CEOs must be honest and straightforward

Carter Pate has a message to CEOs: Shoot straight about your company’s financial affairs or face the
music with shareholders, employees and clients.

KNIGHT RIDDER NEWS Billings Gazette

"There has been a resetting of the moral compass in business," the 46-year-old head of
PricewaterhouseCoopers’ U.S. financial advisory services warns top executives. Then he challenges them:
"Tell me your next quarterly audit isn’t going to be under a microscope."
Pate used to be the 30-something trustee who oversaw Bunker Hunt’s $1.7 billion bankruptcy in the late
1980s, then the turnaround president of Dallas-based plastics manufacturer Sun Coast Industries in the early
’90s.
These days, he leads 2,000 PricewaterhouseCoopers employees who are working on just about every big
restructuring in progress, including Ames Department Stores, Bridge Information Systems, Kmart and yes,
Enron.

He and his Dallas-based partner-in-charge, Bob Medlin, have more than 60 people at that defunct
headquarters in Houston wading through paperwork, trying to unearth assets and hoping to make some of the
ends meet.
Pate used to be called a turnaround guy. Now he’s a "renewal specialist."
He’s co-authored a book with Northeastern University professor Harlan Platt that’s drawing national
attention even before it settles onto bookstore shelves.

"The Phoenix Effect: 9 Revitalizing Strategies No Business Can Do Without," broke into the top 100
best-selling books in America on Amazon.com after Pate appeared on CNBC’s "Squawk Box" Tuesday.
The high-speed read examines how companies fall into trouble, and more importantly, how they climb out
of it.

His timing couldn’t have been better.
Pate just completed a study showing that 25 percent of America’s publicly held companies have finished
three or more consecutive quarters of down earnings. A remarkable 12 percent have debt that exceeds assets;
i.e., they’re broke.

Companies are liquidating without considering alternatives or trying to stay afloat using outdated
downsizing tactics, he says, calling that "the slippery slope to oblivion." That’s where his book steps in.
Generally, those in trouble invested as if the boom would go on forever, Pate says. Wrong: "When the need
is too great, people will stampede to fill it. If demand is unbelievably strong, you need to be asking, ‘How much
longer can this go on?’ "

So are executives lying more these days? Yes and no, Pate hedges.
In boom times, it’s easy to be an honest genius. But in challenging times, some chief executive officers opt
for "management prevarication" – stretching the truth to explain the facts. Little white lies occasionally erode into
a total credibility meltdown.

"That’s when a company goes into a crisis mode, and it’s like drinking from a fire hose. You simply can’t
soak up so much negative news," Pate said.
And in today’s more skeptical environment, executives who choose to manipulate, mislead and exaggerate
are more likely to get caught.
More often than lying, though, troubled management is in denial, failing to realize that problems aren’t
going to simply evaporate on their own, he contended. "Denial can rip a company apart."

Corporate boards had better get religion, too. "Instead of concentrating on potential acquisitions and
long-term vision, directors need to spend more of their time asking the hard questions about current
operations," he said.
Business operates on goodwill, be it a handshake, a promise or a reputation. "Once the bond of trust is
broken, you will never fully recover it. Keep it, and you’ll live off it forever."
Copyright © 2002 Knight Ridder/Tribune Information Services. All rights reserved. This material may not be
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