Sunday, June 19, 2005

Growth Masking Incompetence

This case study on Krispy Kreme highlights some interesting points about accounting practices, public company pressures for growth and mismanagement. I think there's an even more important point that is less emphasized but which is highly relevant to many situations company's face: "a fast-growing private company, it was easy to conceal weaknesses in management and corporate governance". Put simply, when the market/company is growing everyone's happy, it's only when growth stales or stops altogether that the real efficiency of the company relative to the market gets tested (and "kremed").

Granted, it's hard not to enjoy the good life when times are booming, but it makes the fall that much harder after the bust!

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