This transcription belongs to Episode #44: Sam Drauschak’s fascinating tale on the role of politics in business, unveiled here for us by Sam himself and, of course, Our Beloved Host, Morgan Friedman. Please watch the complete episode here!
Morgan Friedman (Host): Hey everyone, welcome to the latest episode of Client Horror Stories. Very excited to have with me today Sam Drauschak. Sam, did I pronounce your name correctly?
Sam Drauschak (Interviewee): You did. Sam Drauschak.
Morgan Friedman (Host): A 10 of 10. I love the creative, modern spellings of all of these names. Well, Sam, I’m very excited to hear about your Client Horror Story and what you learned from it. I have my coffee with some whiskey in it in hand. Let’s jump in.
Sam Drauschak (Interviewee): Sure thing. So my client horror story I want to talk about today is the time where I was sent out on a routine investigation to look at a possible billing error in the finance system, and this was for a larger international company. And I found a pretty big error. It’s like one of the ones from a movie where you find something and you think it’s small at first, and then you find out that this could be up to $40 million that the company was missing or not billed for.
Morgan Friedman (Host): $40 millIon?
Sam Drauschak (Interviewee): Yeah, and it got worse from there, not because I found it because the company it became… because when you have such a large error, I think there’s been a lot of politics and things that happened and I was younger in my career and, you know, we’re setting the stage for people now trying to cover it up, not acting on it, and I don’t know.
It doesn’t spoil the horror, I think, to say that at the end of the day, we lost the $40 million, even though we identified it. And then everything in between is where the horror, for me at least, really stepped in.
Morgan Friedman (Host): So by the way, we have to unwrap that a little bit because it’s pretty exciting. And I’m also excited of the many different professionals from many different professions that we interviewed on the show, including bouncers, I’ve never done a financial auditor before, so this is interesting. When you, first, just out of your curiosity even before we get to the horror, discovering like a $40 million error, what’s your emotional reaction? How does that, like, I know nothing about hands on, but if I saw that, I’d be like, is this even possible?
Sam Drauschak (Interviewee): Yeah. Yeah, it is. Like you say, I mean, especially it’s not the kind of error you find every day and I’m not even a financial auditor. So I’m a process engineer by trade. And I was brought in because there was process problems. So normally, you know, when I’m brought into situations, I’m trying to study whether we could make it more efficient, we could reduce costs, and usually you’re not having things that are so significant that you have to report it like this.
And also it’s just a, like you mentioned, you get kind of excited and not in like in a good way in a way, but it’s sort of this rush of, “okay now I’ve uncovered this big thing and this is a big deal. This is a significant amount of money that needs to be reported. It needs to be handled.” And also like you said, there’s… it’s coupled with a lot of trepidation because you don’t want to go out guns a blazing and saying, “this is what I’m seeing.” Your first is to to check it like 50 times because if you go and call wolf on something so big, that can also be disastrous for you because that’s going to go all the way to the top.
So, you know, there’s a lot of pressure on situations like this, or at least that’s what I experienced.
Morgan Friedman (Host): No, that, that, that makes sense. You find something so big for you to go make any sort of accusation, like, or even on a person say, “Hey, there’s this problem.” You need to be a thousand percent sure. This is no longer your website sound for five minutes.
Sam Drauschak (Interviewee): Yeah, because if you make a mistake, I mean, everyone’s going to have eyes on it. You’re going to waste a lot of big people’s time looking in to validate your work. And it is nerve-wracking because if they find out, no, you just don’t know what you’re talking about, or there’s an error, I mean, it does make you nervous.
It’d be like a massive hit to your credibility. And I wouldn’t be surprised if people in similar situations are very hesitant to bring it forward just because when you find, when you uncover something so large and unexpected, there is this… All this energy starts to coalesce around it, and it can be scary to manage.
Morgan Friedman (Host): Wow, yeah, no, and this is like, you’re incredibly unaligned in a way that’s far beyond, like, run of the day, run of the mill professional work. Okay, so you discovered this hole, you then checked it like 50 different times until you were very confident, then when you got enough confidence to be like, “okay, there really is a serious problem,” who was the first person you told? Without names, but like the role and how did that go.
Sam Drauschak (Interviewee): Yeah, so the validation, you know, I went with my manager, who I had a good relationship with, and I went to him first. So we worked out together, we validated this as an issue, and then from there, we mostly went up the chain. I mean, knowing that this is going to probably bring a lot of angry people into the room.
You first go to… this is a law firm, like an international law firm. So the partner is the highest person in an office, the legal partner. So we went to the partner of the office that said, “Hey, can you take a look at this for us? Because we suspect something’s pretty off,” went to them first, and then we reported it, and then from there, yeah, it just goes straight up to the CFO and then the chairman who is like the equivalent of the CEO and also the major shareholder in the firm. So, you know, it was kind of like pressing the button and then it goes straight to the top, and everyone who could possibly implicate it is now in the room.
Morgan Friedman (Host): Okay, so I’m curious. So you told your manager who agreed with you and is like “there’s something wrong. We need to bring it up.” Then you told the partner that asked you to investigate it. And then he also then presumably was like, “okay, you confirmed our suspicions, something beat up.” So now it’s like all positive so far. Then, who did he tell her what happened? Tell us a bit about like the sort of… the dirty politics happening around that.
Sam Drauschak (Interviewee): Yeah. Well, even the partner, the initial partner, I wouldn’t say it’s all good from even the first report, because the issue is you start to get to the point where the high… And this is the irony, I think, in organizations, and maybe this is part of the learning we’re getting into. The higher up you go, the less they understand anything.
