Most of this blog’s readers know that I am an Accountant. Trained in school as one, practiced as a CPA, and willing to proudly explain, at the drop of a hat or visor, the difference between finance people and accountants (which ranges from golf skills to dealing with details).

Over the years, my blog has touched on various aspects of accountancy. These have included the need for accountants to become more strategic and big picture oriented. And the fact that accountants get hired out of college at a much higher rate than general marketing or communication majors. I even advise young people going to college to consider accounting as a career.

But now there is a major crisis! The Wall Street Journal reports that there is a major shortage of accountants for firms to hire. Obviously the young people going to school have not been listening to me. Companies, such as Johnson and Johnson, took a year to fill a junior accounting position. The unemployment rate for experienced accountants and auditors is listed at 2.5%, about half of the unemployment rate for all workers.

But the news is not all grim. Schools, not just me, are pushing accounting as a career and recently the number of accounting graduates hit a record level, which was up 7% from a few years ago. Major accounting firms like PwC are encouraging high school students to enter college accounting programs. PwC probably has a couple job openings due to their “performance” at the Academy Awards this year!

But, in all seriousness, accounting is a great career for any young person to consider. Some people ask me, don’t you need to be great at math? Answer, no. Accounting is more about understanding concepts and how to view numbers, than it is to work with numbers. And, as I have said before, all businesses need accountants-small, private ones; big, public ones; even government and not-for-profits. All organizations have budgets, financial records and reports and thus need accountants.

Go for it!

 

 

The Wall Street Journal just published a new article on this subject. A huge money manager, State Street announced it would vote against corporate Board members who are part of company’s nominating committee and do not add women to their Boards. State Street is also placing a statue of a young girl on Wall Street where she will stare at the famous Bull. (I did not make this up!)

In a review of the Russell 3000 index of companies, a quarter of firms have no female directors and over half of the firms have under 15% of women on their Boards.

In my book, The Business Zoo, I commented on what I called the One Third role of Board members. One third of Board members should not be on Boards at all due to lack of valuable background, age or being too busy on other Boards. The second One Third had the potential to be qualified and contribute but for a number of reasons did not; not reading the Board materials ahead or ever making a worthwhile comment. The final One Third led the Board and did a great job.

In my day we only had one or two women on a typical Board of 10 to 12. The women Directors were always in the best One Third category.  Why was this? Did they consider it an honor and a duty to service a firm which was paying them a lot of money? Were they younger and had much more energy and focus? Did they, as women, just work with other people better when given a chance? Of course all of these reasons are true. In fact, State Street’s research shows that in the last five years, Boards with at least three women Directors outperformed those companies with no women Directors. No surprise to me.

So how do we end up with more women on corporate Boards? I am not big on the statue. I do agree that voting pressure on companies and their Boards can help. Boards all have committees to nominate and elect new directors. Most of the committee members are men who nominate other men who they know. The existing women on Boards need to exert some pressure themselves and get on these nominating committees. Then not be shy about suggesting other women. And they can point to studies that show that Boards with more women directors can drive success and higher stock values!

Add on note: I really appreciate everyone who reads this blog and who bought my book on Amazon. I have received some wonderful feedback and am now starting on a second book!

Brad

A new movie is coming about the life of McDonald’s Founder, Ray Kroc who created late in life not only a major company but a whole new type of business.

The consulting firm Bain & Company has a study and a new book called The Founder’s Mentality. In their study, Bain points out that founder-led companies delivered three time higher returns to shareholders than other large public firms.

Bain cites three main traits that they believe help founder-led firms to perform so well. In a Wall Street Journal article they relate their work to McDonalds and Ray Kroc. Having worked in my formative years for Donn Corporations’s founder, Don Brown, I wanted to add some thoughts to this important topic.

The three traits that Bain describe that distinguish founder-led firms are:

1. Insurgency where the firm declares war on its industry. For McDonald’s that involved  a whole new way of delivering food with their fast service. At Donn, we had a sense of urgency in everything we did and a disregard for traditional corporate hierarchy or functions like Human Resources.

