the problem with the payable data and delayed vendor payments were more of a problem with bank balances than actual data systems, Conaway, McDonald, and executive reporting directly to McDonald maintained the data official company excuse was valid and needed to be used.

As the Director of Vendor Development at the time, it seemed to me that if middle-management ex

The federal government continues to pressure executives that fail to add stakeholder value while amassing personal wealth, sending a strong precautionary signal to other executives.

The two executive in the best position to recognize the financial conditions as Kmart was heading rapidly toward bankruptcy, CEO Chuck Conaway and CFO John McDonald, are being held accountable by the Securities and Exchange Commission (SEC). The SEC feels the pair made statements that indicated the company's financial difficulties were not as dire as they actually were in the period just prior to the company's January 22, 2002 Chapter 11 filing.

The duo lost bids before US District Judge Paul Gadola in Flint, Michigan, to drop the case despite an arbitration panel that cleared Conaway in a previous suit filed by creditors. The panel found "no basis to hold Conaway personally liable for Kmart's misfortunes." However, an internal Kmart investigation found Conaway misled the board of directors about withholding payments to suppliers.

What Created the Problem

Beginning late in 2001, Kmart removed supplier visibility to the accounts payable data previously available through Kmart Workbench, an interactive view into the Kmart databases by suppliers. Kmart's Vendor Development Department, the liaison in charge of Workbench connections, was informed that the Accounts Payable system data was no longer accurate due to systems problems. Although the department suspected the problem with the payable data and delayed vendor payments were more of a problem with bank balances than actual data systems, Conaway, McDonald, and executive reporting directly to McDonald maintained the data official company excuse was valid and needed to be used.

As the Director of Vendor Development at the time, it seemed to me that if middle-management exe

untable by the Securities and Exchange Commission (SEC). The SEC feels the pair made statements that indicated the company's financial difficulties were not as dire as they actually were in the period just prior to the company's January 22, 2002 Chapter 11 filing.

The duo lost bids before US District Judge Paul Gadola in Flint, Michigan, to drop the case despite an arbitration panel that cleared Conaway in a previous suit filed by creditors. The panel found "no basis to hold Conaway personally liable for Kmart's misfortunes." However, an internal Kmart investigation found Conaway misled the board of directors about withholding payments to suppliers.

What Created the Problem

Beginning late in 2001, Kmart removed supplier visibility to the accounts payable data previously available through Kmart Workbench, an interactive view into the Kmart databases by suppliers. Kmart's Vendor Development Department, the liaison in charge of Workbench connections, was informed that the Accounts Payable system data was no longer accurate due to systems problems. Although the department suspected the problem with the payable data and delayed vendor payments were more of a problem with bank balances than actual data systems, Conaway, McDonald, and executive reporting directly to McDonald maintained the data official company excuse was valid and needed to be used.

As the Director of Vendor Development at the time, it seemed to me that if middle-management ex

arbitration panel that cleared Conaway in a previous suit filed by creditors. The panel found "no basis to hold Conaway personally liable for Kmart's misfortunes." However, an internal Kmart investigation found Conaway misled the board of directors about withholding payments to suppliers.

What Created the Problem

Beginning late in 2001, Kmart removed supplier visibility to the accounts payable data previously available through Kmart Workbench, an interactive view into the Kmart databases by suppliers. Kmart's Vendor Development Department, the liaison in charge of Workbench connections, was informed that the Accounts Payable system data was no longer accurate due to systems problems. Although the department suspected the problem with the payable data and delayed vendor payments were more of a problem with bank balances than actual data systems, Conaway, McDonald, and executive reporting directly to McDonald maintained the data official company excuse was valid and needed to be used.

As the Director of Vendor Development at the time, it seemed to me that if middle-management ex

supplier visibility to the accounts payable data previously available through Kmart Workbench, an interactive view into the Kmart databases by suppliers. Kmart's Vendor Development Department, the liaison in charge of Workbench connections, was informed that the Accounts Payable system data was no longer accurate due to systems problems. Although the department suspected the problem with the payable data and delayed vendor payments were more of a problem with bank balances than actual data systems, Conaway, McDonald, and executive reporting directly to McDonald maintained the data official company excuse was valid and needed to be used.

As the Director of Vendor Development at the time, it seemed to me that if middle-management ex

the problem with the payable data and delayed vendor payments were more of a problem with bank balances than actual data systems, Conaway, McDonald, and executive reporting directly to McDonald maintained the data official company excuse was valid and needed to be used.

As the Director of Vendor Development at the time, it seemed to me that if middle-management executives suspected the vendor communication was a lie that the CEO and CFO would have had the same suspicions. Our hands were tied. We could not get an official story other than the data problem. Although the excuse did not seem valid we could not get any other executive to go the record with something more reasonable.

Lessons to be Learned

The entire situation points to the need that today's leaders must be inquisitive and fully understand how to read a financial statement and its implications. CEOs and CFOs can argue that they were not smart enough or experienced enough to have known better, the distraction of the lawsuits, FBI, and SEC investigations have been a distraction to both executives.  Here are three key questions for key executives to ask when red ink begins to flow and excuses become wide reaching:

1. Do I fully understand the components of the financial statements? If the answer is "no", go to an independent third party to get a complete understanding.

2. Could I clearly explain it should Neil Cavuto of Fox News? Even though it is unlikely this will happen, you should be able to clearly see yourself in an on-camera interview and imagine the interview in your mind.

3. How will it look in next week's newspaper? A week after you make your statement public people will have had the ability to review what you said based on additional facts. Imagine what facts they will have and how they will report the statements you have m