Morgan Friedman (Host): Ooh, that’s a good point.
Sam Drauschak (Interviewee): The mechanics of any of their systems, any of the nuance, and I’m not saying that is generally disgruntled and disparaging of executives because they know a lot, and they have a lot of experience, but their job necessitates them not being so keyed into the technical details of all their systems, the nuance of all their day-to-day operations.
So when you have a massive failure like this, you are talking to them and you’re explaining why, and they are always at the level of, “okay, this now has become a massive problem for me because I’m accountable for this massive error, but I don’t understand what you’re saying or why this is happening technically or how this came to happen.” Because they would have to learn a lot. And this is common. This is common in a lot of organizations. And if you think about it… so it’s this funny situation where, because of the magnitude of the problem, it has to be handled by people at the highest levels of the organization, but those are actually the least capable people to handle something like this because they don’t understand it and they’re usually accustomed to working at a pace where they’re not going to understand it.
This is further more of like setting that stage a little bit for how, you know, to answer your question directly, you tell the first partner and they’re having this “Oh, crap” moment, right, which is… this is actually a massive problem, and now I have to go immediately talk about it because not only are they on the hook for all this money, but it’s also implicating other people who should have been helping at the executive level manage this problem.
So you can imagine, even the first report is like, they’re thinking, “oh crap, what do I do with this” kind of thing.
Morgan Friedman (Host): Actually, that’s, this is a regular… I hadn’t quite thought about this until you mentioned it, where even this partner, like this first partner that you went to, because he’s at least somewhat accountable for him, even just bringing it up, like, makes himself look bad to some degree.
Secondly, what I’d add to that is in my experience, as this is like a, one of my favorite professional learnings, just being in a dirty situation makes you dirty. Like, even just bringing it up, talking about it, like, people In their minds associate, “oh yeah, you’re the guy with all that fraud issue.” And then it’s kind of like a minor detail, whether you’re like the good guy that exposed it or the bad guy that made it happen. But they just associate you with that mess. And who wants to be associated with a mess?
Sam Drauschak (Interviewee): That’s right. I mean, nobody wants to be in that. That’s why your first instinct, and in most level of professionals, is “this is not my fault.” Like, you know, when you first get defensive, when you hear numbers around, you know, even if you’re this… this company particularly was like a billion-dollar revenue firm, but I mean, even 4% of your revenue or whatever that is if I did my mental math right, you know, that’s significant, right? That’s a significant amount of money to be accountable for losing through error and through carelessness.
So, you just don’t want to believe it. And I think that’s natural. And a lot of this is the softer stuff that I’ve learned since, you know, and over the course of my career, but you almost give it, I guess, more power when you normalize it like this, as if it’s, you know, it’s a normal reaction, but it is a normal reaction. You just want to deny it because it just causes a lot of work. And especially if you’re already stressed out, like nobody wants to be associated with something like a terrible error like this. Nobody wants to take accountability for it. Nobody wants to own it. So it’s a tough situation. But unfortunately, I feel like it’s pretty normal reaction when you hear news you’re not expecting along that magnitude.
Morgan Friedman (Host): This is fascinating and definitely a tough situation. As a parenthetical, before we get back to what happened next, did the partner or anyone else in the chain ask you to investigate how it happened or where it happened or did anyone else? Because I’m kind of just curious, like, how does, like, was someone stealing money? Or what was the actual cause?
Sam Drauschak (Interviewee): Yeah, the actual cause was just a configuration error in the accounting system and just the technology itself being managed poorly. So, you know, records not being able to be found, bills not being, you know, bills being late and not being flagged and not being processed. Because a lot of the problem with larger companies like this is if you invoice a client and they don’t pay it, there’s actually… it’s only… you’re the only… the company is accountable for following-up on those invoices based on the contract terms. If they don’t pay after let’s say 30- or 60-day window and you don’t follow up for another 30 or 60 days, after a certain point, and a lot of times it’s 60 days, courts favor the client and they say like “well you didn’t follow up with this invoice.” They didn’t pay it, but like you can’t go back a quarter later and tell them pay you $10 million like if both your accounting systems missed it. So this was purely… Just accounting system error.
Morgan Friedman (Host): Wow, there’s this whole other fantastic lesson in here about how like configuration details actually matter. Like…
Sam Drauschak (Interviewee): Yeah, it’s big. If it was a criminal situation and this was more of a crime conversation, it would actually be easier for people to process because people love to point fingers at a criminal or fraudulent activity and then they don’t like being the problem themselves.
Morgan Friedman (Host): Yeah, and also with like configuration errors, it’s actually really hard to point fingers because you have like the technician that configured it and then and then his boss and then the person who’s outsourced to it. Each little configuration… Because you’re like constrained by the configuration options, each one of those are like a reasonable decision on its own. That often exists on the configuration panel for a reason, which is the culmination of lots of little decisions and no one really paying attention and no one caring enough is… it like leads to $40 million going missing.
Sam Drauschak (Interviewee): Well, you just said everyone who’s listening, who’s had any experience in corporate projects, you’re, you’re probably triggering some level of PTSD in everybody because that’s exactly… I mean, no one… it’s very easy to pass… you can’t pin any accountable parties when you have technology issues like this, and it’s becoming more and more prevalent because we have so much more reliance on technology, and having good process work and good configuration and good system maintenance and ownership is critical, like when you have a technologically enabled organization.
