Linkedin just had an article about the best places to work today. The usual suspects are listed: Google,  Facebook and Amazon and some newer, and surprising  ones to me,  Uber (lots of bad press and legal issues)  and Tesla (who makes no profits and may run out of money, not gas.)

But was really struck me was how few of the top companies even existed 25 let alone 10 years ago! The ones that remain have changed a lot: Time Warner (magazines to cable), JPMorgan (a dozen mergers later started as Chemical Bank) and Disney which looks like it may be around forever and never age like Mickey Mouse!

Fortune magazine had an article that stated that 88% of their 500 largest firms from the 1950’s are gone and predicted that 40% of today’s largest firms will be gone in 10 years.

Since I constantly advise graduates and young people where to work, this got me thinking. People used to get a job right out of college and then retire there 40 years later with a good pension. None of this is true today for millennials.

In my book, I stressed that as one moves up in their careers, they needed to study beforehand the leadership and culture of the next company they wanted to work for to try to gauge their personal fit and thus improve the chance to succeed. Now I believe that even graduates and young working people need to do this plus reading all they can about their targeted potential employer. What is their overall strategy, how sophisticated are they on technology and social media, are they well financed? And is their own business model sustainable or will they be the next industry subject to what we increasingly call disruptive innovation, like Uber to taxicabs?

Even though young graduates may work for a half dozen or more organizations in their career, they need to try to look down the road to try to figure out if their next employer will even be around! I believe this new group of millennials are better equipped and more comfortable, than my generation ever was, to research and analyze all the available, on-line information that now.  After all it is their future world. This may also be one of those few areas where most well meaning parents are just not able to help. Looking for your first job or your next job has always been difficult and in this rapidly changing world it just got harder!

USA Today had an article about the world’s largest hotel company, Marriott, using factory produced modular construction to build up to 50  of their hundreds of new hotels this year.  The guest room and/or the bathrooms are produced in a factory on a production line and then transported to the prepared construction site where they are erected by cranes. The plumbing, electrical and finish work then occurs. The theory is that this method of construction can reduce the time it takes to build a new hotel by several months. Thus, the hotel opens sooner and can make a higher return for its owners.

Is this new, you might ask? No, like most things in this world it is not new. In my book, The Business Zoo, I tell a similar story that occurred forty years ago. My old company, Donn, signed a deal to build one of the first modular hotels for the world’s largest hotel company, Holiday Inn. Our U.S. government even got involved to promote low cost housing  through the new department of Housing and Urban Development which was headed by a George Romney, father of, you guessed it, Mitt. The belief was that factory produced,  modular construction would revolutionize and change conventional, on-site construction forever.

What happened to this bold experiment those many years ago? It did not turn out so great. The timetable took just as long as conventional construction. The idea of just hooking these up on the site was a disaster with a lot of additional work required. And my old firm, Donn, lost several million dollars when that was a lot of money in general and specifically for a small, private business. The big company, Holiday Inn, did end up with a nice hotel, but having learned a few lessons, stayed away from modular construction. Modular construction never totally disappeared but it certainly did not replace or change the way hotels or apartments were built.

Will this new attempt be more successful? I am not sure. Construction  is one of our most localized industries. Local zoning and building codes vary by community and can offset some of the anticipated factory produced savings.  Construction is one of those businesses that are still highly unionized which can also impact costs and building codes.

What I do find fascinating is how sometimes business, like other things in life, goes around in a circle. Modular hotel construction in the 1970’s repeats four decades later. Sometimes the patterns and the results are similar and sometimes things change. The space shuttles of the 70’s now are replaced with Elon Musk’s rockets aiming for Mars but we really have not gone very far in space in all that time.

The famous writer George Santayana said, “those who do not learn from history are doomed to repeat it.”  Mark Twain said, “history doesn’t repeat itself but it does rhyme”.

I say,  there are a lot of Circles in both business and life so be careful out there!

The Wall Street Journal recently reported that my city of Chicago has the most tower construction cranes (56) in use anywhere in North America. This was a result of a survey by the Crane Index (Yes, there is such a thing. If there is a Duck Dynasty why not this!). But what is also interesting is that over half of those Chicago construction cranes are building residential apartments and specifically luxury residential apartments.

And just who are these luxury rental units aimed at? Millennials, of course. This trendy group of young adults, aged 18 to 34, have the lowest percentage of home ownership of any generation since these types of records have been kept. Why is that? Experts comment that the reasons include the high cost of homes, tighter credit rules and the fact that many Millennials still live at home. But an overriding reason seems to be that Millennials do not view owning a house as a required or good, social or financial investment. So they rent.

