This product has already been purchased.
Disaster seldom arrives unannounced; it hides behind glossy reports and defensive boardroom shrugs. Here’s how directors can dig beneath the surface, challenge executive denial, and keep their best options on the table.
When a company stumbles, post-mortems often blame sudden economic shifts or a cash squeeze that seemingly came out of nowhere. Yet businesses rarely collapse overnight. The real damage occurs quietly, taking root months - or even years - before any obvious financial alarm bells sound.
FTI Consulting Senior Managing Director Joseph Hansell believes boards tend to look in the wrong places when checking a company’s health. Waiting for solvency checks or cash crunches means acting far too late.
Hansell described business decline as a curve that moved from a healthy operating position, where a board still has time to think about growth and strategy, down through underperformance and stress, where the questions became more immediate and the room for manoeuvre narrowed.
In simple terms, the higher a company sits on the curve, the more time directors have to deal with long-term issues such as growth, strategy and profitability. As it moves further down the curve, the timetable shortens from years to months and then weeks, and the board’s focus shifts from improving the business to keeping enough cash available to stay trading.
The danger zone before distress
A major trap for directors is confusing a flurry of executive activity with genuine progress. When basic sales stall, leadership teams often look for quick fixes, such as buying other businesses or commissioning endless strategic refreshes, to keep up appearances.
Noumi Limited Non-Executive Director Genevieve Gregor MAICD warned boards to look past flattering headline numbers: " a CEO may come to you and say... 'I need to make this acquisition to keep the growth engine rolling'... you may question that and say, what is the core doing? Are you getting year-on-year growth or period-on-period growth? A series of acquisitions made in concession make the top line and the revenue trajectory look fantastic, but you've got to focus on: is the core growing year-on-year and doing what you think it should be doing?"
FTI Consulting Senior Managing Director Keith McGregor told the panel that strategy reviews are frequently used to distract from slipping standards.
"A strategy review itself isn’t a negative thing," he said. "It depends on the motivation. What's the question you're seeking to answer? Is that strategy review masking the fact that you have underperformance in the business right now that you're not addressing, and your strategy review is a sideshow to understanding what's fundamentally going on?"
Operational troubles can also hide in plain sight on the balance sheet, especially when standard accounting masks day-to-day inefficiencies until unsold goods hit the bottom line.
"If you walk around the plant and that plant is operating under capacity... the costs get captured in inventory," explained McGregor. "When you sell the inventory, that's when you realise it's not worth what we thought it was worth. And then you get a so-called unexpected hit to margin and ultimately cash flow somewhere down the line.
“Joining the dots between what's happening on the ground and what's coming through the numbers is a core skill. If your COO can't articulate and defend the numbers that are being put out, that's a huge red flag."
Don’t settle for surface-level answers
When boards start asking hard questions, management teams can become defensive. Gregor insists directors should never accept vague brush-offs. "Being fobbed off from an executive saying, 'it's complicated, I can't explain it to you, I need a lot more time' ... I find that's not a good answer at all,” he said. “You must be able to rely on your executives to explain something complicated for all to understand."
Getting past that defensiveness, however, takes more than arguing over spreadsheets. McGregor believes that troubled teams often fall into a collective mindset that resists self-reflection.
"Companies and teams that have underperformed tend to make adaptations in behaviours, and things become normalised," he told the webinar. "Confronting people on the logic part of the equation isn't always the way to go about it. The way to go about it is to understand the assumptions that are being made, figure out whether those assumptions are right or unpick those assumptions."
Ultimately, acting early is what keeps a board's options open. Waiting until the bank account empties strips away every meaningful choice, leaving directors reacting to events instead of steering the outcome.
"The key thing when you're in a liquidity crunch as a director is it is all-consuming and you cannot focus on anything else until you get enough runway to refocus on strategy, refocus on customers," warned Gregor. "When you have time and you get on top of it straight away, you create your own options. If you let that personality clash drag, and you crunch yourself on time, you'll crunch yourself on every single option for the company as well."
To explore the full discussion on spotting operational decline and protecting strategic runway, watch the AICD and TMA Australia webinar, Turning the Tide: Detect, Decide, and Deliver Effective Turnarounds.
For practical guidance on reading the numbers before problems escalate, take a look at the AICD webinar, Evaluating board finances: financial ratios, trends and warning signs.
Latest news
Already a member?
Login to view this content