Fiscal-year end in takeover land is dictated by the requirements of the government; our own company’s year end is in December. We need to accrual all costs we can’t bill before our customer’s funding disappears October 1. We’re not supposed to exceed its budgets in the last week with unexpected charges. Last fiscal year, we managed to report a small surplus.
This year, a deficit appears on the operating statement. One of the people from the earlier contract tries to make his managers aware. They ignore him. The financial reports don’t look like ones they’ve seen before, so they assume they’re wrong. The Excel spreadsheets they keep to track contract metrics show us doing well. Besides if this person was so good, why did the contract change hands, why couldn’t he get a another job like all the other mid-level managers, why were the consultants hired?
They’ve learned not to raise difficult questions. When companies expand with acquisitions, new contracts, men on the fast track develop hierarchies of desirable assignments. Once new opportunities open in the parent company, the second tier moves in. The CFO’s an ex-marine who believes the best manager is the one with the most scalps. Human Resources is aware of his abusive behavior, but cannot intervene until someone complains. No one’s that foolish.
The deficit does not go away, as it sometimes does when work increases before the end of a fiscal year. Again, the accountant tries to tell his managers it must be reported to the customer. It’s in the contract. They don’t believe him. People hunker down.
Thursday before the deadline to report, the customer complains its worse expectations have been exceeded. We just charged them an extra five million dollars, ten million in two days. By coincidence, the deficit is floating around five million. If our budget’s getting cut, our customer’s jobs are at risk. Phone calls are made. A computer problem in the customer’s shop meant financial reports didn’t run, and people tracking expenses the final week didn’t realize they were looking at the same voucher twice. Emails go out assuring the customer there will be no surprises.
Everyone works on Saturday, the day we tell the customer the final number. The CFO wants to know what caused the deficit. No one dares tell him the ratio in absolute payroll dollars between salaried employees and workers has increased 3% in a year, because no one wants to be his solution. If there is a deficit, he wants to know how he can eliminate it, asks if some accruals can be reversed. Emotions run high, people forgather, claim he wants to cook the books.
Torn between people who’ve been there before, who know the customer, and his own requirement to do well, perhaps after a disastrous previous assignment, the CFO finally accepts the word of the new men who feel compelled to tell him what he wants to hear to protect their new benefits. One was hired weeks before his wife’s COBRA ran out. The customer is told our final number is a $200,000 profit.
The accountant can’t sleep. He knows the real number will appear on the confirming report we send the customer on Monday. He comes in on Sunday and calls the now deputy manager, some customers. The deputy general manager calls a key customer, in fact a previous financial director, for a second opinion. Who to believe, his CFO or his accountant? The customer calls the accountant at home and asks, you mean he didn’t use the operating statement?
Monday is the drop dead day for financial reporting to the customer. The deputy general manager calls the CFO aside after the staff meeting, tells him he must report the deficit. He returns to our area, asks the person who sends the final report what makes the number. He tells him he doesn’t know, it’s a simple calculation, the net total on the balance sheet. The CFO tells him if he doesn’t know he’s not an accountant and shouldn’t be working there. He walks away, and wonders what to do after 29 years.
The CFO calls in the general ledger manager and wants to know why it happened. She tells him, she’s not the financial analyst. It’s her job to run the reports, not interpret them. Things get said that shouldn’t. Emotions run higher.
Finally, the CFO, the assistant controllers, the whistleblower, the general ledger manager agree the bottom line is the bottom line. Basic accounting. When we didn’t report the loss on Saturday, we lost the chance to pass it on to the customer. Now journal entries must be done to carry the four million dollar loss over to the new fiscal year, adding to the 15% that needs to be cut from the budget. The customer is less angry over the final numbers, than the fact we took so long to report, we delayed its financial closing.
We come in the next day wondering who’s heads will roll, ours or theirs. We hope we can survive a month to see. The CFO is giddy: he’s dodged another bullet. He didn’t have to tell the customer anything, only confirm what it already knew. Since Iran-Contra, when we either allowed Ronald Reagan to countenance illegal behavior or accepted he didn’t know what was going on, chief executives have had ready-made explanations for their mistakes. At least until Enron and Sarbanes-Oxley.
But clouds gather: the general manager appoints an ethics manager, the customer sends some auditors. The new men promise to fix the reports, talk to the customer, hope to convince them it was all a simple misunderstanding, perhaps give the secret guild handshake and agree mistakes happen when unqualified people work in accounting. There may have been loose talk, but it was all in the spirit of appraising the situation. Nothing wrong was actually done. The customer wasn’t bilked, wrong numbers didn’t go to the SEC. Just office politics and sore losers.
Routine.
Sunday, February 26, 2006
Monday, February 13, 2006
Takeover - Part 1 - Prologue
Hostile takeovers, downsizing, outsourcing. They've become so common, it's impossible to muster outrage. We'd be battling every day. Each becomes one more defeat of an American way of life that promised decent standards of living for workers and promotions into the middle class for people who worked hard.
Our adventure began when a government contract changed hands. It had changed from one company to another for years; each kept the business going, neither improving things much, nor making things worse. People stayed employed, and customers were as happy as customers ever are. Several years ago, it transferred to a Republican campaign contributor.
