By DAVID MOON, Moon Capital Management,
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
Crazy excuses have a long history.
It all started with 'It's not my fault; she's the one who gave me the
Rather than get upset at imaginative kids, perhaps we
should nurture them. They might just be corporate executives in
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
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
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
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
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
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).