Chicago’s weekly newspaper, Crains, just had a headline story called, “The Hottest Job Sector”. It was about my original profession, Accountants. The article explains that local accounting graduates at downtown Depaul University are averaging $55,000 starting salaries with an 88% hire rate. The nearby University of Illinois accounting class had 98% get jobs!

Does this surprise me? Not really. As any of my blog readers know, I spent considerable time advising, for free, young people on their job searches and careers. Some are accountants or finance people but others are from more general business backgrounds or even other non-business fields.

The easiest “clients” I deal with are accounting graduates. This is true both if they are right out of school or, even easier, if they have been working for a while. Why is this? Because accounting graduates have a very marketable skill that organizations want. Big public firms, smaller private firms and even not for profits, all need accountants. Accountants are useful to analyze, and make sense of, the ever increasing mounds of data, or as we say now, Big Data, that all organizations seem to generate.

The hardest “clients” to work with are from very general business programs like Marketing or, even worse, Communications (which was my wife, Tricia’s, background). Why is that? Because, other than the fact they have a college degree, they have No immediate marketable skills! I get emotional sometimes when I meet with these young people and try to explain to them that cold-calling for an investment firm or an advertising firm may be the best and only option they have for a first job. After they do that for six months to a year in a major city like Chicago they can move into something better, but will still not make what the Accounting graduates make.

What about Finance majors? Isn’t that the same as Accounting? NO, or I would have titled this blog differently. Finance sounds like Accounting but it is more theoretical and less useful directly out of school. Accounting.

Sometimes young people tell me they can not major in Accounting because they struggle with math. When I received my undergraduate degree, I only took one math class in college, which is now being taught to my grandkids in the sixth grade! Accounting is about solving a puzzle and understanding some concepts, like debits equal credits and assets equal liabilities plus capital. For many bright young people, Accounting can be learned.

So for those entering college, think about it. Do you want to be in the group of graduates where 90% plus get jobs with pay above the average graduate? And parents please tell your children or for some of us our grandkids that Accountants Rule!

We have written a lot here about Culture and Leadership as the over riding and most defining aspects of most organizations. Now I am reminded of this again as the news media covers in great detail General Motors’s recall issues.

When the new GM CEO, Mary Barra,  discusses what apparently happened in countless internal GM meetings, she refers to the GM Nod. This is described as when everyone seems to nod their head as if they agree Something must be done, but then Nothing happens. She also is quoted discussing a similar issue, that GM, at times, seemed to have a “troubling disavowal of responsibility” . To help resolve all of this, she vows to upend the corporate culture responsible for this “pattern of incompetence”. To this I add, Good Luck!

General Motors has been around a very long time. For much of that time they were one of the greatest corporations in the world and, along with Ford and Chrysler, a wonderful training ground for decades of leaders inside and outside the auto industry. During that time, the Culture of GM was formed, in part by the Leaders. They were the best and they believed their way was The Only Way. During the last twenty years with the invasion, as they called it,  of “foreign cars” from Europe and Asia, things have not been as rosy. But, trust me on this one, the Culture of GM stayed essentially the same. If you read reports of the GM bankruptcy, the outside experts that the government sent in to “help” GM were amazed on how insular and isolated the GM leaders were. So a whole generation of them were retired or fired. But the Culture stayed on.

But the issue is not just with GM. As I consult or mentor young people, I hear similar stories. Two hour meetings of 20 people from four or five different operating and staff  groups that accomplish nothing except to hear people talk. Sometimes at the end of one of these meetings, some “Leader” will announce that is was great that we talked about this! Today, especially in large organizations, no one wants to show initiative or take responsibility for anything because they are Afraid. And as you have learned by now, fear should have no space in business or in a zoo!

The answer to this at GM and elsewhere is not first in trying to change the culture. It should be the leaders, who act, encourage and reward others to take personal initiatives. And to assume responsibility. I was taught, years ago, that if I was in any way responsible for something, I had to assume that responsibility and not try to Nod it off to others.

The last Chapter of my book, The Business Zoo, covers Culture and Leadership and how they are the flip side of each other and how either can make or destroy an organization. Good luck to GM CEO, Mary Barra. A lot of leaders try to change culture but often the culture wins!

 

This was the focus of a Wall Street Journal article a month ago. I got so excited, I spilled my coffee! The article was surprisingly balanced and covered the pros and cons of having no formal HR group. The subtitle was, Is it a Dream or a Drag?

