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CEO's Diary: A slaughtering in court

30th Jan 2009
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CEOThe CEO takes some legal advice

January 30 – The manager of the company employing the man who has asked us for discounts to be paid on credit note to what he claims is their 'finance collection company' came in today.

We'd decided to take advice. After discussion with lawyers we have decided we will report this as a potential money laundering crime with all information to be supplied. I'm not sure we have any choice.

This though curtails our options. We can't now tip off, of course. But after taking advice we were advised we could tell the customer we are dealing with of the facts of the matter i.e. exactly what their employee had asked of us and provide the details of the information he had given.

So we did.

It was obvious from the reaction that the man's manager was horrified.

I personally hope he slaughters him – preferably in court.

And we have again been assured the business is ours – with no price difference.

***

January 28 - The board meeting came and went.

Of course the plan went through. What could they say? It was our best effort.

But that was never going to be the issue: the dividend has always been that.

The ex-CEO was unhappy. How could I now cut back the dividend so soon after promising an increase?

Thankfully, his ex-spouse, represented by her lawyer with her sitting in the background, said she was happy to fall back to the original level until more could be paid - so long as we undertook to pay that when it as proven to be available.

That gutted her ex-husband's argument. My day was saved. Of course I agreed.

It was all over in less than an hour. And we never adjourn for lunch. Thankfully.

* * *

January 27 - AM met the guy who we think has been asking us for dodgy discounts today.

We thought about this for ages - and decided to record the discussion - for the sake of our customer who has asked us to report back on this.

AM played cool - but her negotiating position was deliberately one where she played weakness. She stressed we were new owners of the contract we were desperate to keep it, the recession was a factor and so on. To say she played down our strengths was an understatement.

And he rose to the bait. He wanted two things. One was a modest price cut - only a couple of per cent - but enough no doubt for him to report back a favourable result.

And then he repeated his request for a retrospective discount. AM said she'd discussed this with her boss and we don't usually do it, but what had he in mind?

He was explicit. He wanted 7%, cleared by credit note sent direct to him with payment to a company whose name he gave.

AM played innocent - asking why it was not to be paid to the company we were contracting with. Cool as a breeze he said it was a group member used for financing purposes.

AM said that she couldn't agree - the discount was bigger than she had authority to give. But she also asked him to provide details of the named 'finance company' so we could due our usual due diligence process and she'd get back to him as soon as possible - and hoped we could do the business.

He left. We checked the recording. As you can tell, it worked.

Two hours later after she'd mailed him he sent the details of the company to be paid - from a private email address, and with bank details in Guernsey.

We had what we needed. We called his employer and said they might want to pay us a visit.

* * *

January 26 - I hate days off, but had to have one on Friday. The bug that had kept the children at home all week finally got me - and try as I might I could not see the benefit of dragging myself and it into the office.

I was not alone - we were meant to have a board meeting last week. That did not happen as we would have been inquorate, which somewhat removed the point. As a result the Chair and I met today to discuss the agenda. I don't say that planning the outcome of all meetings in advance of them taking place is appropriate, but to have an idea of the direction in which we wish it to travel seems essential.

This meeting has a core objective - approving the plan (call it a budget if you will) for our coming financial year, starting, perversely as ever on 1 March (do you know anyone else with a February year-end - which I inherited - apart from Tescos that is, who I know share this weird date?).

No one will be surprised that I am delivering a cautious view. New sales are budgeted to be down. Maintenance is budgeted to survive on reduced margins. Growth comes from acquisitions. No further acquisitions are anticipated.

Capital spending is what is essential and no more. A modest decline in employment is anticipated - but this can be achieved from normal churn, and I'm sure we'll still have some.

I am planning to retain cash again, paying shareholders the commitments we have always honoured, but less than I hoped for when the buy-out deal was cancelled last September. I know that will irritate them, but the world has changed since then, more than any of us expected, and I want all of us to be here in the long term - them included.

It feels uninspired, I admit. And yet as the workshop we ran a couple of weeks ago showed - managing the downside is full of challenges, plenty enough to keep any management team on its toes. My job is to keep this team on target for delivering what is possible - not what we might dream of.

