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.

Most of my Blog readers know that I have been writing a book, The Business Zoo for the last few years. Some of these postings are parts of stories in the book and some were additional material that seemed to work better in my blog.

But Finally the book is launched!

You can find The Business Zoo by Brad James  on Amazon.com as both a paperback and as a Kindle type e book. The book is available in much of the world as Amazon seems to reach everywhere!

The description of the book on-line goes like this:

Written by a senior executive, with experience as both a CFO and CEO in a wide range of organizations, including private firms, public companies and not-for-profits, The Business Zoo uses stories to illustrate important business and life concepts and provides key lessons learned from years of experience. These, both fun and informative, tales will help both people recently entering the working world or those with more experience and who are moving up.

Content-wise this book is also about organizations and what makes them function, at times, well and ,at other times, makes them dysfunctional. It covers the overall critical areas of management from selling to systems, from boards to human resources. Along the way, you will also learn some critical personal skills that range from developing your moral compass, to mastering business dining, to dealing with management fraud and how to handle outside advisors be they lawyers, bankers or consultants.

The book also explains the major events that impact and change all organizations such as international growth, planning, mergers and crisis management. Many chapters compare and contrast how smaller private firms and larger public companies deal with the same issues, using real life stories to help the reader relate.

The book ends with the all-encompassing topic of leadership and culture, which either grow or destroy individuals and their organizations in a dog-eat-dog way. Along the way, various animals or creatures like wizards are used to help explain things. So take a read and maybe learn something about business and life through The Business Zoo!

The blog will continue and thanks to all of you around the world who have read it or followed it. I am humbled and honored by my readers.

Brad

Brad James, author of The Business Zoo

The Wall Street Journal recently ran an article about the engine emission crisis at Volkswagon (VW). Senior executives of VW acknowledged that their firm had a “culture of tolerance for rule breaking” that lead to this “chain of mistakes”. Although the article did not name exactly who ordered their engineers to install the software to fool the tests, the article did state that it found no evidence that “VW executive or supervisory Boards were involved in the fraud”.

Yeh. Heard that one before. After British Petroleum (BP) had the disastrous oil spill in the Gulf, a top writer from Fortune magazine stated that BP’s long time focus on cost cutting versus safety goes back directly to the Board of Directors. The Gulf spill was proceeded by several major safety events including a huge explosion in Texas that killed a dozen workers. All organizations look for guidance or direction from the top and a Board is the ultimate top. It appears that maximizing profits through cost cutting was a top priority over safety for BP and its Board.

At my old firm, USG Corporation, every meeting, even the Board meetings, started with a review of safety. This goes back to when USG started as a gypsum mining firm. Major accidents, especially deaths, are reviewed in often grisly details. Senior people, including myself, would attend safety dinners when a plant reached an accident free milestone. Safety was a core value at USG Corporation.

Sadly in most of these disasters like BP and VW often a few, token senior people are fired but with huge severance packages. But a lot of staff or line engineers at these firms lose their job and often their livelihoods because of their presumed role.

At VW, the Board and the senior executives looked the other way or showed a tolerance for rule breaking or it would not have occurred. And  German car companies are known for their excellence in their engineering and engines. That makes this all the more unbelievable to me.

In my view, senior executives and Board members must be held to higher standards than they are and at times, they need to bear the blame and responsibility for not focusing on what is right.  Read the rest of this entry »

The Wall Street Journal recently had two separate articles that discussed how large, public firms regularly meet in private with security analysts who make recommendations to the public to buy or sell their stock. The articles point out how this practice may be technically at odds with the concept of fair and equal disclosure that is part of the Security and Exchange Commission (SEC) regulations.

One article was titled “Google Tries Opening Up to Analysts”. The story is that Google had always gone their own way in not meeting with or disclosing things such as financial forecasts with security analysts.  With a new CFO who came from the banker firm of Morgan Stanley, Google is now doing “briefings” with the analyst community. The objective is to make Google more transparent and help analysts build their financial models to predict its future stock price. And Google’s stock is up recently versus other tech firms.

The other WSJ article was called “Investors Price Face Time with Bosses”. It spoke about how firms such as Proctor & Gamble and GE meet regularly with security analysts. One meeting led an analyst to conclude that P&G’s current Chairman may retire, a fact that was not officially announced until months later. The article further stated that, last year, GE had 70 such analyst meetings with GE senior management present and about 400 meetings in total. Again the hope of the companies is to have the security analysts favorably recommend their stock to the public.