The article points out that many smaller firms start out with no HR. Then, after growing to a couple dozen employees, firms tend to setup HR. The same occurs right after a company is hit with a huge employment related litigation like a discrimination or harassment suit. (This is a reaction due to fear which is not good in business or in a zoo!)

Larger firms and especially public ones have large human resources groups. The article states that companies have, on average, 1.5 HR people for every 100 employees. Wow! And even those half ones can be costly and dangerous.

Having worked in both smaller, private firms and large, public ones I do have an opinion or two on this HR debate. When private company Donn was acquired by public USG Corp. we had no HR professionals at our main Ohio headquarters. With our two large operating plants there, we had just under 1,000 employees which generated sales in today’s dollars of $200 million. Not a small business. Within a couple years, USG had installed 7 HR, Labor Relations and Safety people. After the recent recession, that was substantially reduced. So how did Donn manage without all this HR help?

Every manager at Donn was their own HR person. You hired people, gave promotions, organized training and fired people on your own. If we had the need for a professional opinion because of the threat of litigation, we hired a specialist lawyer or labor relations consultant. And you learned much more about your people, their ambitions and their concerns because you had to work through issues directly with them, not with an HR person along your side (or in your way.)

That said, I believe there is a role for HR especially in larger firms. As they grow, companies need some standardized approach to compensation and promotions. Good HR people, like my USG friend Gary, can also help a firm introduce bold, new programs like mentoring and diversity (not an easy thing twenty years ago in the male oriented construction industry!) But good HR groups needs to remember that it is a staff, advisory group, not a sole decision maker or star maker in people’s careers.

We have many more stories about HR coming in The Business Zoo!

The stock market is hitting new heights so far in 2014. Unemployment is not great, but at 6.3% it is the lowest since 2008 . The economy should be doing well. But Housing and the vast amount of building products and household goods it pulls along are not doing so well. The news media is just starting to talk about all this, but they are not sure what is wrong with Housing.

At first, some thought it was the terrible weather throughout much of the nation this past several months. But now its warmer, (watch out Al Gore for that climate change) and Housing, especially new Housing, is still slow. Some people say that interest rates on mortgages are up and that that is the issue. Although mortgage rates are up from the bottom they are still quite low by historic standards at just over 4% for a 30 year loan. One article about Warren Buffet’s real estate brokerage firm, mentioned that the lack of first time buyers, who usually make up over 40% of buyers but is now under 30%, is the issue. Bingo!

Having been around construction and building materials for way too long, that is the real problem. But to me it is not a Housing problem. It is a major issue with the economy problem. And I will try to explain why.

In endless conversations with my friends in Florida or Chicago, one theme keeps coming up. These are people who are either at the peak or end of their working careers and who brought their first home, like me, in their early 20’s. The reoccurring theme is that my/this generation is still substantially supporting their children and/or grandchildren. I do not mean a cell phone bill or even medical insurance. I mean monthly or quarterly or annual large chucks of cash to keep their children afloat. If friends have three or more children, one or two are still on their “payroll”. It is very rare that one of my friends is not helping at least one child survive. So even if these parents help with a nice down payment on a first time house, how are these young people going to afford it? The average price of a new house today is back to the pre housing crisis level of close to $300,000! Even with a big downpayment, how can young people who are struggling as it is, buy and maintain a house?

Young people now graduate college or with advanced degrees with $50,000 or more of student loans that they must start paying on immediately. This is about the same amount most of my group owed on their first home mortgage!

What value does this generation get for their college and advanced degrees? Often not enough salary to pay back their student loans and live, let alone try to buy that first house.

And if these young people are having trouble buying a first home, how will they ever be able to buy up all the retirement and second homes that are owned by my generation in Florida, Arizona or Vegas?

It is a major problem, but it is not a Housing problem. I believe it is a major long term problem for our economy that our so-called leaders in Washington are ignoring like everything else that is unpleasant. So, hopefully, the media will correctly identify the real Housing problem, and soon, so that it starts getting the attention that it so desperately needs.

The Wall Street Journal recently ran a story “Making Sure the Boss is the Right Fit”. The article cites some recent examples where seemingly exceptional leaders, from places such as Google, failed to mesh with the people or culture of their new firm.

We could go on with dozens of examples of this problem. The wizard from Apple who tried to transform J.C. Penney or the revolving door of leaders that Hewlett Packard had in the last decade.

