2005 | Case No. E205
The vignette briefly recounts the story of how Katrina Garnett single-handedly launched CrossWorlds, a successful enterprise application company. The vignette then focuses on two issues that Garnett must wrestle with as she tries to “manage” her Board of Directors. The CrossWorlds Board cautiously and slowly pursued the idea of an initial public offering. They wanted to achieve more revenue traction before accessing the public markets. Unfortunately, the company was at a disadvantage because it recognized revenue using conservative guidelines. In 1999, the rules governing revenue recognition were vague, and many companies (both public and private) were employing aggressive accounting strategies that increased the perceived value of their firms. CrossWorlds, under the guidance of its Board, used conservative policies: instead of recognizing revenue when payment was received, CrossWorlds recognized revenue when the product “went live” at a customer site. While a more transparent approach, Katrina was concerned because her competitors used more aggressive methods, claimed higher revenues and therefore entered the public markets earlier. Several competitors had already gone public or were in registration. Katrina felt that having a prominent investment banker on her Board was limiting her options. Many investment banks refused to meet with CrossWorlds because they simply assumed that the business would go to the Board member’s firm. This was frustrating, as Katrina wanted to find the best fit and to have the option of negotiating fees based on competitive bids. In addition to constraining the Company’s financial services options, Katrina also was frustrated with this Board member’s inability to transcend a banker’s mindset: “I needed him to take off his banker’s hat and think about what was best for the company.”
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