As the new, heavily recruited CEO of a high-technology start-up backed by several of Silicon Valley's leading venture capitalists, Chuck Campbell is flying high-great job, good salary, stock options, and a chance to be in on the ground floor and build one of the truly great twenty-first century organizations. Just a few days into the job, Chuck participated in a presentation to a new group of potential investors for funding that could help the company expand marketing, improve its services and invest in growth. By the end of the meeting, the investors had verbally committed $16 million in funding. But things turned sour pretty fast. As Chuck was leaving about 9 p.m., the corporate controller, Betty Mars, who just returned from an extended leave, cornered him. He was surprised to find her working so late, but before he could even open his mouth, Betty blurted out her problem: The numbers that Chuck had presented to the venture capitalists were flawed. "The assumptions behind the revenue growth plan are absolutely untenable," she said. "Not a chance of ever happening." Chuck was stunned. He told Betty to go home and he'd stay and take a look at the figures. At 11 p.m., Chuck was still sitting in his office wondering what to do. His research showed that the numbers were indeed grossly exaggerated, but most of them were at least statistically possible (however remote that possibility was!). However, what really troubled him was that the renewal income figure was just flat-out false-and it was clear that one member of the management team who participated in the presentation knew that it was incorrect all along. To make matters worse, it was the renewal income figure that ultimately made the investment so attractive to the venture capital firm. Chuck knew what was at stake-no less than the life or death of the company itself. If he told the truth about the deceptive numbers, the company's valuation would almost certainly be slashed and the $16 million possibly canceled. On the other hand, if he didn't come clean now, the numbers didn't pan out, and the investors found out later that he knew about the flawed numbers, the company could be ruined.
What Would You Do?
1. Say nothing about the false numbers. Of course, the company will miss the projections and have to come up with a good explanation, but, after all, isn't that par for the course among fledgling high-tech companies? Chances are, the whole thing will blow over without a problem. 2. Go ahead and close the deal, but come clean later. Explain that the controller had been on an extended leave of absence, and because you had been on the job only a few days, you had not had time to do an analysis of the numbers yourself. 3. Take swift action to notify the venture capitalists of the truth of the situation-and start cleaning house to get rid of people who would knowingly lie to close a deal.