And what kind of luxuries do these luxury rentals offer Millennials? One of the newest places is called Wolf Point and is on the Chicago river. On the 46th top floor, is a sky deck and lounge, an outdoor kitchen, a fire pit, sauna and steam room, outdoor tv and a state of the art fitness center. On the main floor is a large pool, a river front lounge and gallery, golf simulator in the club room, a business center, a dog run and spa, and a bike room with a wash area and a workshop! I know what you are thinking 1. Why is he writing so much about this? (I will get to that) and 2. Where can I sign up!! Well there is a catch or two. Because the building offers you so much wonderful stuff there are trade offs. A one bedroom is 678 sq. ft. with two small closets and very small rooms and goes for $2,555/ month. But you won’t be spending any time in your small apartment, you will be having fun somewhere else in the wonderful building!

One of our friends is involved in the financing of these new high-end apartment buildings. He told me that those in his industry are getting increasingly worried. What if the Millennials decide to get married and have kids and move to the suburbs like earlier generations? Older, downsizing seniors will not find much about these units appealing since their favorite couch and king size bed will probably not fit. The result is a lot of empty luxury apartments!

So why did I write this blog? First, I find Millennials fascinating. There are more of them than my Boomer Generation and they are the future of our country, not us. Second, figuring out long lasting trends in critical areas such as housing is very important to our economy. But is this a true long term trend or just a short term passing fancy? Third, for those who know me and my background in construction, you know what comes next. Every time we have a boom in any type of construction-schools, offices, apartments- it is followed with a long bust. And because construction, building materials and related furnishings are such a large part of our economy it really worries me that Chicago has all those cranes right now because I know the sky will be free of them in a couple years as the construction cycle swings,  the economy slows and the stock market drops.

And lastly, my Boomer group owned homes well before age 30. If the Millennials do not start with a first home soon they will never get to the point in life where they will want a second home. Then what happens to all the weekend second homes in Michigan, Indiana and Wisconsin? And what about all the seasonal, second homes in Florida, Arizona and Vegas? The result is again a lot of empty and unsold second homes. Again bad for the economy.

Note to readers: We just sold our second home in Florida and not to a Millennial!

The Wall Street Journal had an article recently about the former CEO of the “doomed brokerage firm” MF Global testifying that his firm relied on their auditors, Pricewaterhouse Coopers to “make sure its finances were accurate.”

The former CEO is Jon Corzine, who was the former Governor of New Jersey and before that the former head of that famed Wall Street firm, Goldman Sachs. Mr. Corzine agreed to pay a $5 million fine to settle his role in MF Global’s collapse. For a person whose net worth is estimated at around $300 million, this is not even a slap on the wrist.

A number of articles from Vanity Fair to the New York Times have been written about the collapse of MF Global, and the fact that neither Mr. Corzine or any other officers or directors were charged with a crime. It has been suggested, by others, that it may be due to the fact that Mr. Corzine was a major contributor to President Obama and the Democratic party. But I will not venture into politics, but rather just stay with business.

As an investment banker with Goldman Sachs, Mr. Corzine certainly understood what role auditors perform for all his many clients. The role of an outside auditor or CPA firm is to examine the books and records of a firm and issue an opinion on the fairness of the financial statements taken as a whole. To perform that work, the outside CPAs rely, in large part, on the expertise of the firm’s Board and senior management. Others have stated that it was Mr. Corzine and his team that made the huge bets, with their clients’ money, on sovereign debt instruments that caused his firm to fail. And, in this case, the CPAs were relying on the former head of Goldman Sachs, a man that Joe Biden called “the smartest guy he knows, in terms of the economy and finance.” (That was not meant as a political comment as I actually like Joe!)

In my book, The Business Zoo, I cite a lesson I learned from investment bankers- “share the pain”- which means all parties to a bad deal should participate in cleaning up the mess. I am guessing that may be what is motivating Mr. Corzine as he is testifies against Pricewaterhouse Coopers or PwC. Poor PwC is having a hard year already with the Oscars and now this $3 billion lawsuit.

Jon Corzine and his team took a huge gamble with their clients’ money and lost. The PwC auditors  provided his firm with accounting advice not investment advice. Boards of Directors, the Chairman/CEO and Senior Management should be the responsible parties when a firm fails.

So, Corzine, the former CEO, pays a nominal fine, but then tries to stick it to anyone else who came near his bad deal. Sometimes, capitalism and our legal system punish the wrong people. Not fair.

News Flash! The Wall Street Journal now reports the lawsuit against PwC was settled out of court for an undisclosed amount. In my opinion, any amount over Mt. Corzine’s meager $5 million fine is still not fair.

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!