Accountants…and Other Finance Types

In Shakespeare’s Henry VI, Jack Cade proposes killing all the lawyers, a passage that has been debated, interpreted, and re-interpreted a number of times, but which is most likely based on the English dissatisfaction in the fourteen century with the legal profession’s use of its skills to bolster the position of the gentry over the peasantry and middle class. The American legal system has not yet reached that nadir, since it appears to be equally willing to litigate on behalf of anyone, that is, so long as its healthy fees are paid.  There is, however, another profession whose excesses have gone less noticed…and whose “successes” have contributed greatly to the sad state of both the American economy and society.

I refer, of course, to the accountants, those bean-counters extraordinaire who know the cost and price of everything and the value of nothing.  Nor do they understand, unhappily, business or, for that matter, economics. I don’t think it is coincidental in the slightest that all too many of the CEOs of failing companies that in fact collapsed, including Borders Books, were accountants.  Calling in an accountant when a company is in trouble is like prescribing blood-letting for a victim in traumatic shock from loss of blood.  One of the “cost-saving” tricks ordered by Borders was to return inventory to publishers in order to gain credit to purchase new releases.  Let’s see… reduce the variety and depth of what you have to sell… and you think that’s going to do what?

On my last book tour, I signed at a bookstore where the events manager informed me that “management” had informed him that he could no longer order additional back-stock for authors who were doing signings.  This is typical of accountant-idiocy.  First, at least at my signings, a healthy percentage of book sales, sometimes as much as 50%, comes from the sale of new copies of older books – that is, where back-stock is available – largely because potential new readers prefer a less expensive paperback and won’t generally buy a new hardcover of an author they haven’t already read. Second, unsold books are returnable.  Third, they’ll likely sell anyway, if over a longer period.  Fourth, a percentage of those readers who bought paperbacks will return and buy more books.  In short, there’s very little downside and a considerable upside, but the accountant only sees an immediate cost-outlay. 

This sort of short-sightedness isn’t just something that affects bookselling.  What about the CEO of J.C.Penny who tried to rebrand the store by eliminating coupons and sales in the middle of the great recession? When Penny’s greatest appeal to its core market was just those sales and coupons? That, of course, just caused sales and revenues to plummet further and faster.  And then there are all those accountants who’ve decided that hiring two or three part-time employees to replace one full-time employee to save a few dollars is the way to go, but don’t think about whether all those part-timers will have enough money to buy the goods and services that keep the economy going. Then there was that former giant of the accounting field, Arthur Andersen, which certified the accounts of Enron… and then saw itself litigated into oblivion.

In 2006, the great and revered management consultant Peter Drucker made the point to a conference of CEOs that “No one, but no one, in your company knows less about your business than your CFO.”  Despite Drucker’s observation, the number of CEOs with an accounting or finance background is at an all-time high, and so are profits… but sales are flat, and good full-time jobs are down. 

Coincidence?  I don’t think so.

3 thoughts on “Accountants…and Other Finance Types”

  1. Derek says:

    I never would have made this connection. Is it just accountants can only view things from the short term?

  2. AndrewV says:

    If we only look at the worst of a chosen group of professionals then a point can be made that any profession is full of idiots. Some accountants are awful, some are amazing. The examples you cite are certainly the former.

    When I took my accounting classes at Harvard I was taught by a man with a keen business eye. He repeatedly pounded the idea that the books, while very important, do not tell the entire story. He backed up his teaching with decades of business law practice and gave scores of examples from his personal experience.

    Are the numbers important? Absolutely. We cannot run a functional business without them. Watch any business makeover show and you’ll find people who barely know the numbers of their business. However, an understanding of the business is equally critical. A happy marriage of both gives the best chance of success.

  3. Brian K says:

    Two ingredients are necessary to have the best chance of succeeding in business: 1) the ability to manage and understand people (employees and customers) and 2) knowing and understanding the numbers your business generates. This may not guarantee success all the time, but not balancing both will result in failure.

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