If anyone wants to argue with that I'm going to have to bite my lower lip. But that won't be a first.

* * *

January 23 - The CEO has man-flu and sends his apologies for absence.

* * *

January 22 – Three big issues today. The first the loss of a contract. No notice, no real warning. It’s just gone. We have no opportunity to seek to retain it.

In thankful contrast, Hitchin landed almost as much new work for us on the same day. It’s not as profitable. It’s not in the same area. But it’s work. I won’t complain.

And then AM and I met the manager from the company we have been engaged with on what can best be called strange contractual issues. He was open and candid. He told us what AM had said had worried him. He was concerned that our contact in the company was acting improperly, and may have been seeking to personally profit from the placement of contracts with us and others.

He said he could be wrong, but he was here to find out, and where we willing to share what had been said with him?

AM explained what had happened.

His response was immediate. The contract was ours, he assured us. The pricing was not an issue, but would we help him by going back to his employee and continue to discuss the issue with him, and the request for retrospective discounts? He wanted to know more.

AM and I took a few minutes out of the meeting, and agreed we would do as he asked. If the contact is corrupt it pays us all for him to be out of the loop. We’re willing to help.

* * *

January 21 – AM has reported back to me on the response from the company where we suspect our contact has asked for a fraudulent incentive to be paid to ensure we keep the contract.

The call back had been from his boss saying, in the first instance, that he could not see reason for another meeting. There was no new business he wanted to place with us right now. That could have been it, but AM is cool. She thought on her feet and asked for clarification. Were there issues on the existing contract concerning the pricing of which we should be aware. It was, apparently clear, that the manager was not aware of any. So she just let slip that we’d been lead to believe that there had been an issue on retrospective discounts resulting in credits in the past. She was, she said, sorry to trouble him on the matter, but hoped he’d understand that as the contract was new she wanted to be sure the mistake was not ours.

The reaction was immediate. The manager asked to meet AM, tomorrow, here.

Now it’s our turn to wonder what’s up.

* * *

January 20 – Our regular management meeting today. A brief agenda with not all present either, partly because of the commitment people like North made to attend last week’s event.

Our ten month result is looking OK. We’ll deliver most of the profit I’d expected unless something very strange happens this month and next, and after eliminating costs of deals which weren’t anticipated. That’s pretty good I think, all things considered.

But history is not our concern now. It’s the pipeline that matters. And it is weak. I can’t put any other name on it.

The maintenance base is sustaining us. New work is now running well under expected levels now. It’s good that we have our two new divisions. Without them we’d have limited opportunities.

I’m very, very glad I decided not to buy this company last September. The resulting debt would have been crippling.

* * *

January 19 – Last week was good, very good from the strategic point of view. The problem that arose on Friday was not good. I hate corruption of all sorts.

But I was pleased we took no immediate action. I had AM go back and check the due diligence data we had received for the business we acquired. We looked for a pattern of credit notes matched by payments. We could not find one.

So I decided we should ask a direct question of the vendor: had such a thing ever happened? The answer was highly likely, we knew, a “no”, but the reaction might hint at the truth.

It was a no: it was a very emphatic and convincing no.

I questioned AM. Was she sure of the conversation? She was, absolutely sure. So I had her phone the customer again and had her ask for details so we could comprehensively review our pricing.

I listened in whether I should have done or not. We decided not to record it: I had no idea of the legality of that if notification had not been given.

The answer on this call was as evasive as it had been positive on the previous call to the vendor. No details were offered: what you might call obfuscation was offered. There was neither confirmation that credit had ever been inappropriately given, or that he’d asked for it now, but nor was their denial.

So we reviewed our options. We could just cancel the contract. We could see no reason why we should. We could shop the contact to his own company directly. Or we could ask for a meeting with a more senior contact to discuss alternative supplies we could add to the contract and pricing we might offer if this option was considered.

We went for that one. AM made the call. We decided East could accompany her if the bait was accepted. It hasn’t been yet. But it all left a really nasty taste in the mouth.

