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Don't Sugarcoat Bad Business News

By William Vogeler, Esq. on December 10, 2018 12:30 PM

Sugarcoating is not new, but it's a lot more complicated than it sounds.

The process used to be popular in the pharmaceutical industry, when drugmakers used it to mask the taste of pills. The ingredients were cheap and made pills easy to swallow.

Companies also "sugarcoat" bad news to make tough times easier to swallow. But it's time to change.

Problems With Sugarcoating

Unless you make M&M's, there's no good reason to sugarcoat your product or services. That's especially true when it comes to communicating with the board of directors.

Startup founders often have this problem. They are afraid to tell the board when the company is performing poorly.

"Even worse, they attempt to put a positive spin on the challenges any startup is bound to face," writes Naz Beheshti for Forbes.

She says it is one of the most common mistakes founders make with their boards. But the sugarcoating problem goes much deeper.

Sugar Could Be the Death You

Everybody knows sugar is bad for you, especially if you're diabetic. And if you're not, quit sugary drinks while you're ahead.

Sugarcoating is bad for business and investors, too. Hiding bad performance information can contribute to an early death.

Charles Ellis, an investment adviser, says mutual fund companies do it all the time. Thousands have closed in the past few years, while burying key data in their reports.

"Individuals and institutions are getting humongously biased data," Ellis said. "You know the old joke: doctors bury their mistakes. Mutual funds close or merge theirs."

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