So like you said, who’s responsible when it’s… most of the time for these organizations that are digital services, you have a few configuration errors. The business kind of works around them. It’s rare to find an error like this, where, like you said, it’s a significant amount of money. And then who do you blame? The tier 2 IT person who is not doing their job, the project people, the partner? You know, who does it go to?
Morgan Friedman (Host): Yeah, it’s fascinating, fascinating. Okay. So, so interesting. So you, okay. You told your manager who then told the partner, and the partner, as soon as you told him, has says, “Oh no, we have a problem. Oh no, I don’t want to be in the mess and do all this.” So he was feeling conflicted. What did the partner then do? And what happened after that?
Sam Drauschak (Interviewee): So the partner… obviously the conversation goes something like, “are you sure? Like show me,” and then, and then you explain your findings and they don’t understand what you’re saying, kind of like we talked about.
So then, then what do you do? I mean, and imagine I’m saying like, what do you do as that person? It’s like, “well, I can trust this person who seems credible and here’s what they’re telling me. I kind of understand what’s going on.” So then, you know, I’m out of the room and then the next thing I know, I’m getting a call from the CFO directly.
So, I can only extrapolate what happened in between the reporting and the accepting from that partner and then what happened after, but I assume this had to go right up to the top level of, you know, executive committee partners. The CFO was notified. So, you know, there’s probably a ripple effect, but at that time, you know, I’m not in those conversations directly. So it’s just, all of a sudden, you like doing your job, you report it, and then everyone knows. Everyone in the executive committee and everyone at the executive level and all the C suite was notified to some extent.
Morgan Friedman (Host): Okay. So, and wait, how old were you at the time?
Sam Drauschak (Interviewee): I was maybe 28.
Morgan Friedman (Host): Okay. Because it’s always like the little kid discovering something about this as opposed to like the old, the seasoned professional.
Sam Drauschak (Interviewee): At the time I didn’t feel like a kid, but yeah, at 28, I was pretty early in my career still for these kinds of conversations, I think.
Morgan Friedman (Host): Yeah. Totally. Okay. So the CFO calls you and how did that conversation go down?
Sam Drauschak (Interviewee): I mean, it sounded like, you know, it’s a lot to get a call from an unknown number and then it’s like, “Hey, this is the CFO at the company… the CFO at the company” and like…
Morgan Friedman (Host): All of this like $10 billion law firm.
Sam Drauschak (Interviewee): Yeah. And then he basically said, “listen, you know, what you’re saying is wrong. Don’t kind of like… let me look at it with my technology people, but like, we’ve been working on this. We understand how this works. Like, this is not right. So I just want you to just hold your findings for a little bit and don’t talk to anybody else. And you know, I’ll get back to you” kind of thing.
Morgan Friedman (Host): Oh, so this is interesting. So, goes right to the CFO, and the CFO immediately went into CYA mode.
Sam Drauschak (Interviewee): Correct. Yeah, just like gag, just like called me and gave me a direct gag order and just said “don’t talk about this right now and we’re on top of it” kind of thing and “I’ll loop you in if we need you” sort of vibe to it.
Morgan Friedman (Host): Oh, okay. So what’s interesting about that is it totally plays to a stereotype that, like, the hierarchy going in the corporate hierarchy, the more CYA is the only thing that matters. And it’s interesting that he didn’t even show a curiosity in, like, “explain to me the details to see what actually happened.” And he wasn’t interested in, like, understanding and then leaning to if it’s improving. It was just CYA, CYA, CYA.
Sam Drauschak (Interviewee): Yeah, I mean, basically to start, I think I can’t imagine the calls he was getting, you know, in that time. So I think he just wanted to touch base. I mean, he seemed frantic at that time, energetically.
I mean, most executives, if they’re frantic, it’s not like they’re screaming on the phone or whatever, at least that I’ve experienced. They usually, you know, they get to that level. They have pretty good composure. But it was very much like a not well-thought-out conversation about, “I need to control this message right now, so please work with me to not do anything you’re doing anymore for now, essentially.” but yeah, I mean, covering CYA was primary in that conversation, for sure.
Morgan Friedman (Host): Parenthetical, I know a bunch of our listeners are non-Americans, so if you don’t know the phrase CYA, cover your ass, it refers to corporate bureaucracies where you do things to like where everything is about protecting yourself and your position, and that’s it, so that was the shorthand we’re using.
Okay, so escalated right to the top who immediately goes into CYA mode. Then what happens in this exciting mystery?
Sam Drauschak (Interviewee): Well, then I was reporting to my manager. And what I should mention again is my manager has a lot of authority. So my manager is also a partner of his own office. So, you know, you’ve got many partners in a law firm this large. So, you’ve got partners in the regional offices and you’ve got partners who are in… I was in more of a corporate function. So, you know, it’s interesting. And this is part of the overly complicated political dynamics when you have partners and an actual true partnership at this level because they all own part of the business technically. So there’s a lot of respect that has to be given.
So my manager, you know, says, “we’re not going to sweep this under the rug.” So now, even as far as we take that mentality, I’m kind of the person who’s communicating these findings, but I’m in the middle, and I’m just being pushed around at this point. Like, this is the start of me being pushed around to communicate this to various parties for everyone’s various agendas, right?
So, the partner I report to, or the manager I report to, says, you know, “that’s ridiculous. The CFO shouldn’t be calling you directly,” like this is very inappropriate behavior. And, you know, “he needs to take accountability and his team needs to understand what you’re saying. We need to get this in front of the people that matter.”
