How Boards Can Spot Early-Warning Signs of Distress

Episode Summary

When everything seems to be going well—the economy is robust and the stock market is rising—it’s hard to imagine hard times ahead. Yet, if boards fail to look for early-warning signs of distress, they may not identify potential risks before it’s too late.

In this episode, Catherine Bromilow, Partner with PwC’s Governance Insights Center, joins host TK Kerstetter to discuss how boards can recognize when their company is on the precipice of a potentially negative operating spiral.

“We don’t have to look back too far in history,” said Kerstetter, “to see signs where industries have been on fire and people have missed warning signals.”

Bromilow defines two types of red flags today’s boards should be looking for. The first is often easy for anyone to spot (e.g., declining stock price, investigations, significant restatements), while the second is far easier to dismiss in times of prosperity. Even then, industry or company performance doesn’t always mirror the wider economy.

As we sit here and tape this [episode], the economy is roaring ahead, the stock market is still doing well, but one of the things we know is, even when there is a really strong economy, there are always industries—either because they are countercyclical to the economy or because they are experiencing their own kinds of stresses and challenges—that are going to have a hard time and struggle.
— Catherine Bromilow, Partner, PwC’s Governance Insights Center

PwC Board resource on risk managementHow can board members ensure they’ve correctly interpreted the tea leaves? Bromilow outlines the types of questions today’s boards should be asking their management teams. She also discusses why these red flags are, in reality, not so easy to spot.

For further guidance, don’t miss PwC’s resource, How Can Boards Help Their Companies Navigate Distress—Before It’s Too Late?

PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

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