* * *

January 16 - A slight panic today. One of the more significant customers of the business we bought just before Christmas, and who Newc had seen a little over a week ago called to cancel their contract. AM took the call. She spoke to me. We asked if we could meet them as soon as possible. We could not see what the issue might be. They agreed that AM could visit.

She went, and they explained to her that Newc's assurance that prices would stay as they had been was little comfort because they had enjoyed retrospective discounts to date.

AM had done the due diligence on this, and said she was not aware of any arrangements of that sort. It then transpired that the credit notes might, it was implied, have given rise to payments that benefited the manager placing the contract.

She thanked him for the information, said she would look into things and work out what the appropriate rate was and get back to him next week. A mile or so after leaving their premises she called me. There is no way on earth we are doing this, even if it happened in the past.

The first thing to determine is whether it did happen: the second, to decide what to do with the request. Either way, it can wait until Monday.

***

January 15 – Two days of the management team out of action and today was wall-to-wall emails, calls and hassle. It is the price you pay.

What I do know is I now have the basis for a very creative report to the board who are meeting next week for the first time in ages.

***

January 14 - After a negative day of planning for downside risk yesterday today we turned to the upside and the opportunities that the current situation presents to us.

They are quite a lot. I mentioned a couple of days ago the desire to spread our employment policy if possible. We know that there are quite a lot of new retail premises coming online. Not every closure will automatically mean a vacant space. Some of our competitors may not survive: we need to move fast if we are to exploit opportunities when or if one fails.

So today I shuffled the teams of people and to some degree repeated yesterday's exercise, but this time asking them to think proactively about what we could do to make things work better.

The focus was not just on commercial issues, some was on keeping our people, and keeping them happy. So for example, Office and #1 who worked together on personnel related issues suggested a number of programmes which I would never have thought of, such as the provision of debt counselling at our expense, but provided confidentially through Office, who is trusted by a lot of people here. Another is a short-term employee loan scheme because we know that we have had more people ask for advances and it might be better to formalise something.

Neither looks that important by itself, but if it keeps an employee focused upon their work then it pays back.

The whole two days has been enormously creative in that respect. I think it was faced with a little trepidation by some but I think we all believe we gained from it. I will do it again.

***

January 13 – Tuesdays are our traditional management meeting day. It is tradition, and not always that good – but today we had the whole time out and we repeat the exercise tomorrow.

The plan was to split the team into groups of two to consider critical issues that might affect the company's future. They had been given an idea of the subjects they'd be considering in advance - but not to notice that they would be working with. Today I had Newc work with AM on employment scenarios, including what we would do if we had a downturn and how we would react including flexible working, short time working and (dare I say it) redundancies.

East and North worked on a plan for losing at least three major customers and how we would re-schedule work if that situation arose.

Hitchin and Office had the job of looking at supplier relationships, where we are vulnerable in case of a failure in our supply chain and how we can diversify if necessary.

#1 and I had the job of critically appraising the cost base.

The briefs were all given out, and the terms agreed, early in the day. The requirement was to report back with each team making a 20-minute presentation from 3.30 onwards. Written support notes were expected, which was a deliberately tough exercise.

It was also extraordinarily successful. The team who produced the biggest fright were Hitchin and Office: there are some things we have habitually brought from certain suppliers for so long we just do not have alternatives. It was agreed that a policy change in this respect is essential because some silly things could catch us out.

There were, of course, overlaps in other areas: its major customers were lost then employment would be affected but we deliberately asked people not to consider a remit given to someone else. Perhaps it's some indication of how this team is working that, by and large, the result was complementary.

And at the end of the day I apologise to them: this was day one of the exercise and was the downside. We identified some really important issues, including the development of a more comprehensive plan for employment if we had a crisis. But the general feeling was that we could, as a team, manage quite a lot that could be thrown at us. That's encouraging.

***

January 12 – As the year has progressed my mood has dropped.

I began today in discussion with Newc. We dealt with work issues and then he mentioned his daughter has been made redundant. She’s 23, has a good degree, and no work. He wasn’t for one minute suggesting we help her, but you could feel the tension in his voice. He is a father who is very worried for his child.

