An interesting Globe and Mail article on October 8, 2007 describes how Canada's asset-backed commercial paper market Coventree Inc. collapsed this summer. Especially interesting was that a top executive warned company directors and executives to no avail that “a hurricane might soon devastate one of the fastest-growing segments of the popular short-term debt market.”

This incident well illustrates the difficulty many executives experience in risking short term profits for long term advantage. In this case, the prospect of what might happen in the future was clearly ignored with serious consequence. 

Despite the known risks back in 2003 when the venture began, repeated and accurate warnings of disaster in January, February & March this year were ignored because the model was working well. The credit freeze in July forcing a market sell-off in July/August caught investors by surprise. "When the unlikely became a reality during this summer's meltdown, the disruption forced sponsors of an estimated $10-billion of extendible paper to start raising interest payments to investors by as much as a percentage point. The escalation in interest costs is causing multiple headaches for the investors behind the Montreal Accord". Presumably investors were not warned because to do so would have undermined confidence and jeopardized the flow of healthy profit.

According to the Globe & Mail article: “Internal e-mails and private correspondence at Coventree paint a disturbing portrait of a struggling public company and an increasingly jittery rating agency, both of which chose not to telegraph their mounting concerns to the company's shareholders or to investors who continued to plow billions of dollars of savings into ABCP… Neither Coventree nor DBRS publicly disclosed the rating agency's alarming notice or the news that the subsidiary had appointed a special committee. Oblivious to the turmoil, Coventree shareholders continued to buy stock in the company…”

Organizations that ignore intelligence and the prospect of a change in favourable business patterns and trends clearly do so at their peril. Unfortunately it is usually the trusting investor, taken in by the hype surrounding excellent profit, who caries the can.

Good intelligence predicts future business trends. Those with big picture awareness, good analytical competencies and basic leadership/service orientation will always gain the competitive edge.

Read the full article:
http://www.reportonbusiness.com/
servlet/story/RTGAM.20071008.wcoventree1008/BNStory/Business/?cid=al_gam_nletter_newsUp

 http://www.reportonbusiness.com/servlet/story/
RTGAM.20071010.wcoventreee1010/BNStory/Business/?cid=al_gam_nletter_newsUp