Are You a Shortsighted CEO? Your Company’s Cash Position will Tell The Tale!

by Mark Lamela

Read it anywhere in the news today: “Tesla Motors, the maker of luxury electric cars, led by billionaire Elon Musk, was CASH FLOW positive last week…” and you will see that cash flow has a renewed focus.  As a CEO or C Suite leader you are the keeper of the cash, and much like a banker, you best be making loans/investments which are producing interest or returns rather than pennies on the dollar liquidations and/or defaults.

CEO’s pay for performance, after this last recession (and for many regions and companies it is not yet over), have seen a resurgence of increasing sensitivity, one might even say hypersensitivity, around cash flow.  Short sighted CEO’s or C Suite members often make decisions brimming with confidence and bravado.  Research has shown that “cocksure” executives often make bad capital project investments (including in the M&A space) or operational decisions.

So what does this mean for the CEO and the C Suite?  What does this have to do with change leadership and organizational transformation?  When was the last time an outside professional third party made an assessment in examining your governance for capital projects or Corporate Development (M&A)?  When was the last time you asked your CFO to outline impacts on your changes in financial position (specific operational influencers of positive or negative cash flow)?  When was the last time after your company finished internal review of these areas that you took the step to subject your company’s work to an outside expert for a second opinion with a focus on root causes?

In a so-called good or expanding market, a strong economic environment contributes to a company’s ability to produce cash flow.  This is a good thing right? No, particularly when it masks negative trends in several of the key business basics I mentioned previously.  Let me restate them (not necessarily in order); to be clear, the key rules of business I am referring to are:

Guard & Improve Cash Flow

• Demand Return on Investment (ROI) [Accountable Capital Investment Process]
• Cut Your Losses Now
• Go for Growth [Condition the leadership team to use BHAGS*]
• THINK & then THINK outside the box

[involve Talent to assist you if necessary to provide thought leadership]

Thus, the benefit of financially constrained or recessionary economic times is that it highlights for us (i.e. we can not afford to hide from it and MUST act upon it lest we wish to suffer at our own hand) poor capital management, or faulty or no return on investment thinking (and the ability not to hold those responsible accountable with consequences).

Unlike financially constrained times which make company process and behavior “faults” visible, times of market expansion—the so called boom times make it much more difficult to find the root causes that leave so much cash on the table or allow cash to slip through our fingers with little or no trace.

CEO’s and the C Suite have a fiduciary obligation to align company management with shareholder value.  Allowing company managers to have free reign to invest free cash flow without accountability or appropriate returns not only undermines shareholder equity and diffuses EBITDA**, but may place the company path squarely on the course of ruin.

*BHAG:  Big Hairy Audacious Goal

**EBITDA: Earnings before Interest, Tax, Depreciation & Amortization