2. Obsession with how customers are treated. At McDonalds this occurred with watching every detail from the size of the burgers to what potatoes were used for their fries. At Donn we were the first to create customer incentive trips for our customers plus unlimited expense accounts to entertain them including a yacht and condo in the Bahamas!  I would add here that I think the best founder-led firms also treat their own employees in special ways as well. For a small firm, Donn had annual employee outings, turkeys at Thanksgiving and Christmas gifts for our employee children in every world-wide location.

3. Companies are steeped in the owner’s mindset. For Ray Kroc this meant setting up a next generation of founders in his unique franchise system. For Donn Corporation, Don Brown’s vision and values formed its culture and leadership style that caused the company to grew rapidly and prosper. Much of the culture was based on respect, trust and faith in each other. Thirty years after Donn was sold to USG Corporation over 125 former employees signed up for a potential reunion.

In my book, The Business Zoo, on Amazon the ending chapter is on Leadership and Culture. Ray Kroc built that at McDonalds as did Donn’s founder, Don Brown.

I wish all my readers of this blog or my book a wonderful Holiday Season and great 2017!

A second  recruiting article The Wall Street Journal published lately dealt with the increasing need to identify and hire those with “soft skills”. These are people who are clear communicators, skilled problem solvers,  those who get along with co-workers and work well in teams. Surveys of hiring managers by LinkedIn found this is both hard to determine in prospective employees but more and more critical in today’s organizations with overlapping roles and multiple work teams.

Recent business studies have concluded that soft skills are equal or more important than technical skills in the current workplace. And this is true, not only for senior roles, but for middle managers and often even lower level people in some roles or businesses.

The world has changed a lot! When I started in business, an “older” guy taught me about soft or people skills. He said, when you start out in any job, 90% of your job and success will be based on your technical skill and 10% on people skills. After five years, and a couple promotions, the mix is closer to 50-50. And when, and if, you reach a senior role, the people stuff (as he called it then) was 90% and technical only 10%. I would say that for my early years, I found this to be true. But I would also say that the people who rose quickest in organizations (including, in retrospect, myself) often were much more people focused and thus exhibited these so-called soft skills.

But now we get to the hard part. How do you develop these skills?

In today’s very high tech world of business, this is not easy. If you are locked onto a computer screen all day, you are not dealing with people. If you are doing video conferences with thirty people in six offices or posting your work onto group websites, you are not dealing with people. Instead most young people have to go out of their way, and probably on their own time, to connect with others in a one on one or small group way.

For me, starting out in public accounting was the key. We went to different client’s offices and had to “sell” ourselves to them so we could get our work done. And part of our work was seeing if the client’s team had made any mistakes! So you learned to sell yourself to then be able to do your job. Today many service businesses provide this same opportunity. Many inside and outside sales roles do, as well as retail and hospitality businesses .

But the best advice I can give young people on this subject is that You have to work at it yourself to develop these skills. Yes often firms (and even our Human Resource friends) may provide courses or programs to help. The long running Dale Carnegie speaking program has helped a number of people I know.

It takes time and individual work to develop your people skills but based on this article and a number of studies, it can be the key to your future in whatever organization you are in. Good luck!

 

 

The Wall Street Journal has run a number of articles lately on recruiting, interviewing and hiring people. Since people and good fitting people are the key to any business or organization, I found a couple articles most interesting.

One dealt with using video or virtual interviews.Here an applicant logs onto a site or an app and is “asked” questions with fixed prompts and has a limited, preset time to respond. For example, the robot prompt says, “Tell us about a time you had to deal with a conflict.” You then get 3o seconds to five minutes, depending on the question, to respond. Some of these programs even analyze your verbal or facial cues to find a better match.  The companies who sell these programs claim they make hiring fairer since all applicants have to answer the same questions and it eliminates “small talk”.

The results of these computerized interviews are screened and reviewed by, who else, Human Resources. Some HR people claim this is a faster and less costly way to hire.

