Recognising if your future employer is struggling

Photo of a ghost ship at sea
Andrea Murad By Andrea Murad, CA Today

12 September 2018

A company may be great at its core, but poorly managed, or it could be a sinking ship heading for a crash on the rocks. What happens if this is your current company, or one you are seeking to join? We examine the early warnings.

Before or after accepting a position

Proper due diligence that goes beyond the surface details can help to uncover problems that might affect your decision to accept an offer, but issues can also appear after you’ve joined a company.

Ian Giffen CA FCPA, CPA, CF explained: “You can do your diligence, but you can still be surprised. There are lots of stories of companies that have been successful, and suddenly it’s the emperor’s clothes and it’s a bit of a sham.”

When that happens, the actual problem, the company’s reaction and your ability to implement change are key to your decision to stay or go.

Gather information an inch deep and a mile wide

To know what’s truly happening at a company takes time to investigate. If you’re looking at a senior position within the company, there is a better chance you’ll know what’s really happening underneath the corporate reports.

Get a sense of the financials, employees, customers and market: “You’ve got to go beyond the normal published researched. You want to find out the key things about the products and markets a company serves and the confidence of their investors,” said Ian.

Learn about the reputation of a company by looking through employee databases and whether that company actively manages these.

Information from industry analysts and customer reviews about how people are actually using a company’s products help to craft the story.

Bulletin boards are a great way to learn about the corporate environment and what investors and customers are saying – a fraudulent business has no happy customers or employees, which is where publicly-available reviews such as Glassdoor become handy.

Companies may not be paying attention to what’s written about them online. Sometimes, a simple Internet search with the company’s name and “scandal” will give you all you need to know.

Talk to people in your network to find people who worked at that company or have friends there.

Learn about the reputation of a company by looking through employee databases and whether that company actively manages these.

A spoken conversation might uncover new facts or verify what you’ve found. Talk to people in your network to find people who worked at that company or have friends there and are willing to speak to you off the record.

Also, talking to the audit partner before joining a firm can help provide clarity to the scale of any problems.

Assess the problem and your role

Sometimes, no matter how much due diligence you’ve completed prior to accepting a job offer, problems can arise after. The type of problem and your role at the company factor into your next steps. It’s also important to understand why that problem has happened.

“Most companies get into trouble for reasons other than fraud – it’s usually from managerial decisions that don’t pan out as forecast or hoped,” said Malcolm Wright CA, Managing Director & COO, Alvarez & Marsal Valuation Services.

“Many people succeed in business despite the way they run their companies. On the other hand, a lot of well-run companies fail because they place bets that don’t work – it’s part of business to take risks.”

If you’re holding a key finance position and you’re investigating what appears to be a problem caused by internal behaviour, then it’s important to remember that not everyone at a company will have the same worldview or ethical framework as a chartered accountant.

Many people in a company don’t have contact with the finance department and they don’t always understand the consequence of their actions. - Malcolm Wright CA

For example, a salesperson may attempt to meet targets by booking a sale that isn’t really a sale, but they may not understand the after-effects on the accounting system: they are potentially committing a crime by misleading investors or shareholders if it results in a material misstatement.

Many people in a company don’t have contact with the finance department and they don’t always understand the consequence of their actions, said Malcolm.

A mispriced product or service can also cause financial losses. A CA looking at the margins should explore the cause of these losses – it could be because the costing system isn’t picking up the right data or the product’s pricing doesn’t consider all the inputs such as indirect overhead allocations.

Companies can sometimes fix these problems, but if they’ve entered into significant long-term contracts that are seriously mispriced, the company may run out of cash and borrowing facilities very quickly.

The decision to stay or go is never a simple one.

Figure out the issue and the root cause: “If it’s intent to mislead, you are duty bound to go to the owner or board, and if it’s the owner who’s doing it, they’ll either change or you have to resign,” said Malcolm. “That’s where people get into trouble – it’s not the crime, it’s the cover up.”

The decision process

The decision to stay or go is never a simple one. “You can’t really look at it with that much detachment,” said Malcolm. If you have a key financial role, consider if you have the power to make changes and fix the problem or even whether the problem can be fixed.

“Your role may be quite involved, and you can end up in a situation where if you’re the CFO and you leave, shareholders may desert the company and the bank may trigger a review of their lending facility.”

It’s always easier as an outsider without a vested interest to make changes or to see a company’s problems. Management can’t always act quickly enough to salvage the situation. “They may acknowledge the severity of the problem but indulge in avoidance because the hard decisions are too painful for them,” said Malcolm.


About the author

Andrea Murad is a New York–based writer. Having worked on both Wall Street and Main Street, she now pursues her passion for words. She covers business and finance, and her work can be found on BBC Capital, Consumers Digest, Entrepreneur.comFOXBusiness.com, Global Finance and InstitutionalInvestor.com.

Topics

  • Business
  • Accountancy
  • North America

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