The first thing we saw was some managers were let go, and a new layer appeared with higher wages. For a while we joked, they kept the old managers to do the work, while the new did what was important: fight among themselves.
Then, we noticed people in the middle were being squeezed out, and we started hearing about the need for culture change. At first we thought that was positive; after all, no one had ever done much to do things better. Then we noticed, we heard a lot of talk about doing things better, but the people who knew how were being eliminated. The culture change turned out to be one from people with a can-do attitude to those with a sense of entitlement. It became more important to have the right credentials than to know how to do the work. If knowledge is power, the way to increase power is eliminate people with knowledge.
Rebellions occurred early, but were so subtle they passed unnoticed No one wanted to handle corporate accounting when the first corporate accountant left. Finance manager number 1, already looking for his next berth, gave the assignment to someone best known for not knowing how to reconcile a bank account. Within three months, the books were so confused, it took a year and a half and two accountants to straighten them out.
The finance director, brought in during the first round of gentrification, had already found his next post, and the new one was still winding down his previous position, so no one noticed when finance manager number 2 hired a general accounting manager without a four-year degree. That finance manager gave up on the politics and changed places with the person hired to clean up the corporate books, for the second time.
Finance manager number 3 was overwhelmed by politics, asked for help, told us privately there's not a decent accountant on the staff. Finance director number 2 defended her, told us we were so bad he was bringing in a team of consultants to evaluate the staff and turn things around.
He needn't bother; he turned it around in 15 minutes. The previous fiscal year end, a skeleton crew closed the books. All the managers and supervisors had left. The invisible finance director was still moving. People volunteered to work overtime, even unpaid, to get things done. The loyalty was to our fellow employees and to the customer we had served so long. We shook our heads when we left the meeting, hoping to be somewhere else in September.
The consultants tell the finance director the staff is inadequate, recommend new supervisors be hired, then apply for the positions. The consulting firm collects a finding fee. Possibly, some of the consultants collect commissions for sending new work to the consulting firm that sent them. Two middle level people have to leave to pay for one senior person. One's laid off, one's not replaced, four are demoted. The general accounting manager is kept for her people skills.
What happens when a company is hollowed out from within?
Stress. Rumors. Illnesses. Weight gain. Absenteeism. People get keys for their doors, and keep them locked when they go to meetings. People begin to question themselves, are shocked to find they've become timeservers. Some repeat actions that worked in the past, hope to make an impression. Others simply repeat stories of past success, like victims of tornadoes who clear the steps of imploded houses. Then, it's talk of faith, God will see me through.
Somehow work gets done, with more mistakes and more overtime. The finance director doesn't officially release the budget for the cost center statements until the tenth fiscal period. The customer doesn't notice, has the same complaints about performance, and the new managers blame the older employees and look for more ways to replace them with more qualified outsiders, limit recruitment to subcontractors. They don't realize only companies named in the joint venture have that status, not their consulting firm cum headhunter.
Finance manager number 3 is still overwhelmed by politics and still doesn't have the support she needs. The consultants have defined jobs they can do, not ones that need to be done. The assistant controller over the general accounting manager doesn't look at financial reports before they're issued. He's an office manager. The assistant controller with the budget doesn't look at financial reports; they don't have the budget. The finance manager's the one who leaves before September.
About two weeks before the end of the fiscal year, we get an email telling us we have a new general manager, but the old one will remain as deputy and the existing deputy general manager is gone. He's the one person who came in with new ideas who tried to change things. No doubt, the customer rebelled. Everyone talks about change, but always means change for someone else. Someone found him a job on a Hurricane Katrina reconstruction project.
We look at the attached organization chart. There are now eleven boxes where there were seven when the contract turned over, and four new names. Only one person is still in his original box, and he's the only holdover from the previous contract stipulated by the customer. One other person from the previous contract has risen, and rumors abound that he's become one of them, that he had someone demoted, that he's become power hungry. Our business director is now a CFO.
When we look more closely at the org chart we discover the finance director's been demoted with a more prestigious title. Two of the groups that answered to him have been transferred to the new deputy manager, who needed some subsidiary boxes to justify his existence. Their political maneuvering has paid off. In effect, the former general manger, former procurement manager, former transition staff member is now finance director number 3, and our CFO is now finance manager number 4.
The reduced CFO's job sounds quite simple: allocate the budget, negotiate billing rates to cover costs, and report expenses to the government. Simple until we're called in the next week and told the customer is cutting our revenue 15%. It's getting less federal money because of Katrina. The new general manager has instructed his men, and they now are all men, to review their departments for redundancies and reorganize work. We understand that means layoffs: after all, in our department, everyone has just been pushed down a level but kept their higher salary.
After two and a half years, we're on our third general manager, third finance director, second information systems manager, third quality director, second procurement director, second performance assessment director and fourth finance manager. We've lost track of the number in some of the operations areas; it may be six in one department. When each manager arrives, a few more in the middle leave. With enough turnover, there won't be anyone left, and the takeover will be complete.
