To paraphrase Tolstoy, all dysfunctional companies are dysfunctional in their own fashion. But after years of writing about them, I have always been struck by the same patterns coming up time and time again. Poorly managed, badly thought-out strategies and layers of management designed to stop bad news getting through to the top. And that's just a start.
Writing in Barrons, Robin Goldwyn Blumenthal identifies some of these patterns. Most of them come down to the quality of corporate governance. If you don't subscribe to Barrons, you can still read it by clicking here.
Blumenthal cites five warning signs.
1. Watch for the "Striptease" where earnings are constantly being restated, bit by bit.
2. Look for massive fraud, and that can mean talking to as many ex-officers and ex-employees as possible and watching the company's approach to public disclosure. Are they coming clean? Or are they constantly fudging?
3.Check for industry or macroeconomic risk.
4. Be careful of stock carrying massive debt several times more than cash flow.
5. Monitor the level of governance.
Blumenthal's summary is a good start. But I would add five more warning signals:
a. the leadership is disorganised, incoherent and all over the place, particularly when it comes it crunch issues like strategy.
b.Leaders and executives share delusions and have a view of the world that's completely out of whack with reality.
c. the organisation is fragmented. There are turf wars and the different departments lose or lack the capacity to communicate with each other
d.the organisation is unaware of its dysfunctional or disintegrating state
e.the organisation struggles to deal with the external environment (which includes customers, suppliers, employees and regulators) and its demands.
Some of these traits can be found in all organisations. But when you have two or more operating together, you're probably looking at a basket case.
Are there any more to add?
no comment untill now