This all sounds great, like a win-win situation. Well, as a retired CFO myself, I can offer a few thoughts and maybe raise a few concerns.

Early in my CFO career, it was very common for public firms to travel to New York and have private meetings with the security analysts who “followed” or recommended your stock to the public. Then the Security Exchange Commission (SEC) published Regulation FD. This is called the “fair disclosure” rule that public companies must disclose material information to all investors at the same time. The idea was to prevent large bankers from trading on the basis of the information they obtained in private meetings to the disadvantage of the rest of the stock-buying public. Overnight most private meetings were gone. Even industry conferences were made available instantly on webcast or by downloading the presentations. Now doesn’t that sound logical and “fair” based on the SEC’s goal with Reg FD that everyone gets the same information at the same time?

Apparently, per these articles, many companies are back to the old private, one-on-one briefings with their favorite analysts. Now the articles were quick to point out that these meetings “tiptoe around the security laws” and that companies can avoid problems by just repeating what is already in the public domain or by just adding “new, nonmaterial information.”

Having sat in on Too many of these security analyst meetings, I can tell you what some of the issues are:

1. What is important or material new information and what is not? A very fine line.

2. Few of us can remember and repeat exactly the wording in our several hundred page quarterly SEC reports that are in the public domain. And exact words and inferences are critical at times for fair and full disclosure.

3. The worst problem is having your Chairman or CEO at these meetings. Some Chairmen/CEOs love talking and will expound at length to any security analyst’s question. Or, they will basically tell their CFO or Investor Relation person to provide whatever information the analyst is seeking. A slippery slope. And as one article points out, it is “easy to trip” and give out new information to a small, non public audience.

4. Finally, some security analysts are true professionals and treat information as confidential only to be used in working on their financial model or in their next report that becomes public information. But some analysts, like some other self-proclaimed wizards of the banking world, have no concept of confidentiality or how to manage the many conflicts of interests that can arise daily in their work. I once had a large bank security analyst who “followed” my public company and a major competitor suggest that our two firms merge and that he would be glad to organize a meeting!

Like a lot of business people, I believe we have too many government regulations in too many different aspects of our lives. Regulation FD at least made sense to me, but only if everyone is playing by the same rules as to what financial disclosures can be made, to whom and when.

We create rules to respond to each new financial crisis we encounter. But like a pendulum swings, we tend to ignore or try to avoid following them after awhile. At least until the next financial crisis!

My wife, Tricia, and I are renovating an apartment in Chicago. Technically, Tricia is renovating it and she is very good at this. She is also experienced as this is our third such project in Chicago. Tricia has a true designer’s eye but she like things to be Perfect or close to it.

The construction industry, where I spent much of my working career, is not Perfect. It uses imperfect terms for aspects of construction like carpentry which can be Rough versus Finish. And every construction contract is usually subject to endless change orders which always seem to double the initial cost estimate you thought you were spending.             Not Perfect.

This got me thinking about some of the questions that young people often ask me about their jobs. Sometimes they struggle to gather all the data possible to make a decision. Sometimes they even miss a critical or strategic opportunity due to trying to make a Perfect decision.

My thoughts on this need for Perfection go along these lines:

-a passing grade in school is a 60%, an “A” usually is around 90%

-the CPA Exam is one of, if not, the hardest professional exam with over a 50% fail rate. Yet the average passing score for successful candidates is only about 75% today.

-in my own career, especially in the frequent financial crises my companies were in, if I knew 70 to 80% of the relevant facts, I felt very lucky and did not hesitate to make a decision. There is really no time to try to be Perfect in a crisis.

In this age of endless data, people feel pressure to try to gather and analyze all they can. But “data” and useful “information” are too very different matters. A recent story in the Wall Street Journal was about how the role of Chief Marketing person in retail has changed from someone with good, gut instincts to people who can crunch massive amounts of data. This has lead to the observation that many large, retail stores all look the same regardless of which chain. This may not make them more profitable, let alone Perfect.

To me, the need for timely decisions in our fast changing world takes precedence over the often mistaken need for Perfection in our often imperfect world. Sometimes experience and a gut feel with partial data is the best and fastest course of action.

This Blog draft had the least corrections ever from my proofreader and wife, Tricia. As close to Perfection as I am going to get!