in inflating his company’s earnings by $235 million in 2013.
In an eerily similar story, I’ll be interviewing Aaron Beam this week, a co-founder of HealthSouth, and his company’s first CFO. Aaron helped to take his company public, but as financial pressures mounted, his CEO pushed him hard to ‘fix’ the problem which meant inflating revenues and AR. While Beam ultimately quit his job, he still served three months in prison for his role in falsifying financial information.
If you were asked to report earnings which were improperly manipulated, what you do?
- Confront the CEO knowing your job would be at risk?
- Quit without telling your CEO why you were doing so?
- Quit, but first tell the auditors and bankers why you were quitting?
- Agree to the CEO’s demands?
If you can’t wait to hear Aaron’s story on the podcast, his book, HealthSouth: The Wagon to Disaster is excellent.
2. Crazy Numbers
At the end of 1990, there were just over 300 private equity firms in existence. A few years ago, that number had swelled to nearly 5,400 with nearly $3 trillion under management.
According to the Private Equity Playbook author, the number one litmus test for private equity funds is the internal rate of return (IRR).
A good IRR is 14 to 15 percent. A great IRR exceeds 20 percent.
CFO Bookshelf is looking forward to discussing Adam Coffey’s Private Equity Playbook during a September podcast.
3. One of the Best Feel-Good CEO Stories I’ve Ever Read
Since you are reading this newsletter, you probably read Shoe Dog. Who hasn’t? Is there a better book? Good luck in finding one. But I have one you’ll probably like, but there were fewer mishaps along the way to glory compared to Knight’s.
When Bill turned eleven, he started delivering newspapers. Imagine a little kid doing the following, and I’m not making this up:
- He worked hard to get more customers in order to get more tips
- He asked every customer where they wanted their paper
- He carried plastic with him in case it rained – he didn’t want the papers to get wet
- He redesigned his route to get to school on time even though his route kept growing
- He kept meticulous notes on what every customer paid him and wrote to him
- He used weekends to follow-up on past-due accounts
Once I knew my customers, what they wanted, and what I was good at, I focused on it relentlessly.
Bill McDermott’s story is inspiring and there’s a reason while as CEO, he raised SAP’s market value about 4x from nearly $40 billion. The book is Winners Dream. I am making this required reading for every business person under the age of 30. By the way, the deli story is gold.
4. Like Sun Tzu? Now What?
Is there a CEO over the past 25 to 50 years who has not read Sun Tzu’s, The Art of War? What’s a great follow-up book to this classic on strategy and war?
My suggestion is Xenophon’s Cyrus the Great by Larry Hedrick. Fair, temperate, tolerant, and even benevolent toward the people he conquered is the way I would describe him. What did Cyrus have to say about engagement (of others)?
The loyalty of followers comes from self-interest, I readily replied. When they determine that their leader is no longer acting in their self-interest, their sense of loyalty collapses.
5. Again, Just What is Humility?
Dan Rather tells a great story when he dropped off his wife at a small watering hole near her small Texas hometown of around 30 people. Dan was frustrated because she was talking to a guy inside for what seemed forever.
When she got back to the car, Dan blew it by suggesting that she could have married her old boyfriend and built her life in her hometown and helping to run a convenience store. Wrong move, Dan.
Jean Rather quickly retorted by saying, “Dan, had I married Luther, he’d be anchoring the CBS Evening News, and you’d be running a convenience store.”
Dan was reminded of a lesson in humility that is similar to the ongoing encouragement of General Eisenhower’s – take your position more seriously than yourself.
Thank You For Reading. Thank you for making this a successful newsletter.
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Always be learning.
Title photo by Steven Damron.