Many applicants complain that this approach makes them even more upset and uncomfortable than an actual interview. I can see that. I am not sure I personally could answer any question, beyond my name, in 30 seconds! I am also not sure what, if anything, you learn about someone in a rigid, structured robot interview as described.

Before I was hired, at age 26, to become a senior financial person at the private firm, Donn Corp., I had to be interviewed by the Founder and Chairman, Don Brown. Mr. Brown and I talked about the YMCA Indian Guides program since my son Mike was about the age to participate as Don Brown had with his sons. We also spoke about the fact that we each had Shetland Sheepdogs that meant a lot to us. No financial questions. Don Brown tried to get to know me, as a person, because he believed if you hired good people they could become good employees. Would that be considered “small talk” in today’s recruiting world? I proudly worked for the company, and often directly for Don Brown, for a decade and then helped him sell his family business. It was an excellent fit for me and the company.

Computers and technology have changed the way we live and do business, and usually for the better. But, to me, people are still the key to the success of any organization. To really understand the people you interview, you need to spend some time, have some small talk and mostly try to get to know them as a person first.

No it is not dead yet, but my old world of Accounting is taking a lot of hits.

A new book is coming out called The End of Accounting and the Path Forward for Investors and Managers (Wiley Finance books). The premise, per an excerpt in the Wall Street Journal, is that accounting focuses on the past often using arcane rules and estimates. Historically, reported earnings contain a number of one time gains and losses for items like foreign currency or restructuring costs as well as estimates for useful lives of assets to depreciate or bad debt expense etc. And, of course, this is all true.

What the book’s authors are concerned about is that more forward looking information like new customers, new technology, capacity utilization or in retail, same-store sales, are not given the impact they deserve since these measures are often a better predictor of the future and thus a firm’s long term stock value. And, of course, this is all true.

The article brings up the idea that reported earnings (and especially losses) may make it hard to judge the real value of a firm. They cite Tesla who despite over a billion dollars in losses the last two years is considered, by some, as a great innovator and valuable firm. If you read my prior blog posting, you know how I feel about Elon Musk and his money losing, government subsidized businesses. But the point certainly could be valid for the early years of many tech startups like Facebook.

A separate Wall Street Journal article was titled, “Accounting Blurs Profit Picture”. The message here was that only about 6% of the Standard&Poor 500 firms exclusively use Generally Accepted Accounting Principles or GAAP to close their books. Theses firms include Home Depot and Apple, two very different companies and industries.

What most other public firms do is that besides reporting the required GAAP earnings information, they will separately report some other form of Cash Earnings which excludes a number of the one time charges mentioned above. This practice occurs in almost half of all published earnings reports. These firms are supposed to “reconcile” their GAAP results with their hybrid, customized results. The Securities Exchange Commission (SEC) is following up with eighty companies about if and how they accomplish this.

So, as an old CFO and CPA, where do I believe this is going and what should a typical investor do? To my old accounting profession, I would strongly suggest they find ways to either accommodate alternate earnings presentations or enforce the rules of GAAP even if it means adding some more forward looking, but meaningful, information. For the average investor, understanding financial statements has never been easy and now it is much harder. The key for an investor who is looking to invest in one of two companies like Home Depot or Lowes, is to spend more time reviewing their results to understand if you are comparing apples or oranges. In many cases, the security analysts who follow these firms may provide you the best information versus the firms’s own published reports.

Good lucking in sorting it all out and investing in a world where accounting is, if not dead, strongly abused!

In the category of just when you seen it all! No, not Britain voting to leave the European Union. But that news headline seemed to have taken this one off the main pages of the Wall Street Journal.

I am referring to one of the most fascinating people of our day. No, not Donald Trump. I am talking about Elon Musk. He may be a bigger Dealmaker than Trump if he can pull off his latest idea. Mr. Musk has proposed that his Tesla controlled company buy, at a big premium, his solar panel controlled company.