He caught the theme of my thinking. We are only six weeks away from our year end now. The budget is not yet complete, and as I explained a year ago, we do not now budget in detail to the last degree (which given what transpired in 2008 was probably a good thing). However, I do think that budgets have a role in forcing managers to consider various viable, or even foreseeable, alternatives for which they should have plans. Given the current economic climate this seems to be a matter of considerable importance and as a result the entire management team are taking two days out this week to prepare plans for 2009/10.

Much as I would like this business to be philanthropic it, like others, cannot be if things are going to be tough. But, Newc’s comment was timely. If we are to survive as a community of people (and I happen to think that companies work best when they see themselves in that way) then we do have to play our role in the wider community as well and one way to do that right now might be to offer work opportunities, if we can, to younger people who really seem to need the opportunities.

It’s not going to be a job creation scheme – but the idea that we might have a lost generation of young people who either suffer long periods in unemployment at the start of their careers or do not even get the chance to start a career worries me no end, and Newc too. It’s on our agenda to think about this week.

* * *

January 8 - And out on the road again.

I know mobile communications are supposed to make this all so much easier, but I seem to carry a clutter now. I hate using Crackberries as a phone. So I carry a phone as well. And then I also have a portable modem and laptop for files I want to read and stuff like writing this where I really want a proper screen and keyboard. By the time I, my IT and chargers head off I already feel overloaded. And I'm still not face to face with the office.

I think this is the problem of an accountant becoming CEO, if I'm honest. Accountants think things happen in offices. Deep down I know I still do. Sales people, and those from other management traditions are much more willing to see that things happen at the customer / supplier interface. It's something I still have to overcome when I'm out here - the nagging feeling that I'm missing the real action back at HQ.

I wonder if accountants ever cease to be accountants at heart?

* * *

January 7 - Meeting customers is a part of life. Meeting new ones is an important part of life.

We've ensured we have met all our new staff. Now AM, Newc and I are going on a whirlwind tour of customers for our new division to make sure they know about us, and we about them.

So it's high mileage time for us all. And I've got to say they're a rum bunch. Very few well known names. Quite a lot of odd industrial estates, and some lousy coffee. But curiously not many who are showing signs of great anxiety so far either. But I guess that's about right. After all, when all is said and done most people will still be in business come the other side of the recession.

What's the real plus? There are three. First, many have had no one call on them for some time, bar service engineers. Second, I've found at least one significant further sales opprtunity. And one is the exception to the previosu paragraph - if it makes it I'll be amazed, not that their management seemed to think that way. They need to be on a very short credit leash.

But I admit that being on the road like this is not really my forte. I didn't really miss a vocation as a salesperson.

* * *

January 6 - Newc has a knack for doing things no one else has around here.

He buys us new vans, gets them liveried pretty quickly, and today has five lined up outside and gets the local press along to have them photographed, telling them about our plans for investment, recession or not.

It's good copy for them. It's good publicity for us. And it is a message that is important to send out to our staff, our customers, and not least to ourselves, that we believe in what we're doing.

It's good to work with an optimist.

* * *

January 5 - A reluctant return to work - it's been a very good break and it's remarkable how dark it looks at the hour I take the dog for a walk at on a January morning.

It's also a sober return. The number of retailers going bust over Christmas has not been good. None have direct impact on us, but we have exposure to the sector. It does not make me feel any more confident. Plus, with the amount of property that's going to be on the market things are going to be volatile on that front, although there's a hidden lining there too: if people move to get cheaper premises, or new entrants come in as a result of lower prices we have a chance for new work.

Right now though two things seem like a priority. One is pitching for more public sector work from the division we bought in 2007, and the other is integrating our immediate pre-Christmas acquisition as fast as possible.

Look on the plus side though: I've a good team and the chance that many will be leaving is low. I'm an optimist. We'll get through this, I'm sure. But can you remind me of that when they ear is over?

