Talking to Management, Part 2: Gleaning Financial Subtleties

It's possible that management might let drop the anticipated rate of return on the new project, or even their target hurdle rates for new projects in general. You can ask for that figure, but don't be surprised when you get turned down; rather, be surprised if you get it. I wouldn't hand that information out if I were a company because competitors would like to know that information.

How is the turnover rate for your employees? How many suppliers have left you over the last year? What percentage of your business comes from repeat customers?

These questions can apply to any key relationship that the company has. If the company has difficulty retaining employees, suppliers or customers, that can be a warning sign. On the other hand, it is possible for the company to have too low a "quit rate." This could imply that it isn't extracting as much from the relationships as it possibly could.

Consider two examples for insight into how high and low employee turnover can affect a business. The first insurance company I worked for, Pacific Standard Life, had a 50% employee turnover rate. The place was a mess because institutional memory, particularly among mid- to lower-level employees, was forever disappearing. It was a wild ride for me, as the company grew by a factor of 10 in the 3½ years I was there, before it became insolvent in 1989 due to a bad asset policy forced on it by its parent company. (Trivia: At $700 million in assets, it was the largest life insolvency of the 1980s. The '80s were kind to insurers.)

Then there is a college that I know of that has a turnover rate of nearly zero. Many of the employees there stay because it's the best place that would have them; they might not have other opportunities. As a result, productivity in some areas is low and new ideas are few.