Our adventure began when a government contract changed hands. It had changed from one company to another for years; each kept the business going, neither improving things much, nor making things worse. People stayed employed, and customers were as happy as customers ever are. Several years ago, it transferred to a Republican campaign contributor.
The first thing we saw was some managers were let go, and a new layer appeared with higher wages. For a while we joked, they kept the old managers to do the work, while the new did what was important: fight among themselves.
Then, we noticed people in the middle were being squeezed out, and we started hearing about the need for culture change. At first we thought that was positive; after all, no one had ever done much to do things better. Then we noticed, we heard a lot of talk about doing things better, but the people who knew how were being eliminated. The culture change turned out to be one from people with a can-do attitude to those with a sense of entitlement. It became more important to have the right credentials than to know how to do the work. If knowledge is power, the way to increase power is eliminate people with knowledge.
Rebellions occurred early, but were so subtle they passed unnoticed No one wanted to handle corporate accounting when the first corporate accountant left. Finance manager number 1, already looking for his next berth, gave the assignment to someone best known for not knowing how to reconcile a bank account. Within three months, the books were so confused, it took a year and a half and two accountants to straighten them out.
The finance director, brought in during the first round of gentrification, had already found his next post, and the new one was still winding down his previous position, so no one noticed when finance manager number 2 hired a general accounting manager without a four-year degree. That finance manager gave up on the politics and changed places with the person hired to clean up the corporate books, for the second time.
Finance manager number 3 was overwhelmed by politics, asked for help, told us privately there's not a decent accountant on the staff. Finance director number 2 defended her, told us we were so bad he was bringing in a team of consultants to evaluate the staff and turn things around.
He needn't bother; he turned it around in 15 minutes. The previous fiscal year end, a skeleton crew closed the books. All the managers and supervisors had left. The invisible finance director was still moving. People volunteered to work overtime, even unpaid, to get things done. The loyalty was to our fellow employees and to the customer we had served so long. We shook our heads when we left the meeting, hoping to be somewhere else in September.
The consultants tell the finance director the staff is inadequate, recommend new supervisors be hired, then apply for the positions. The consulting firm collects a finding fee. Possibly, some of the consultants collect commissions for sending new work to the consulting firm that sent them. Two middle level people have to leave to pay for one senior person. One's laid off, one's not replaced, four are demoted. The general accounting manager is kept for her people skills.
What happens when a company is hollowed out from within?
Stress. Rumors. Illnesses. Weight gain. Absenteeism. People get keys for their doors, and keep them locked when they go to meetings. People begin to question themselves, are shocked to find they've become timeservers. Some repeat actions that worked in the past, hope to make an impression. Others simply repeat stories of past success, like victims of tornadoes who clear the steps of imploded houses. Then, it's talk of faith, God will see me through.
Somehow work gets done, with more mistakes and more overtime. The finance director doesn't officially release the budget for the cost center statements until the tenth fiscal period. The customer doesn't notice, has the same complaints about performance, and the new managers blame the older employees and look for more ways to replace them with more qualified outsiders, limit recruitment to subcontractors. They don't realize only companies named in the joint venture have that status, not their consulting firm cum headhunter.
Finance manager number 3 is still overwhelmed by politics and still doesn't have the support she needs. The consultants have defined jobs they can do, not ones that need to be done. The assistant controller over the general accounting manager doesn't look at financial reports before they're issued. He's an office manager. The assistant controller with the budget doesn't look at financial reports; they don't have the budget. The finance manager's the one who leaves before September.
About two weeks before the end of the fiscal year, we get an email telling us we have a new general manager, but the old one will remain as deputy and the existing deputy general manager is gone. He's the one person who came in with new ideas who tried to change things. No doubt, the customer rebelled. Everyone talks about change, but always means change for someone else. Someone found him a job on a Hurricane Katrina reconstruction project.
We look at the attached organization chart. There are now eleven boxes where there were seven when the contract turned over, and four new names. Only one person is still in his original box, and he's the only holdover from the previous contract stipulated by the customer. One other person from the previous contract has risen, and rumors abound that he's become one of them, that he had someone demoted, that he's become power hungry. Our business director is now a CFO.
When we look more closely at the org chart we discover the finance director's been demoted with a more prestigious title. Two of the groups that answered to him have been transferred to the new deputy manager, who needed some subsidiary boxes to justify his existence. Their political maneuvering has paid off. In effect, the former general manger, former procurement manager, former transition staff member is now finance director number 3, and our CFO is now finance manager number 4.
The reduced CFO's job sounds quite simple: allocate the budget, negotiate billing rates to cover costs, and report expenses to the government. Simple until we're called in the next week and told the customer is cutting our revenue 15%. It's getting less federal money because of Katrina. The new general manager has instructed his men, and they now are all men, to review their departments for redundancies and reorganize work. We understand that means layoffs: after all, in our department, everyone has just been pushed down a level but kept their higher salary.
After two and a half years, we're on our third general manager, third finance director, second information systems manager, third quality director, second procurement director, second performance assessment director and fourth finance manager. We've lost track of the number in some of the operations areas; it may be six in one department. When each manager arrives, a few more in the middle leave. With enough turnover, there won't be anyone left, and the takeover will be complete.
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