We have heard these words spoken by CEOs and spewed by their publicity machines – what do they mean? Well, according to this author, such business euphemisms indicate the company is headed for financial disaster. This isn’t just an opinion, but the conclusions of an actual content analysis. In other works, you should hang on to your hats anytime terms such as “riding the technology,” or “staying the course,” or “synergy” roll off a chief executive’s tongue. One of my favorites that didn’t make the list: “investing in our future.” PR professionals would be wise to advise their bosses to not use such loaded prose. The jig is up.
The Wall Street Journal – See if this sounds familiar: Some years back an outfit called Green Tree Financial Corp. soared into the stratosphere by making 30-year mortgages to buyers of trailer homes. The company grew fat on loan fees and, after securitizing the loans for resale, used an aggressive accounting technique “to show explosive growth and to essentially decree its profits,” as Paul B. Carroll and Chunka Mui put it in “Billion-Dollar Lessons.”
From 1991 to 1997, a span in which Green Tree’s chief executive was paid $200 million, the company’s stock shot up 30-fold. But since all the relevant players at Green Tree made their money by signing off on loans, no one paid close attention to the inconvenient fact that trailer homes, unlike houses, do not increase in value over the long run. On the contrary, trailers depreciate rapidly and last only 10 or 15 years, by which time a 30-year loan isn’t close to being paid off. So after just a few years Green Tree borrowers discovered that they owed far more than the underlying asset was worth. You can imagine how all this turned out.
In recent weeks the entire financial system has come to bear a suspicious resemblance to Green Tree, and “Billion-Dollar Lessons” — a fascinating study of business error and failure — couldn’t be more timely. Not that failure is anything new. As Messrs. Carroll and Mui note: “Since 1981, 423 U.S. companies with assets of more than $500 million filed for bankruptcy,” with total assets exceeding $1.5 trilliohttp://online.wsj.com/search?KEYWORDS=expensive%20mistakes&mod=DNH_S
