First, sheer necessity. Unless deteriorating situations are quickly neutralized, nothing else matters since today, even robust companies easily slip into that sector´s second division. The toxic combination of downgrades by rating agencies and inattention from value-setting analysts, increased interest burden (caused in part by those downgrades), whisper campaigns by commercial rivals plus longer, tougher scrutiny by bankers places Company on the defensive.

At best, Company is caught flat-footed, dealing with yesterday´s valuation-relevant problems at a time when most management´s best minds should be focused solely on the issue of preparing for a return to expansion beginning sometime during 2003. 1

At worst, post-bubble extreme risk aversion continues and only the Number 1 and Number 2 companies in their segment receive full financing and fair perceptions by value-setting analysts and others.

Even that may not be enough. Even the Top Two might find themselves exposed to lethal under-valuation if and when suspicions arise that past problems have still not been fixed. The pummelling is even more severe if those value-setters even begin to suspect that there are other holes, undetected.

Reason Number Two is momentum. Many of these cessation options (‘Stop-Its´) are far easier than other types of value reform, thus providing early momentum. Along with hard evidence that the Company´s value reform program is actually working.

Typically, company value is suppressed by delays in implementing long overdue improvements that everyone knows must be addressed sooner or later. The two dozen upper-level managers who have stopped rising in the organization and who are already showing signs of becoming very expensive coasters.

The fact that year-in and year-out, the same names tend to arise in the lower one-third of the direct sales force, even after territories have been eliminated. A strategy group that never has a good answer for why the company always seems to be on the defensive.

No one seems to understand that delays in resolving these festering, self-inflicted value injuries depresses Company value a little bit more, each day that inertia is allowed to win out over shareholder value.

The supreme misperception is that there´s no real harm in letting these circumstances persist—after all, a miracle might occur, and no one wants to be the conduit of negative news. Wrong. The value destruction is just as severe as misappropriating inventory, or losing a key customer group. Sometimes worse.

But it is not enough merely to undertake the ‘Stop-It´ actions that everyone knows about already. True, stopping that procrastination is a necessary initial step towards persuading value-setters in the financial community that the Company will communicate honestly and openly about its future prospects and not hide behind bluff and spin. In the post-bubble, post-Enron age, such communications slight of hand brings a quick and unambiguous response.

It is not enough to just address the value bleeding that everyone knows about already. To maximize shareholder value, the value resurgence must go much further, all the way to anticipating potential value sink-holes that defy detection.

Very real future write-offs in the form of non-creditworthy customer accounts, even before payment behavior begins to provide overt signals. The promotion, new merchandising idea and new product development systems that destroy value by generate far too few novel initiatives. The fact that no competitors seem to want to poach your top people anymore. Value suppression in the form of passive assets such as property, especially as funds from those sources might be applied far better to propel the business further.

For it is only when the value-shapers in the financial community think to themselves, ‘Say, there´s an untapped area of value that I didn´t realise was there,´ has the financial officer´s value agenda begun to show its worth.

Note:

1

Since the early ‘80s, when Fed Chairman Paul Volker began to take the actions that broke the back of structural inflation in the economy, the business cycle changed from five years ‘up´ followed by 3-4 ‘down´ to a pattern closer to eight years of expansion, two of actual or near recession.
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