I mean, he was trying to do his job and saying, you can’t… like, it’s not appropriate to be silenced about this until people understand it and has to be resolved. So what happens next is he calls the chairman, he calls the partners, he starts to go on the offensive and saying these findings need to be…
Morgan Friedman (Host): He being your boss?
Sam Drauschak (Interviewee): Yeah, my boss. Yeah. So then he basically told me, “get ready to present this at the highest levels of the organization. So try to present your findings in a way, continue to boil them upward.” And I guess it’s not boiling them up. It’s sort of, what is the term? It’s eluding me. It’s making it more powerful for people who need a higher detail level. There’s a term for that, but anyway… so we’re trying to make this now presentable for people at the highest levels of the organization so this is acted on. So that’s where we go next.
Morgan Friedman (Host): And then what happens? So he says, “get ready for the fight.”
Sam Drauschak (Interviewee): Yeah, so the fight starts where I was just, you know, called by the CFO and told not to move forward, and then now that CFO is calling my boss and they’re kind of going back and forth, but we ended up getting an audience with the chairman of the firm, who’s the highest person in the firm. And we presented our findings. We had 90 minutes with him, which is, you know, from like a routine process project, now I was presenting to the chairman of the firm.
So we went to his office in New York and we presented what we found, and we tried to do the best we could to make it understandable. And that was that. And then we were told, “thank you.” They didn’t really say much. And then said, you know, and CFO was in the room. And he was funny because he was pushing back on a lot of things that were being said. You know, it was kind of our former president’s almost mentality of like, nope, wrong, stop, wrong,” you know, we were getting interrupted a lot. It was that sort of timbre to the conversation. And then we were told, “thank you so much for presenting this” and then leave. And that was kind of the only feedback we got from that presentation.
Morgan Friedman (Host): So you left, but afterwards, do you ever hear from them again about the presentation or anything?
Sam Drauschak (Interviewee): Yeah, so this is where it was pretty frustrating for me and my manager. So we heard that the CFO was just given charge to take back over this project. So it got taken from us. And the CFO took it back over because it’s in his realm. It was identified and people confirmed that this is a technology error and such a magnitude that, you know, he had to be on it as a first-priority issue. And we were told that we weren’t needed anymore, that they were going to handle it and they were going to solve it without our… further help from us. And then it was out of our hands.
Morgan Friedman (Host): So an interesting detail is just in understanding how corporate politics plays out. When you have these committees to investigate anything or do anything, you always know the conclusion before it starts because it’s always the case that the people chosen to lead the committee are the people who are predisposed to the outcome that the controlling powers actually want. This is a great example because knowing that, okay, responsibility for figuring this out and solving this is going to be the CFO’s office, like, it’s predetermined that at that point, that is going to be the exact response that the CFO wants, which is under the rug.
Sam Drauschak (Interviewee): Yeah. Well, this is the thing where it was a very tense situation, but I’ll tell you how it all ended up going, you know, after this point, because what ends up happening is… because the biggest urgency and the biggest frustrating part I was explaining in this industry, especially, we knew we were sitting on a lot of uncollected invoices. But if you wait, so there was a time stamp, there was a time period on this. If you waited more than the 60 days for a lot of this, that’s when the 40 million truly becomes uncollectible, because if you don’t act on it quickly enough, then you’re not going to ask clients months later.
Because the clients you have to imagine too, because you might be thinking, you know, if I bill a guy for doing landscaping work, of course, you know, I could ask him if I missed him paying, I could ask him three months later, like, “Hey, you missed this. Can you pay it?” But some of these organizations are the top 100, the Fortune 100, the talking to each other, and you’re not going to ask them for 6 million in missed billing three or four months later because then they have a legal cause to not pay it and then it’s just cheaper for them to get a lawyer to block it because of your mistakes than to pay it.
Morgan Friedman (Host): So I have a legal question just because I have zero experience with uncollected invoices at such large numbers that according to your understanding, and I know you’re not a lawyer, etc. But according to your understanding, if the invoices are this big and it’s more than whatever, 90 days or so past the invoice payment date, they’re like, they’re not required to pay it? Don’t quite understand.
Sam Drauschak (Interviewee): Yeah. And that’s where, like you’re saying, what you’re saying is true. And it may sound counterintuitive, but the issue is contract terms state billing procedures for most of these big companies so that their cashflow can be protected and that, you know, the transactions are tight and they make sense. Like if I buy goods from you, typically I have net 30 or net 60 days to pay. Like I get a bill from you, I can pay it within 60 days of receipt, but you’re obligated to give me that bill within a reasonable time that the services are rendered, for example, because like if I did services for you as a company and I forgot to bill you and I bill you a year later for those services I budgeted for, that’s not on me, because I don’t have the cash for that anymore. It’s already left my annual budget, for example.
Morgan Friedman (Host): I see, I see. So if I hire you to make a website for a few thousand dollars, and I forget to send you the bill, and then four years later, I’m like, “Four years ago, I never sent you the invoice for a thousand dollars, and you never paid me.” You would be like, “come on, it was four years ago.”
Sam Drauschak (Interviewee): Exactly. And I might still pay you, but like, it’s hard to imagine that situation because the fact that I would’ve forgot to pay you with that personal of an interaction would be like I was stealing from you because I wouldn’t, as a one-on-one, like you said, if I built you, if you what? What’s the… I’m mixing it up. If I built you a website and then I didn’t send you a bill, for you to not be like, “Hey, you didn’t send me a bill. Can I pay you?” For you to just not pay me, that would be kind of crappy of you, right? Like you would feel like you would be stealing from me.
