By DAVID MOON, Moon Capital Management, LLC
August 17, 2008

As Knoxville schools get into full swing this week, parents and teachers need to watch out for a special seasonal danger: the excuse.

'I was sick.' 'My grandmother died again.' 'I didn't know it was due today.'

And that old standard, 'The dog ate my homework.'

Crazy excuses have a long history. It all started with 'It's not my fault; she's the one who gave me the apple.'

Rather than get upset at imaginative kids, perhaps we should nurture them. They might just be corporate executives in training.

I was reminded of this earlier this summer when Regions Financial announced that it was eliminating 234 jobs from its operation center in Cordova, Tennessee. According to the company, the cuts were the result of Regions' merger with AmSouth.

The Regions-AmSouth merger was completed almost two years earlier. Perhaps instead a declining capital base and rising loan losses might have had something to do with the layoffs.

The two most convenient corporate excuses these days are the real estate market and oil prices.

One of my favorite silly corporate excuses was from Krispy Kreme a few years ago. It blamed lower-than-expected earnings on the popularity of low-carbohydrate diets. The company did not explain which diet gurus had previously recommended chocolate doughnuts as a part of a weight-loss regime.

Hershey's blamed lower 2007 sales on a weaker economy and higher interest rates.

My kids have never asked about LIBOR when sneaking candy into the grocery cart.

The weather is always a popular excuse. Either it was too warm or cool or dry or wet. Two years after Katrina, companies around the country were still blaming poor results on their scant exposure in the decimated Gulf coast area.

In 1995, companies even blamed the fascination with the O.J. Simpson trial as an excuse for poor performance.

The reason executives offer these silly excuses is that they work. Americans are especially susceptible to believing wild explanations.

A 2004 study of corporate credibility from PennStateUniversity tested the gullibility of consumers in the U.S. and Spain. The Spanish subjects were significantly more able to accurately assess whether company executives were offering valid or fictitious information.

The Americans, creatures of a commercial culture, were much more likely to believe anything they heard on television.

It would be nice if a CEO would say something like 'We had a bad quarter. We know all of our competitors had good quarters, so obviously it doesn't have anything to do with our market. We made these mistakes, and this is what we're doing about them.'

I don't know about you, but that sort of candor would build a lot of credibility with me. I suspect it would do the same with the company's employees, as well.

Frankness builds both credibility and business. If the Penn State study is any indication, Americans want to trust someone. Executives who actually deserve trust are most likely to be the ones who benefit from that longing.

The dog can eat your earnings only so many quarters in a row. Everyone figures it out eventually.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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