Feb 13 2007

Delivering bad news

Let’s say you have some bad news to deliver to your board/investors. For example, you lost a huge customer or your software has a major bug that’s going to set you back 6 months or your CFO just got arrested for cheating on his taxes, etc. Should you:

  1. Take out an advertisement in the Journal announcing this and then send out a note to your board with a link
  2. Rent one of those sign trucks and have it drive by your investors offices repeatedly
  3. Bury it deep inside a board book and hope no one notices it
  4. Don’t say anything – your investors/board are too involved in your business already and ask way too many questions as it is
  5. None of the above

This won’t come as a surprise to regular readers of this blog, but my suggestion (strong preference, actually) is that the companies I work with be direct about news – good and bad. If you’re just before a board meeting, include the news in your CEO letter that prefaces the board material (see my post on running better board meetings for more detail). If you’re not, either call your board directly or send an email around updating everyone. Better yet – do both.

I received a board package the other day (not for any of the companies listed on my left nav bar – this was for another company I’m helping out with) that contained material bad news (they lost an important customer and as a result, significantly changed their cash outlook for 2007). However this news was completely buried in the board package. Everyone found it and called it out before the board meeting, but I wonder how it might have come up if the board hadn’t been diligent and picked up on it. The company clearly wasn’t trying to completely hide it (it was there in black and white) – they were just trying to somehow obfuscate the issue by making it hard to find. The irony was that losing this customer was not entirely unexpected and we’d already discussed contingency plans. I have no clue why they didn’t highlight it as a major topic for the meeting …