Morgan Friedman (Host): By the way, maybe I’m a crappy person. I think if they never send me a bill, I would, I might, conveniently forget.
Sam Drauschak (Interviewee): There you go. There you go. And that’s what I’m talking about. So like for large companies, conveniently forgetting is legitimately forgetting. If you don’t get the bill when there’s a thousand transactions coming into your office a day, it’s not your job as the company to track down what I bought if you didn’t bill me.
Morgan Friedman (Host): If you can’t reasonably expect someone that wants to pay someone to be liable if you never ask them for the money.
Sam Drauschak (Interviewee): That’s exactly it. So like, this is this dynamic of people, like you said, people don’t think about this dynamic, but for big companies, the contracts go both ways. Not only we will pay you once you bill us in a reasonable amount of time, but you have to bill us a reasonable amount of time after services are rendered or you forfeit your opportunity to collect that money because we can’t plan for you to bill us randomly at any time period after services are rendered because that doesn’t make any sense.
Morgan Friedman (Host): So understanding all this, I wouldn’t guess it would have played out slightly differently, which is my prediction would have been among these Fortune 100-, 500-type companies, it’s a massive amount of long-term business relationships. These companies are always buying from each other and hiring each other.
So it’s like, if this firm that pays me tens of millions of dollars a year in legal fees, I didn’t bill them for a million dollars, but I know every year they give me tens of millions of dollars, like, I think it’s… wouldn’t it be reasonable to go to them and say, “Hey, Hey, 90 days ago, we did this work for a million dollars. We didn’t bill you. We know it’s past the deadline, but we do a massive amount of work together. Would you want to like pay like at a 50% discount, that way we can get something. You get a massive discount, and then we have millions of dollars together every year anyway. So we’ll continue working happily ever after.”
Sam Drauschak (Interviewee): Right. And this is the funny part about some of the story and the softer parts of it because you’re right. It’s a lot of these are based on relationships. And legal companies, if you’re the retained lawyer for like a Fortune 100 company, a lot of it is about credibility, reputation.
If you hired a lawyer because you thought they were reputable and then they call you 120 days after this and they said, “Hey, you know, I forgot to bill you. Can you cut me a deal and give me 50% of it?” I mean, you just look like an ass, honestly.
Morgan Friedman (Host): Oh, you… I see. I see. Doing that would make you look incompetent.
Sam Drauschak (Interviewee): Yeah. I mean, you have to admit that we had, “Hey, we had some billing errors. Our accounting systems don’t work.” I mean, the last thing lawyers want to do is to put forward, project this, basically a vibe of incompetency, like you were saying. So like, they’d rather eat the money most of the time because, you know, a lot of lawyers bill really high numbers. They don’t need to be coming to you and crawling and like acting like they’re bad debt collectors now. And like, “Hey, we had all these problems, and now we’re billing you after the fact, cause we don’t have our shit together basically. And then, you know, can you cut me a deal and give me half there?” They’d rather just eat the cost entirely.
Morgan Friedman (Host): Okay. So by the way, this is interesting. We’ve added an interesting nuance here, which is at first I was thinking, sweep under the rug is pure CYA. They just want to protect themselves, and no one wants to be involved in a messy situation. But now, that’s part of it, but it seemed like something else that was happening was actually a legitimate branding decision, which is it seems like they made a reasonable decision saying, “you know, we can eat 4% of our annual revenue in return for our not looking like incompetent fools to our ongoing clients,” which is a reasonable trade-off.
Sam Drauschak (Interviewee): Legitimate? I don’t know. And that’s where it’s arguable. And that’s where there’s a lot of bad apples. And it was pretty a terrible situation because… and that was the other thing too. If they’d acted faster, they wouldn’t even look incompetent. It was just getting… they were within their window for a lot of it. And they weren’t going to get all 40 million back, but that’s what I was saying. You know, you would ask what happened. The CFO took it back over, didn’t want to take accountability, and they had a 60-day window where they probably could have recouped 60 or 70% of it if they just, you know, figured to fix the problem and billed the clients correctly and then re-followed-up on some of these things.
So after it left our office, they didn’t move on it. They just didn’t have the capability to move on it. They didn’t want to part with us. So they lost the 40 million that year. They just lost all of it. They couldn’t reclaim any of it.
Morgan Friedman (Host): Wow. This is interesting that it makes the detail, the analysis more nuanced, that had they moved fast, they could have likely recouped something like two-thirds of it.
Sam Drauschak (Interviewee): Yeah, they could have recouped a number. It was kind of like a… that was part of the problem too. There was a whole bucket in there of unknown unknowns. Like we identified a process and a configuration and technology errors that were basically resulting in, let’s just say for simplicity, bills going to a black hole.
And like we knew it would have to be… take a larger effort. It would have to be basically a fire drill effort where a team would need to be put together and discern what is in that black hole and how do we get the bills to the right places and move them out of the organization. And we had like a reasonable… like there was a time box to it. There was a very reasonable conjecture that, “Hey, you dig these up, you get them out. We could recoup a lot of this.” We didn’t know the exact amount, but the $40 million was like a very confident estimate, and they just didn’t move on it because they just, they were… well… and we haven’t even gotten to some of the politics at the top that probably made that happen.
