The Clarion Call : Reality or Illusion, Summer 2002

Summer 2002 Issue

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Reality or Illusion

	Introduction by Bill McKendree, President

In the wake of Enron and the other recent accounting scandals, investor and consumer confidence in business has been shaken to the core. Executives everywhere are taking steps to restore faith in their organizations. Among the measures being employed is forensic accounting -- a tried and true discipline that scours corporate financials in search of wrongdoing. What's new is that companies are using forensic accounting as a predictivetool. The idea is to identify the warning signs before calami- ty strikes --- and thereby avert disaster. In this issue of “The Clarion Call,” we'd like to introduce a new twist on this old idea. Beyond forensic accounting, executives should consider Forensic Organizational Analysisª as an essential tool for revealing the true health of an organization. Our experience in assisting clients through mergers and acquisitions has shown that even the most thorough financial analysis tells only part of the story. While essential to due diligence, the financials are in fact an outcome of the application of other factors including business strategy, management infrastructure, and organizational behaviors. Many executives say they do not understand the underlying realities of their businesses -- they can only rely on what their people tell them. However, failure to recognize the significance of these less tangible facets of the business can have potentially severe consequences on the bottom line. Executives need to reach to deeper layers of understanding. Forensic Organizational Analysis is a tool that can take them there. On another note, we are excited to announce the creation of The Clarion Group's Retreat and Design Center in Stonington, Connecticut. It is a space in a place that enables individual executives and executive groups to gain perspective and achieve new insight into pressing issues -- including those that relate to their organization's health. We hope you enjoy this issue and, as always, we welcome your feedback.

A 3-D Organizational Assessment

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If you peel an onion, there is a subconscious feeling of security in knowing that no matter how deep you go -- it's still an onion. Each layer behaves in the same way and delivers the same savory result.

But what if as you peeled back the layers something entirely different was revealed. Something unexpected.

Now think of your business as an onion. If you were to peel back the layers -- the dimensions -- would you find a picture that is consistent with your understanding, or would you instead reveal an unsettling reality?

This is a cautionary tale, one that CEOs and executives would be well advised to heed in today's precipitous business environment. The mood of Wall Street, regulators, and customers alike is increasingly unforgiving, especially when the argument can be made that business leaders "should have known better." The pressure is on for executives. Failure to look beneath the surface at what's really going on in their companies can be seen as willful blindness. To reduce the risk of being blindsided, executives are taking unprecedented steps to expose potential risks within their own organizations as well as within the companies that they do business with -- their customers, suppliers, merger and acquisition candidates, and the like.

Forensic accounting is one tool being employed to uncover financial practices that could put a company at risk. At The Clarion Group, we suggest taking this concept of forensic analysis a step further. Beyond the balance sheet, before the balance sheet, and within the organization itself are indications that can help determine a company's ability to succeed or likelihood to fail.

The clues are hidden in the organization's architecture -- its business strategy, management infrastructure, and behaviors.

Our model for Forensic Organizational Analysisª provides the framework for executives to examine the inner workings of business structures and determine the true health of an organization. It's an intentional exercise of peeling back the layers to uncover what could go wrong. Such analysis results in more confident decision-making and thoughtful risk management.

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