A 1980s CFO taught me a simple mantra, “Liquidity, Liquidity, Liquidity.” For him, a firm could not have too much of it. The rationale: a liquidity crisis, the inability to meet daily cash requirements, could put you out of business faster than any other risk.

While in the intervening 25 years new risks have emerged, his lesson continues to be on the money. Insufficient cash flow results in bankruptcy. 

Examples abound

In the corporate world, Lehman Brothers, Drexel Burnham Lambert, and PennCentral are examples of firms that collapsed because of their inability to re-finance their overnight obligations. During the recent financial crisis, Harvard University had trouble meeting its cash obligations despite its multi-billion dollar endowment and Boston-area real estate.   

Sovereign nations face liquidity problems too. Current events in Greece and other Eurozone countries vividly demonstrate the challenges of dealing with a nervous bond market. Experience shows that defaulting will prolong the pain. Access to the capital markets may be closed for years. Ten years ago, Argentina defaulted; that country still cannot issue sovereign debt.

Individuals are not immune to this problem either. While the details are slightly different, the result of a liquidity crisis is the same, bankruptcy. Not a happy result for any entity – whether a country, a corporation, a not-for-profit, or an individual.      

Lessons for a Leader Continue reading…

Every year about this time, we find a story in the news about the selection of partners at Goldman Sachs. See for example, The New York Times, 9/13/2010. In a highly secretive process, about 100 Goldman executives will join the ranks of 375 or so partners in November. At the same time, about 60 will be quietly removed from partner status, about twice the normal number.

Is de-partnering a good or bad idea? Surely, it can be a blow to one’s ego and pocketbook. Partnership at Goldman is touted as the pinnacle of success on Wall Street. It means special privileges, status, and millions more in compensation.

But there’s more to business than Goldman Sachs. Across industries, I’ve seen many executives moved out of powerful jobs into somewhat diminished roles.  Continue reading…

Business people and investors will remember Thursday, May 6, 2010 for years to come. The Dow plummeted intraday nearly 1000 points amid fears that Greece would default on its debt. The sudden free-fall sparked chaos in the markets for currencies, commodities and Treasury bonds. Initially thought to be a human error - fat fingers making a trade – the cause is still elusive. Getting to the truth is harder than ever these days.

The president offered a standard response: Regulators are evaluating the situation closely “with a concern for protecting investors and preventing this from happening again.”  But how and when can he achieve these implicit promises?  Continue reading…

“It takes a great deal of character strength to apologize quickly out of one’s heart rather than out of pity. A person must possess himself and have a deep sense of security in fundamental principles and values in order to genuinely apologize.”  Stephen Covey

A strong leader recognizes when he has done something wrong or made a mistake. He is willing to accept responsibility, acknowledge the wrong to the people he wronged, take all appropriate measures to fix it and ensure that it doesn’t happen again. Clean and simple. Excluded from this conversation are John Wayne and Jethro Gibbs. Both are such heroes that their view of apologies as a sign of weakness is understood and accepted.

Of course, we hear more public apologies that we do personal, intimate apologies. Are public apologies the next big thing? I hope not. Politicians, business leaders, sportsmen and other celebrities are in the media daily with some sort of mea culpa. It seems that often they do more damage than good. Continue reading…

Public company leaders need to carefully consider how to comply with recently expanded SEC disclosure rules concerning corporate governance. While meeting this year’s new requirements, directors and managers need to think broadly about how this publicly-available information will be received within and outside their organizations. 

The new disclosure requirements cover director qualifications, board leadership structure, and compensation policies (executive and non-executive). In the next few years, these new rules may leave their mark on corporate governance in publicly traded companies and beyond. 

As is often the case, the devil is in the details.  Here is some food for thought: Continue reading…