But because the… I’ll just get to the end. The fast forward is they lost the money. No one reached out to us, nobody followed-up, but then 18 months later, we had a new CFO. So… and that, you know, and that’s a commentary on how things work, but that CFO, to give it back to him to handle when they knew that it wasn’t happening and like the politics going on at the top and who’s accountable and who’s not, it costs them $40 million to change CFOs. And then he was still on for another 18 months after that. So, you know, it was tough being in that because the biggest thing is when you’re trying to do a good job and you’re exposed to politics at a level, you know, we’re talking about in a way that there’s self-awareness about some of the drivers that make these happen in organizations.
But when you’re 28 and you find something, you present it all the way to the top and they just ignore it and you just watch the money burn up at the end of the year, you can’t help but feel really bitter about that, right? I mean, that’s $40 million that just evaporated into air that could have gone to employees, it could have gone to reinvesting in the company. And it was really just to cover somebody’s pride and to keep the chain of command together. And, you know, it’s a hard thing to watch.
Morgan Friedman (Host): And ultimately, he lost the job anyway.
Sam Drauschak (Interviewee): Yeah, he lost his job.
Morgan Friedman (Host): The story could have turned out differently if the CFO had said, “I fucked up. I’m going to own it. I’m going to try to recoup as much as we can now.” Then like, maybe he would still be the CFO.
Sam Drauschak (Interviewee): That’s right. Or he just said like, “Hey, you guys identified a really, a bad vulnerability in our system. And you know, I’m going to take accountability for it, but I need your help. Continue to use your expertise to help us solve this and solve it quickly and let’s mobilize the team.” But it’s tough.
Morgan Friedman (Host): This is a good example in leadership, in particular, a negative example of leadership, of just hiding, covering up under the rug. Like, if you have a competent CEO, like, you’re going to lose your job anyway. But if you own the problems and you trry to solve them, you like, at least have a fighting chance. Everyone wants to work with people that own problems and try to solve them.
Sam Drauschak (Interviewee): Yeah. Well, and that’s the thing too. You look at the mechanics of some of these organizations where you have an aging, you know, C-suite from the last generation. They’re used to doing business a little differently. And like you said, leadership today is taking accountability, radical transparency, you know, problems happen. We solve them together.
But when you have people who are at the top and they look at the numbers and they’d say, “I’m okay losing $40 million to not throw my own CFO who I’ve worked with for the last 15 years under the bus and make him solve this at the expense of, you know, his role or whatever,” and you’ve got people at that level. And that’s where, I think, it takes a bit of a perspective shift as a younger employee that sometimes even $40 million for people who have been working at that magnitude for so long, it’s just numbers on the books, right?
It’s just 4% of revenue so that I don’t have to have a tough conversation with this person or fire them immediately or force them to say they’re not good at their job. And like, this is people’s pride and their egos involved. And it’s just kind of crazy to think about, but it’s a reality in a lot of large businesses, I think.
Morgan Friedman (Host): That makes sense. Question, about four minutes ago you alluded to, you said, “Hey, I have an advance in the politics of what happened.” I’m curious for some of the, or the politics at the top. I’m curious for some of the politics at the top to dive into that.
Sam Drauschak (Interviewee): Well, that’s what I was…. I was just getting into it just now, which is, you know, you would think any reasonable person would say… turn to their CFO and say, “Fix this. Like, what are you doing? You know, this person, this team, or this group found this massive error in your organization. I need you to own it. I need you to fix it.” What causes in backroom conversations a person like a chairman of such a large company to let that CFO slide, not hold them accountable, why does a CFO cover up these errors so egregiously?
It almost does make you think, was he moving money? Are they all moving money? What’s going on with like all this money that nobody seems to care that much about collecting, even though they’ve been given very clear instructions on how to fix it? And I think that’s where, you know, the politics of an organization like this is unsure.
I wasn’t in the room. But, you know, you can tell when there’s a lot of politics and a lot of things that don’t make sense when people stop behaving rationally, collectively stop behaving rationally, you know, and almost to the point where you you could think criminality, or some sort of issue, because when you bring something up and you expect a logical response, because this is the job you have, like the job I had at the time, which is to illuminate problems like this, and then 99 times out of 100, you illuminate a problem like this, and that’s your job, people pay you to do that so they can act on it logically. You know, you can tell the magnitude of politics going on with the level of not logical or like inherently irrational behavior starts happening when you expose something, And that’s what I’m really referring to.
So, you know, you can only… I can only have like a conjecture of what was actually going on, why he retained his job for 18 months, why the $40 million was just left on the table, why no one engaged with our group afterwards to actually try to solve it in a meaningful way. You know, that’s for anyone’s best guess, I suppose.
One observation I would make is in my experience, CEOs of big companies have a lot less power than you would think. Like, in order to get anything done at the CEO level, you need to like, you’re a CEO of a 500-person company, you need to get the right director excited and to put it in the time on your pet initiative, who then needs to get his VP of that focuses on this thing.
Morgan Friedman (Host): We then need to get the employee to like to everyone drop everything. And everyone’s already doing a million things because it’s actually hard for them to do anything. But you know what’s easier for them to do? Replace people. So it could just be that he, as the CEO, literally couldn’t.
Like, there was just no path towards solving this. And instead, that was probably like the final yellow flag of many yellow flags that said, “Okay, now the CFO has to go.” And it took him 18 months to find a replacement, transition out.
Sam Drauschak (Interviewee): Yeah, and that’s a great observation. And you also… you point out when we’re talking about politics, true politics at this level is the CFO might’ve been part of this chairman’s coalition or CEO’s coalition, basically.
