Historic CFO Blunders and How to Learn from Them

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There are mistakes and then there are mistakes – especially when it comes to money and finance, whether in corporate boardrooms across the U.S., in the corridors of power in foreign lands, or even in centuries-old, one-sided land deals.

Case in point – the 1626 deal by the Canarsee Native American tribe, which sold the isle of Manhattan to Dutch settlers for a pile of trinkets. Today, that slice of land on the southern tip of New York State is valued at $1 trillion, making the Manhattan swap one of the most one-sided real estate deals in history.

Historic finance mistakes continue to happen and most involve actions from the CFO or their team.

Fast forward to 2018 and actually, not all that much has changed. Historic mistakes continue to happen in the world of finance and often involve a company's principal money maven – the corporate chief financial officer, and often lead all the way up the ladder to the chief executive officer - or even higher, as you'll see in one instance below.

The lessons learned from senior managers enmeshed in a landmark financial blunder aren't meant to point fingers at otherwise hard-working corporate financial officers.

Instead, the vignettes below offer life lessons for executives to embrace at any size company, from SMBs to enterprise, hopefully free of the missteps some of their predecessors experienced - in oh so spectacular ways.

Historic mistakes continue to happen in the world of finance and often involve a company's CFO.

Data disaster on Wall Street

Back in the mid-1990's, one major financial firm found itself in a financial fire zone when its flagship mutual fund announced, mistakenly, that it would deliver a sizable per-share distribution to shareholders.

The only problem? The distribution was never made.

The problem was this - a tax accountant erroneously left out a minus sign from the fund's financial record, in reporting the fund's net realized gain or loss. The corporate financial staffer forgot to include a minus sign on a net capital loss of $1.3 billion, thus recording the figure as a net capital gain.

That meant the dividend estimate was off by a whopping $2.6 billion, and left company corporate financial offers with plenty of egg on their faces. 

CFO's need to have a process in place for checking and rechecking data when reporting financial figures.

The moral of the story: CFO's need to have a solid process in place for checking and rechecking data when reporting financial figures to the public, or risk incurring the wrath of regulators and shareholders, among other interested parties who thought cash was coming, only to walk away empty-handed.

 

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Downward revision after forecasting failure

In 2016, a major U.S. consumer retail company had to restate its estimated annual revenue numbers after its CFO had issued the wrong earnings figures on a call with Wall Street investors and analysts.

The chief financial officer had stated the retailer would generate $8.5 billion in one of the company's divisions, but had to ultimately revise his numbers down to $7.4 billion due to a forecasting error. 

The moral of the story: The CFO left the company (but not without a hefty severance package) and the retailer was subject to charges of financial malfeasance and a lack of proper best practices in its financial forecasting division.

The company's best bet was to promote more collaborative culture in its corporate financial division, call for more transparency to ensure correct data, and to implement a stronger forecasting strategy that not only aligns with the company’s goals but includes corporate financial analysts before making final forecasts.

Quality control collapse at high-profile consumer gift provider 

One former gift services company lost almost 25% of its value after the company mistakenly overestimated its quarterly gross margins and reported the erroneous numbers.

The company was forced to reissue its quarterly figures and admit to a huge quarterly loss to the monstrous budgeting error. The company's CFO had to resign after the incident, but Wall Street analysts noted the mistake was not isolated, and that the company's corporate financial structure was weaker than shareholders realized. 

The moral of the story: Companies that take their eye off the ball on having the highest corporate financial standards are the ones reissuing quarterly figures, and are the ones losing both market share and trust in the marketplace.

The company was forced to reissue its quarterly figures and admit to a huge quarterly loss to the monstrous budgeting error.


Russian relapse

In the foreign currency sector, historic mistakes can go way past the CFO and right up to the head of state. That's what happened in January 1991, when Mikhail Gorbachev, the president of the Soviet Union, issued a mandate that all current 50- and 100-ruble banknotes were no longer deemed legal tender by the Russian government.

Worse, any exchange of the larger ruble notes would only net the recipient a few rubles in return. Gorbachev's police henchman double down on the new decree and began raiding small businesses to scour their financial records to make sure they were complying with the Gorbachev currency gambit.

The decree failed spectacularly, as the ruble crumbled and the already reeling Russian economy collapsed. Within one year, the Soviet Union dissolved and soon its walls – literally – came tumbling down. 

The moral of the story: Fiddling with any currency to the degree that the Russian government did back in 1991 is truly a fool's errand, as currencies operate in their own dynamic cycles, and don't respond well to artificial means of control.

Lemons from Lemonade

Nobody wants to make a corporate money mistake, let alone the mega-mistakes listed above.

But there's no doubt that mistakes are learning experiences too, and that CFOs, CEOs, and the corporate financial team can learn from them – if they're paying attention.