This issue's cover story on knowledge management explains how improved access to important information can help senior executives make better decisions. Now more than ever, given these challenging financial times, poor judgment can lead to calamitous financial results-a good example of this Conseco Inc.I have been monitoring Conseco's financial problems for more than a year, and my interest has been heightened in the aftermath of the accounting scandals involving Worldcom and Enron. Although the Carmel, Ind.-based company continued to reassure its creditors that it would easily meet any of its looming payment deadlines, Conseco abruptly changed its message on Aug. 9, saying that its turnaround plan was not sufficient and that a "radical change in the company's capital structure" was required.
"The businesses of Conseco are good businesses that can have bright futures," Conseco Chairman and CEO Gary Wendt stated on Aug. 9. "The problem with Conseco has been the over-leveraged capital structure of the parent."
Just three months earlier, in a May 1 release, Wendt stated that "cash-raising initiatives have been very successful. The 2002 shortfall is covered, and we are confident about liquidity in 2003."
The questions that lenders and shareholders must ask is whether Conseco's senior executives didn't have the proper information to accurately access the company's precarious financial condition, or whether management knew it could not meet its debt obligations long before the company admitted it needed help.
But there are some other issues that raise questions about Conseco's accounting practices. In August, the company settled a $120 million shareholder lawsuit and reduced its net income claim in 1999 from $962.7 million to $595 million, according to the Indianapolis Star. As part of the settlement, Conseco admitted no wrongdoing.
Is there a scandal brewing at Conseco? I don't have that answer, but Conseco has the obligation to its customers, shareholders and lenders to be upfront about its financial condition. What I do know is that when Conseco's stock stopped trading on the New York Stock Exchange, the company didn't issue a statement telling its shareholders that the stock had resurfaced as a "Pink Sheet" listing with a new stock symbol.
And, without much fanfare, Gary Wendt was paid his $8 million bonus as planned, at the end of June.
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