The “facts” if you can call these worthwhile facts are as follows:

-Tesla, the electric car company, has never made a profit even though it receives huge direct and indirect government subsidies  and  currently “sells” their cars for close to $100,000 each. Tesla is not expected to be profitable until 2020 at the earliest but has a market value of $32 billion, because some people love Mr. Musk. Tesla is thus worth more than General Motors and a lot of other longtime firms who make profits.

-The Solar panel company, Solar City, has never made a profit even though it receives huge direct and indirect government subsidies as well. The company lost $283 million during the first three months of this year alone. The synergy of merging these two firms and any resulting increased valuation have not been fully explained to date. Electric cars and solar panels, you never know.

-Both firms have sold tons of stock or debt to finance their losses and activities. Tesla just sold $1.7 billion of its stock and is spending $5 billion to build a new battery factory. Solar City, in 2014, sold $214 million in bonds, the largest buyer of which was Mr. Musk’s controlled space exploration firm, Space X. Mr. Musk has lent his own money to these firms, over the years ,and right now has a roughly half a billion dollar personal line of credit secured by his various companies’ stock. Always a complex legal and financing arrangement.

-The Chairman of Solar City is a first cousin to Elon Musk. Neither of them will personally “vote” for the merger but are both very supportive of it getting done as are some other cousins and relatives.

Now if these were private firms, I say fine, hopefully the lenders understand the risks. But these are all public firms that Mr. Musk “controls” with various ownership percents which overall are around 25%. Over the years he has reduced his ownership through public offerings of stock. So there is a lot of other people’s money involved in this rotating shell game. Some large investors, like Fidelity, have endorsed this merger. Fidelity owns a chuck of both firms and Space X as well.

Who will make money on this merger? Elon Musk, his cousin and his family, it is reported, could have a windfall of just under a billion dollars.

All I know is that in big deals, whether its Donald Trump or Elon Musk, the Dealmakers usually come out alright. If you own the stock or debt or one of these entities you may have to wait another decade or two to know if you made money. By then, one financial writer, noted Elon Musk could be living on Mars courtesy of one of his firm’s space rockets!

 

 

 

 

 

An area of business that has changed a lot is Investor Relations (IR). The main focus of the role is to work with the public company shareholders whether through their direct inquiries, in Security Exchange Commission (SEC) filings or the company’s Annual Report. A related, and often more important, role is to be the interface between the company and the various security analysts who follow their industry and make stock buy and sell recommendations.

Historically, this job also involved writing or assisting in writing press releases, SEC filings and, of course, the Annual Report. For this reason, people with Communication degrees would often get the job and then have to learn the financial side of the business. In some companies, the role of Public Relations and Investor Relations were either combined or at least reported to the same superior.

More recently, this job was often given to a young, up-and-coming person in the corporate finance group and carried a non-officer title like Manager or Director. Hopefully you would pick someone who could write and communicate well. The job would report to either the firm’s Treasurer or Chief Financial Officer. This is how my old firm, USG Corporation, handled it for many years. Investor Relations was also an area that a young financial man or woman could move into enabling them to gain valuable time with the senior officers-sometimes even the Chairman/CEO on regular trips to meet the financial Wizards in New York City. I would often suggest to young people that IR would be a very positive addition to a resume.

Nowadays, the job is more complicated than ever per a recent Wall Street Journal article. This is due to the volatile stock markets, shareholder activism and the SEC rules such as Regulation FD which requires fair and even disclosure to the public.

Today a fifth of large public firms employ former security analysts in this role. The theory is that they already know the company and how to explain it better than anyone. Many other public firms are now using more seasoned (that means older) financial people in the head IR role. In both these cases the title today would probably be Vice President.

But the Journal article goes even further. There is now a credential called the Investor Relation Charter that can be obtained with three years of direct experience and by passing a test which covers ten core subjects such as capital markets and regulatory compliance. This makes sense for a role which can impact a firm’s stock price. This also represents the latest swing from communication majors to financial professionals; a move which I also agree with. Investor Relations can still be a fine stepping stone in a financial career. The certification will only lend more creditability to the role.