Morgan Friedman (Host): A hundred percent.
Sam Drauschak (Interviewee): And used to having him doing the things that he needs him to do, and removing him immediately or holding him accountable might have weakened his overall position in the company or with… you never know also when the shareholders, right, the board likes this person or put that CFO in and the CEO just has to deal with them and actually can’t move them, and he might not even know why.
So it’s funny how the higher you get up in the ranks, all of these things are plausible. You see them happen fairly commonly. A lot of this power brokering and true politics going on where you can see large sums of money be meaningless compared to people’s, “this is my son. This is my nephew who’s been put in this position. You can’t fire him or like, I’m going to oust you.” And like, at that level, what does it matter?
Morgan Friedman (Host): And I like your phrase, the coalition. In these big organizations, you need different people to support you in many different ways. And if someone is a key part of your coalition and they fuck up, guess what? You don’t want your whole coalition to fall apart. And this is just as true in big companies as it is in politics.
Sam Drauschak (Interviewee): Right. It’s true politics. Yeah. And that’s why a lot of the learnings from this scenario is that I think when you’re young, especially, politics are harder to grasp. And when you hear that, I remember I was getting groomed as a younger consultant for many years and people would say, you know, “politics are important; politics matter.” And for me, and I have a more scientific and clinical disposition and I said, “yeah, okay, politics or whatever, but also facts matter, and facts should be presented and logical resolutions of the presentation of facts would be, I would think, highest priority.”
But, you know, this situation, you learn a very intense lesson about politics, and it really does play out pretty uniformly across most large companies where politics is a major factor for influence, actually getting things done. And, you know, I think that is mirrored in true politics for this country and just in other scenarios where that plays in.
And I think that’s a reality that is difficult to absorb because, well, it actually, I would say, it is inherently logical when you really get into it. But I think for a lot of people who don’t see it, it can be very frustrating and also very disenchanting, I should say.
Morgan Friedman (Host): Well, excellent points. I agree with that. I want to add another aspect to this analysis that I think is worthy of discussing and observing for dealing with these sort of challenging client situations, which is the same dollar amounts can mean very different things to different people and different organizations. And it was important for the 40 million, you’re like, “Oh my God, that like is like the whole budget of the government of Guatemala or something.”
But if it’s 4% of their annual revenue, like, I don’t know if you have a partner in your current firm in your current, but in a hypothetical universe, you have a partner and a little firm and you have some finance problems, some issue, that costs you 4% for your little two-man firm, 4% of your revenue, whatever, a few thousand dollars. Would it be worth it for you to have a major war and falling out with your partner over a few thousand dollars? I would probably be like, you know, “I’d rather lose a few thousand dollars and just preserve the healthy relationship and use this as learning to improve the processes. Go forward.” So even just thinking about it in this… thinking about dollar amounts, not as an absolute dollar but as a percentage can help us understand some of the seemingly illogical motivations as well.
Sam Drauschak (Interviewee): Yeah, I totally agree. And that’s why, you know, when you get to those sums of money, like you said, as a younger person, and we started this conversation with, “wow, I find something huge here,” $40 million is a huge sum of money for the average person. But like you said, if the company is making a half million dollars a year, 4% is like $20,000 or whatever it is.
And like, when you’re used to working with sums that large, like you said, is that percentage worth relationships, client relationships, credibility? You know, staying in power of all these things? You don’t know. And you’re talking about different… because of the relativity between you. For me, this was this is as urgent as a situation as I could have been attached to at that time in my career.
And for them, like you said, this lack of urgency, which caused so much angst for me and watching $40 million burn up, you know, feeling like you’re powerless to help the company and that you’re not being heard and there’s all this stuff that must be going on in the background. I mean, don’t get me wrong, $40 million is $40 million. But like you said, and it’s a really great point when you’re playing the big game, the mechanics are different. Things are relative.
Morgan Friedman (Host): Yeah. I think I feel like on smaller levels, people tend to think about money in absolute terms, but as you get larger, people tend to think about money in relative or percentage terms as well. So which by at these big number is they’re looking at 4%, which is the same reason. And .com starter plans. It’s super famous that are part of, let’s say, Silicon Valley tech nerds. Part of Google’s reputation and fame, and for me is a better word is, “Oh yeah, they have this project, Google Reader, this, this, this, that’s only making them a $10 million profit a year.
That’s enough for Google. So they cancel it. And it’s the same sort of thing where from our point of view, “Oh my God, it’s profitable. We all love this product. Why are you canceling it?” But from Google’s point of view, no, even forgetting the $40 million loss, the $40 million profit is such a little blip on the radar. It’s not worth the energy and the manpower to work on that project.
Sam Drauschak (Interviewee): Yeah. Yeah, it’s nuts. And to a certain extent, I would say there is a philosophical conversation to be had here because like you said, I don’t think it justifies even now, you know, years later, I wouldn’t say that even if you’re used to amounts, like the Google logic you just mentioned or you’re saying I can write this off for cosmetic reasons or what have you, it still has absolute power.
And I do think it’s right to remember that. Like, even as we get bigger in our careers or you start to become that person who’s moving some sort of money around like that, like, that money has power in the real world. It’s people’s energy that’s coalesced, and, you know, I think it deserves respect, regardless of, kind of, what level you’re playing at, because it’s not a game, you know, to a certain extent, or at least that’s my opinion.
