"Are you kidding? Not only are you stubborn like a Southern mule, you had to go and pass on these genes to your kids. I bet you gave Jonah a hard time as well."

I think about it for a short while. "No Julie, with Jonah somehow it was different. You see, whenever I'm talking with Jonah, I have the distinct feeling that not only is he ready with his questions, he's also ready with my questions. It must be that the Socratic method is much more than just asking questions. One thing I can tell you, improvising with this method is hazardous, believe me, I've tried. It's like throwing a sharpened boomer- ang."

Then it dawns on me. Here's the answer. This is the tech- nique that I should ask Jonah to teach me: how to persuade other people, how to peel away the layers of common practice, how to overcome the resistance to change.

I tell Julie about my last telephone conversation with Jonah.

"That's very interesting," she says at last. "You definitely need to learn how to manage your life better. But sweetheart," she laughs, "be careful, remember what happened to Socrates. He was forced to drink poison."

"I don't intend to give Jonah any poison," I say, still very excited. "Julie, let me tell you, whenever Jonah and I talked

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about my troubles at the plant, I always felt he anticipated my response. It actually bothered me for quite some time."

"Why?"

"When did he have the time to learn so much? I'm not talk- ing about theories, I'm talking about his intimate understanding of how the wheels are really turning in a plant. As far as I know, he never worked one day of his life in industry. He's a physicist. I can't believe that a scientist, sitting in his ivory tower, can know so much about the detailed realities of the shop floor. Something doesn't match.

"Alex, if that's the case, it seems that you should ask Jonah to teach you something more than just the Socratic method."

Lou is my first and most important target. If I'm unable to persuade him to join me, I'm basically lost. It's not going to be easy. He's very close to retirement and I know to what extent he's involved in his community. I take a deep breath and walk into his office. "Hey Lou, is it a good time?"

"Good as any. How can I help you?"

Perfect opening, but somehow I don't have the guts to go straight to the point. "I was just wondering about your forecast for the next two months," I say. "Do you see any problem in us reaching and maintaining the fifteen percent net profit? Not that it's crucial any more," I hurriedly add, "but I'd hate giving Hilton Smyth even the slightest opening to hiss, 'I told you so.' '

"You can sleep tight. According to my calculations we'll easily cross the twenty percent net profit for the next two months."

"What!" I can hardly believe my ears. "Lou, what's the mat- ter with you? Since when do you believe marketing's chronically optimistic outlook?"

"Alex, a lot has happened to me recently, but believing mar- keting is not one of them. Actually, my forecast is based on a slight decline in incoming orders."

"So how did you pull this rabbit out of your hat?"

"Have a seat, it'll take me some time to explain. I have some- thing important to tell you," he says.

It's clear that I'm going to hear about another devious ac- counting trick. "All right, let's hear it."

I make myself comfortable while Lou shuffles papers. After two minutes I lose my patience, "Well, Lou?"

"Alex, we blamed the distorted way in which product costs are calculated for giving the appearance that our net profit was only twelve point eight percent, rather than over seventeen per- cent as we believed was the case. I know that you were furious about it, but what I've found out is that there's an even bigger accounting distortion. It's tied to the way that we evaluate inven- tory, but it's hard for me to explain. Maybe I'll try to do it through the balance sheet."

He pauses again. This time I wait patiently.

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"Maybe I should start with a question," he says . "Do you agree that inventory is a liability?"

"Of course, everybody knows that . And even if we didn't know it, the last few months have shown to what extent inventory is a liability. Do you think we could have pulled off this fast re- sponse to orders if the floor had been as jammed up as before? And haven't you noticed that quality has improved, and overtime has gone down-not to mention that we hardly ever have to ex- pedite today!"

"Yeah," he says, still looking at his papers. "Inventory is defi- nitely a liability, but under what heading are we forced to report it on the balance sheet?"

"Holy cow, Lou!" I jump to my feet. "I knew that the finan- cial measurements were remote from reality, but to that extent- to report liabilities under the heading of assets? I never realized the full implications... Tell me, what are the bottom line ramifications?"

"Bigger than you think, Alex. I've checked and rechecked it, but the numbers do talk. You see, we're evaluating inventory ac- cording to the cost to produce the goods. These costs include not only the money we pay for the raw materials, but also the value added in production.

"You know what we have done in the last few months. Dono- van has worked only on things that we have orders for. Stacey has released material accordingly. We've drained about fifty percent of the work in process from the plant, and about twenty-five per- cent from finished goods. We've saved a lot by not purchasing new materials to replace this excess inventory, and the cash fig- ures show it clearly. But on our books, the assets represented by inventory went down, since they were only partially compensated for by the cash we didn't have to pay out. In this period, when we were reducing inventory, all the difference between the product cost and the material cost of the reduced inventory showed up as a net loss."

I swallow hard. "Lou, you're telling me that we were penal- ized for doing the right thing? That reducing the excess inven- tory was interpreted by our books as a loss?"

"Yes," he replies, still looking at his papers.

"Well tell me, what was the impact-in numbers?"

"Our actual net profit was well over twenty percent in each of the last three months," he says flatly.

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I stare at him. I can't believe my ears.

"But look at the good side," he says sheepishly, "now that the inventory has stabilized at a new, low level, this effect won't dis- turb us any longer."

"Thank you very much," I say sarcastically and turn to leave.

When I reach the door I turn around and ask him, "When did you discover this phenomena? When did you find out that we were turning much more profit than the targeted fifteen per- cent?"

"A week ago."

"So why didn't you tell me? I could have used these facts very effectively in the plant review."

"No Alex, you couldn't have used them at all, it just would have confused your story. You see, everyone evaluates inventory this way, it's even required by the tax authorities. You didn't stand a chance. But I did discuss it at length with Ethan Frost; he understood it perfectly."

"So that's what happened, you fox. Now I understand why Ethan became so supportive," I say, sitting back down.

When we've finished grinning at each other, Lou says in a quiet voice, "Alex, I have another issue."

"Another bomb?"

"You might call it that, but it's sort of a personal matter. Ethan told me that he's going with Bill Peach to the group. I know that you will need a good divisional controller, someone who has experience in the more diverse subjects that are dealt with at the division level. I'm just one year from retirement; ev- erything that I know is old-fashioned. So..."