When good character has a (short-term) cost

I recently met a former colleague for coffee. Let’s call him Andrew (not his real name). He was telling me about a family business he had joined in the past year. The company had grown over the years without taking investments but had a significant line of credit from a regional bank. What happened in his first few months struck me as a great real-world example of the ins and outs of proving character to a banker.

Andrew’s first steps were to review the business top to bottom. He quickly discovered that the team’s inexperience with financial management had resulted in a balance sheet that was misleading. We didn’t really discuss the details of what Andrew found but the point here is he felt he had no choice but to notify the bank of his discovery. The bank didn’t demand payback but, needless to say, put an immediate stop to the company’s ability take any additional cash.

There’s more to the story but stopping at this point I see a first important lesson. Andrew didn’t try to slip the new balance sheet by the banker. He made an appointment and sat down in person with all the information in front of him. My own experience has been this level of candor and in-person disclosure earns points. I’m confident it’s the reason the bank didn’t take a more draconian step with the company.

Still, this would be discouraging if the story stopped there. Perhaps the most compelling aspect of character as shown in Andrew’s story was the rest of the story–behavior that assures a banker the company will honor its obligations. Andrew followed disclosure with a plan to turn things around and then he galvanized the entire company to execute it.

For six months, everyone including Andrew sacrificed to restore the business to financial stability. At the end of this time, the company was more healthy than it had been at any point in recent history.

To summarize, here are the key aspects of character shown in Andrew’s experience:

  • Prompt disclosure of accounting errors that affected qualification for a bank loan
  • Supplying the information in person
  • Coupling disclosure with an aggressive plan to restore financial health
  • Involving all employees in the challenge and the plan
  • Demonstrating leadership and resolve in executing the plan

If you have your own stories, observed in others or from personal experience, please share them with me!


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