Morgan Friedman (Host): I agree. This is where it comes back down to marketing where we’re like, to use the Google example, a common observation is that Google Reader was so beloved by like the tech nerds that are the core audience that by canceling it, okay, like they save some paperwork but that was kind of like the do no evil to do evil shift that happened with Google where it just turned a lot of the tech nerds against them. So even for pure marketing reasons, it might’ve made sense to keep it around.
Sam Drauschak (Interviewee): Yeah. I mean that’s, again, it’s the real horror story in a way, which is that you get to this level and you just… if you’re in a different reality, and when you’re in a different reality, sometimes you’re just playing by different rules because of this relativity effect, I think.
Morgan Friedman (Host): I think because of the relativity effect but also for a second reason, which you mentioned earlier, and now as we wrap up, it makes sense to bring back, I loved your observation in the beginning of our conversation that as you get higher up in the hierarchy, by definition of having more responsibility and less time for everything, you can’t get into the weeds of a very little thing.
So what happens at the top is not just where you’re playing by these different rules, thinking about everything in this relative percentage way, but you just have, like, so little time for, like, okay, finance, HR, you know, sales, sales marketing, operations, like legal. Every little thing you get five minutes a day for everything, and that, fundamentally, unhinges you from like, what is the real business and how does it actually work. And that is also a huge contributing factor towards C-suites being in their own universe.
Sam Drauschak (Interviewee): Yeah, I agree. And it’s a whole other conversation for another time about whether even that model makes sense. Like, should you be running a company that way? But we can put a pin in that one.
Morgan Friedman (Host): I’ve recently been experimenting with this platform that they say is taking over the world called TikTok, and TikTok has pinpointed me as being really interested in videos where CEOs go undercover as like the low-level employees in companies.
So there’s this whole universe. I didn’t even know this existed. I’m like CEOs, like of like franchise fastfood restaurants just pretending to be hired and just get day-one trainings and see what it’s like in the store. And it’s actually kind of an interesting parenthetical to talk about and has like figured me out really well.
I’m totally predictable because I love it. So, it’s actually reminds me of what we’re getting at now that C level is just… is because of these dynamics, the relativity, having no time for everything, so much doesn’t really get removed from what they’re actually doing. It’s things like this where we’re good CEOs try to like go down to the very bottom and to see with their own eyes what’s actually happened and happening in order to fight this dynamic and just really understand the ground level. So, I love the CEOs that do these undercover work.
Sam Drauschak (Interviewee): I applaud them. I think it’s critical. I don’t know if it has to be undercover, but yeah, I feel like undercover might be for the entertainment factor. But yeah, I mean, I think no matter what size of company you’re running, if you don’t have a good grasp on the processes fundamentally that generate the revenue for the company and that have the base cost, how can you be at the top in the ivory tower waving your magic wand around and expecting to be effective? I just don’t see any way around it.
Morgan Friedman (Host): Totally. As we wrap up, any other final comments, observations, learnings that didn’t come up in our conversation or anything else you want to say. Or did we hit on all the key points?
Sam Drauschak (Interviewee): I think we hit on most of them. I would say as an overall wrap up for me, the biggest learning is that there is no… in business, there’s not a lot of absolute rights and wrongs.
And it’s very easy to get trapped in your own perspective about urgency, about importance, and, you know, even in this conversation, I don’t condone a lot of the activities that happened, but I can understand them better, now removed from the situation. And I think even, you know, there was a lot of probably wrongdoing, so I don’t want to completely normalize and avoid accountability for some of the players in this story, but also they’re people and they have their own logic and their own reasoning, and I think empathy is something that I learned from situations like this.
And having empathy toward your superiors and your leaders and understand that everyone has this perspective is really important to be a successful professional but also just a well-aligned person because it’s very easy to get disenfranchised if you judge everyone’s behavior just based on your own perspective, and you know, I think this story for me really helped early on, teach me that lesson in a meaningful way.
Morgan Friedman (Host): I love it. I actually wrote a whole book on exactly this lesson, like empathy for others in the corporate world, scorpion frog, and exercise and empathy. And with my clients and employees, I will often talk about the scorpion frog method, which is this. I took one classic Aesop’s fable, and I rewrote it 29 times, but each time ending in a completely different backstory. What are the thoughts and emotions and incentives happening to the characters that you don’t know? And each time, it comes to a wildly different story.
And so the way I apply this in business and as a professional is often, clients, people I work with, vendors, everyone, they do things that I think are irrational or weird or stupid or malicious. But I force myself to sit down and say, “okay, I’m now going to take the facts I know and come up with hypothetical possible backstories based on facts that I don’t know.” So and so’s mother just died. This one is actually needs this other thing for this political reason this one is actually trying to like ask her that person that would know is they really want to sell the company so they have to do this to do this is that couldn’t. And just taking the facts I know and adding in things that I will never have access to, it can change, which seems bad to seem good. And it can change the whole morality of the situation.
So now I recommend to everyone, like, once you think someone’s being evil or stupid, ask yourself what you don’t know, and try to construct a narrative to explain their behavior, assuming they’re smart and good. Assuming they’re smart and good people, what facts don’t you know that could lead to a different conclusion?
Sam Drauschak (Interviewee): I think it’s good advice.
Morgan Friedman (Host): Yeah. And with that, Sam, super interesting episode. Great learnings. And I love diving into these high-level corporate politics. And everyone who made it to the end, thank you for watching and I hope you enjoyed it and got as much learning out of it as we did. Until next time.
This transcription belongs to Episode #44, please watch the complete episode here!
