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Cultivating a Risk Intelligent Culture

By Bill English, Partner

I was talking with a colleague this morning about common threads in businesses that need to be turned around. One we briefly discussed pertained to risk and agency cost—the ability of a key employee, owner or partner to engage in activities that are personally beneficial but hurt the organization. Such benefits can range from what they buy with company dollars and time, to what they do, or avoid doing, on the job for personal reasons. In a privately-held business such as his with about $50 million in annual sales, agency cost can be one of the elements that is least managed but potentially most costly.

In an interesting article published by Deloitte within the frame work of the Wall Street Journal, the accounting firm suggests owners develop a “risk intelligent” culture, one in which each employee takes “personal responsibility for management risk in their work every day.” Costly errors often occur when well-intentioned employees make decisions without regard to the risks involved.

For example, John was a fairly competent controller for his $9 million-a-year company. But when it started to experience cash flow problems due to declining sales, he fell behind in making small tax payments to various states. None of these payments were over $100, but over time, as he ignored the repeated demand notices, the fines and interest costs levied by the various states grew to a collective payout of several thousand dollars. While sales continued to decline to less than half of what they were, John’s inactions came to light. Needless to say he was fired. On his way out, in his own defense, John commented on how he didn’t have any money to pay the taxes in the first place, so, “what was I supposed to do?” This statement was revealing on several levels, but at a minimum, it reveals that John didn’t have any appreciation for the risks involved in not paying taxes... MORE

Business in the News

Here is this month’s Business in the News (BITN), a compilation of business stories from around the state usually not reported on by Twin Cities media. These stories provide business leads, trends and insights we hope you will find useful.

Startup Lures Buyers with Catchy Products

Crystaleyes Fishing, a 2013 startup created by two high school teachers working out of a Worthington, Minn., garage, has grown into a nice-sized business selling jigs and crankbaits through more than 40 bait shops and the Scheels outdoor and sporting goods chain... MORE

Fish Explores Meat Industry’s Woes

Duluth News Tribune reporter Noah Fish explores the state’s need for more processing facilities. A recent study conducted by the Minnesota Farmers Union and the Sustainable Farming Association of Minnesota, found over half of the respondents said that they would raise more livestock if there was more processing available. Of the farmers surveyed, 64 percent said processing was inadequate in the state even before the pandemic... MORE

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