* * *

For previous instalments of the CEO's Diary, see:

December 2008
Movember 2008
October 2008
September 2008
August 2008
July 2008
June 2008
May 2008
April 2008
March 2008
February 2008
January 2008
December 2007
November 2007
October 2007
September 2007
August 2007
July 2007
June 2007
May 2007
April 2007
March 2007
February 2007
January 2007
December 2006
November 2006
October 2006
September 2006
August 2006
July 2006
June 2006
May 2006
April 2006
March 2006
February 2006
January 2006
December 2005
November 2005
October 2005
September 2005
August 2005
July 2005
June 2005
May 2005
April 2005
March 2005
February 2005
January 2005
December 2004
November 2004
October 2004
September 2004
August 2004
July 2004
June 2004
May 2004
April 2004
March 2004
February 2004
January 2004
December 2003
November 2003
October 2003

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Replies (6)

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David Winch
By David Winch
02nd Feb 2009 11:46

Tipping off

I am assuming the CEO is engaged in business activities which fall within the 'regulated sector' for money laundering reporting purposes (to some extent at least). A person outside the regulated sector cannot commit a tipping off offence (since the legislation was amended in December 2007).

That being the case I agree that the CEO should not inform the employer / customer that the matter has been reported to SOCA or that an investigation by the authorities may be contemplated, but the CEO can fully inform him of the facts without committing a tipping off offence.

The CEO will also need to be alive to the danger of 'prejudicing an investigation' contrary to s342 PoCA 2002 - so he should retain any documents or other evidence which might be required by the authorities in due course (and not make any alterations to them). That would include the 'creditgate' tape and email. (The legislation refers to a "document" but this is defined to mean anything in which information of any description is recorded.)

David

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By User deleted
30th Jan 2009 16:31

Evidence
The tape recording may not be admissible evidence however AM's testimony backed up by the e-mail with the irregular bank details would surely be sufficient at least for dismissal.

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David Winch
By David Winch
28th Jan 2009 15:27

Evidence

I agree with the previous poster - the taped conversation would not be usable evidence in a criminal court.

However it does provide information which would enable the employer to look for evidence (the details of the dodgy company etc). So the employer could use that as a means to seek usable evidence from other sources (or enable the police to do so).

I anticipate that the CEO / AM will simply now hand over the information and leave the employer to do whatever he wants with it.

The police might investigate if asked because it is clearly a corruption / abuse of trust case. In particular they might follow it up if the amount is large and / or the employer is a smallish business (or if the suspect is in a particular occupation / vocation - for example a lawyer, politician, accountant).

However the police have other priorities and by no means follow up every suspicion reported and complaint made to them.

If the CEO / AM are working in the 'regulated sector' for Money Laundering Regulations 2007 purposes then they have an obligation to report this to SOCA. (Equally if they notify their auditors of it then the auditors would have an obligation to report it.)

David

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By User deleted
28th Jan 2009 11:39

Collecting unusable evidence
I'm no lawyer but I think the taped conversation would not be admissable in court because it was not obtained under caution. The evidence you have now is probably enough to get the fraud stopped and to get the miscreant to resign but do take care. If I am right it wouldn't be usable in a tribunal so care would need to be taken on a sacking. And it wouldn't be usable in a prosecution. I think you need to warn the employer about how they proceed. I would suggest getting the police involved. They might not be very interested in taking up the case as it will probably be relatively low value but they could at least advise on evidence rules.

Good Luck

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By AnonymousUser
23rd Jan 2009 11:42

Other way round
I had assumed that the deal was precisely the other way round from what Alistair suggests: there will be no 'credit notes' because all this talk about 'retrospective discounts' is just camouflage for saying 'I got backhanders for placing the order with you'.

So what you would actually be looking for is probably something fishy in the expenses of the person who previously handled the account, or an invoice for some sort of service that doesn't seem to have actually been delivered. Maybe (if it's not too late) AM should just ask the contact how things worked before.

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By AnonymousUser
19th Jan 2009 07:56

Backhanders?
Did I read the information about the customer's requests for credit notes correctly? That the sales manager who gave the credit notes would receive payment from the customer?

If that person was part of the transferred employees, have they been issuing credit notes to other customers too?

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