Financial Strategy, Second Edition

20

It's Time to Rebalance the Scorecard

James M. Higgins and David M. Currie

The headlines have been frequent and the allegations of misdeeds numerous. Major corporations and their senior managers have violated shareholder and societal trust. Sometimes they have even violated the law. These companies brought a whole new meaning to the term “creative accounting,” and when cooking the books failed to provide enough cash for their purposes, some firms and their senior managers just flat-out lied about how well they were performing, what their sources of revenues were, and how expenses were incurred. Senior managers in a few firms even misappropriated corporate funds for their own personal uses, thereby supporting a lavish lifestyle at the expense of shareholders. Some corporate boards loaned their senior managers outrageously large amounts of money, then turned around and forgave these loans when stock prices plunged. There are instances of senior managers selling stock on the basis of negative insider information about the firm's future at the same time they were telling their employees, stock analysts, and investors that the company was financially healthy.

The names of the more prominent of the corporations associated with some or all of these misdeeds are familiar: Enron, Tyco, WorldCom, Qwest, and Adelphia Communications, to name a few. But other firms engaged in some of these same practices in a lesser fashion: Xerox, Lucent Technologies, Peregrine, AOL, and Bristol-Myers, for ...