ZOMBIE COMPANIES

This is a term from the property and casualty insurance industry, It describes companies that are “walking dead”, that is, lack sufficient income to cover debt and obligations, and are being kept alive by government pandemic aid.

Zombie companies represent a risk to vendors, customers and employees:

  • Vendors may not get paid for the products and services they provide once government support ends.
  • Customers may never receive the products or services they provide, and may face a lengthy and expensive time in court to recover anything of what they spent with the firm.
  • Employees may abruptly find themselves out of work, and the last paycheck might bounce. That’s a particular challenge if some left a solid company to join a zombie just before it collapses.

How do you know a Zombie when you see it? The short answer is that you often can’t tell. Privately held companies aren’t required to disclose finances. There may be subtle warning signs, such as accountants or bankers spending more time than usual with company management, or long term employees suddenly deciding to leave. You might want to keep a particularly careful eye on the people involve in business strategy and market research. They often have a more holistic view of the business, and may see the iceberg before it hits.

What else can you do to protect yourself?

  • If you a looking for a job, be aware that some states provide far fewer protections for employees than others. Texas ranks high as a place where employers like to transfer employees before laying them off. New York, New England and California are at the other extreme.
  • Read about the industry. Is it growing or contracting? Are jobs expanding or contracting. Are employees being automated out of jobs? Are VCs looking for companies they can dice up and sell?
  • Read as much as you can about the company. What are analysts and customers saying about it? What product announcements has the company made recently? If there is an annual financial report, read it, especially the sections on plans for the future. If there is no commentary on the future, the company may not have one.
  • If there’s a relocation involved, minimize your financial commitments until you are sure the position is solid. Buying a home and then having the job disappear is not a situation you want. Renting an apartment from your hiring manager is also a mistake to avoid.
  • Always have a Plan B.

In truth. most zombies are probably not hiring anyone. However, you need to know. Changing jobs puts a strain on personal relationships. You need to know that the move is worth the stress that goes with it. Have your priorities straight.

Sources:

  1. https://www.insurancejournal.com/news/international/2021/06/08/617712.htm

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