Maybe someone can now come up with a way to test and certify Human Resource people!

A lot has been written about Crisis management. In my now published book on Amazon, The Business Zoo, I have a major chapter on how to deal with and survive a business crisis. But I also point out that a Crisis can and will occur to everyone, sooner or later, be it a financial, personal or even an ethical one.

I also discuss the necessary steps to confront and try to manage a Crisis, along with some helpful Rules and Tools to consider. One of the most important Rules to focus on is getting to the other side, that is through the Crisis. I use an analogy based on the circus act, The Flying Wallendas, that you must put all your energy into getting across the high wire and not think about falling or you will.

But there are other things that can help you accept and deal with a Crisis. During USG Corporation’s three year financial structuring, we resorted to a wide range of mental stress reducers from marking up cartoons with deal participants names to listening to music. I was reminded about a music one this week.

One of the young women I mentor has been trying to get a new business to turn a profit for the last couple years. We will call her J. She has worked endless hours and lived a very frugal, simple life in order to give the business the most chance of success. Still, as often occurs, a number of unforeseen events are pushing her and the business to the edge in the next couple months. It is stressful and exhausting to her on all levels.

In searching for something different to tell J., I recalled a song that helped me in the midst of the USG Corporation restructuring. We had been trying unsuccessfully to negotiate with very reluctant bankers and bondholders for over a year plus of our Crisis. We were exhausted and our Board of Directors was increasingly upset with our lack of success. Just before another major meeting with our adversaries I typed up and thought of handing out the words to The Alan Parsons Project song, “Nothing Left to Lose”. Some of the key lines go like this:

nothing’s good, the news is bad, the heat goes on and it drives you mad

you gave the best you had to give, you only have one life to live

you fought so hard you were a slave, after all you gave there was nothing left to save

you read the book, you turned the page, you changed your life in a thousand ways

you’ve got nothing left to lose

My young friend J. played the song on YouTube five times and went from sad to inspired!

So regardless of your type of Crisis, it is critical that you find things to relieve some tension and to get you through it and to the other side!

 

 

 

 

The Wall Street Journal just had an article about a new staffing trend some companies are using, Blind Hiring. The idea is to remove key information from resumes, like schools, past employers and even prospects’ names. The hope is this will reduce built-in bias that many managers have to favor people from their alma mater, or from a trendy tech firm, or to not chose equally qualified women versus men. These firms, like parts of IBM, are sometimes inserting a mock project into their process to try to focus on people’s real talents not words on a resume.

As many of you know, I have strong feelings about how, in many firms, Human Resource people have taken on too much power and hiring is a good example. So what are some thoughts I have on how to hire people?

  1. The hiring manager should research the job market themselves and write the job description or ad. When this happens the manager knows more about the role, skills required and pay than any HR person would ever know.
  2. My old boss and successful business owner, Don Brown, had some very unique things he would do when hiring people. And since he hated to read, resumes were not a part of his process.
    1. He would sit and talk to someone face to face and alone to get to know them. When I was “interviewed” for a senior financial role we talked about my son joining Indian Guides, Shetland Sheep dogs and family. No technical stuff at all. He was interested in me, as a person, not as a young CPA.
    2. For a critical senior job that I helped on, Don Brown met the prospect 5 times in the office, once over lunch and once with the person’s spouse for dinner. It resulted in a great hire.
    3. When he could, he would watch the job prospect walking back to the parking lot. Did they still seem to have energy and pride in their walk or were they just acting that way in the interview.
    4. Don Brown tried to hire quality people which he knew meant they would probably be quality employees. If you spend the time to get to know someone, the odds of a good fit increase!
  3. When I have followed most of these steps, I ended up with excellent, loyal and long-time employees. It is all about spending time to get the know the person, not being impressed with what is on a resume.

 

Reminder: my book, The Business Zoo by Brad James is now available on Amazon.com as both a paperback and an e book.