One fascinating comment in the article was that it should take a lot more than interviews to avoid costly mistakes when hiring a new leader. And we will come to that. But one failure that both companies and potential executive candidates are guilty of, is not enough of or the right kind of interview. The higher the position is, in my mind, the more number and diverse the interviews should be.

My old private firm boss, Don Brown, had 7 interviews with a very qualified and ultimately successful candidate (that I had personally found!)  That seems like a lot and it is. But we had individual interviews, two on one interviews, two separate, private dinner interviews and even a dinner with spouse interview. Dinner interviews are especially critical and revealing. In an hour or so in the office, you can gloss over  a number of issues that can be much more fully explored or discussed in a two to three hour dinner. I am not saying that 7 is the right number, but too often in our fast paced world of business, we don’t spend enough time with interviews.

Which brings us to who should or could be included as part of the interview process. The direct boss, of course, and a couple other superiors who could be Board members. Also, a wide sample of the people who will report to the new hire. In the case of a potential CEO, the list should include the CFO, the heads of a couple businesses, the head lawyer and, my favorite, the head of HR. But smart firms also add to this list. Perhaps some very bright up-and-comer who is not shy. Maybe a soon to retire old, salty veteran who really knows the firm, its people and its culture. With a mix like this both the firm and the candidate could learn something about the possible fit.

But the hardest thing to analyze with any candidate is their fit or ability to adapt to the company’s culture. In my book, The Business Zoo, we talk extensively about this. Leadership and Culture, another famous business writer said, are the flip side of each other. A strong and dominate culture can destroy a new, very differently focused, leader. A weak or fading culture can be remade or revitalized by a new, strong leader. But most situations are somewhere in the middle. Candidates should study the hiring firm’s culture through the interview process and by doing their own research. With the internet this is certainly easier. Articles in business magazines or trade journals or a firm’s own written histories can tell you a ton. And the hiring firm needs to do research themselves, and not just with a search firm, on the candidate’s style and approach to people and problems as well.

Think of it like due diligence in a major purchase of a merger. The upfront, extra time and costs invested to improve the new leader’s chance of being successful is minor compared to the cost of a failed new leader and its impact on the company.

Leaders need to fit or adapt to a firm’s culture or they will fail; not the other way around!

Take more time and make more effort when hiring new leaders and when being hired.

One of the young men, we will call him Bob, that I have been advising on his career asked me an interesting question about advanced degrees or certifications.  Bob recently received a M.B.A. from a good school in Ohio. Bob is currently employed with a small, private firm as a combined Office Manager and Controller.  In trying to change jobs and upgrade his position and pay, Bob was finding that the M.B.A. alone was not providing him with much of an edge. So his question was, what about working on a CPA (certified public accountant) or a CMA (certified management accountant). Although his question was rather specific, it reminded me of the countless times I have been asked about advanced degrees or certifications by young business people.

About the same time this occurred, the Wall Street Journal ran an article about how prospective M.B.A.s are unhappy with the “strings-attached tuition reimbursement” that many organizations require. The article describes how young people do not always want to remain with their employer for several years to qualify for the full cost reimbursement of these programs. At many of the top prestigious schools, a regular M.B.A. costs $100,000 and an Executive M.B.A. can now run to $175,000. That is a lot of money! Especially to pay on your own with no help from your employer.

So, as a seasoned (read old) recruiter and mentor to many young financial people, what are my thoughts on all this?

First, an M.B.A. for most young people, who want to advance in business today, is a must. An M.B.A. to this generation is like a Bachelors degree was 25 years ago. If you can qualify and afford to attend a top school, either with your own resources or your employer’s help, do it. But for most young people the M.B.A. title is more important than the school. For example, in Chicago, for full-time programs,  you can spend $110,000 at Northwestern or the University of Chicago or you can spend about half that at DePaul University or the University of Illinois. And even less at many other area schools. The prestigious school may help you move faster in your career initially, but twenty years down the road, the key will be that you have an M.B.A.

The  CPA certificate is great and is required if you intend to work in auditing or tax for a long time. Also a CPA is very good for a public company Controller position, dealing with the SEC and accounting rules. In most of general industry, however, the CPA sounds good but doesn’t really bring much to most jobs. If you would like a shot at a CFO (Chief Financial Officer) role someday, I believe a CPA does have value and practical use as well. As a CFO/CPA, I never felt totally lost even in very technical conversations with my Controller or our outside CPA firm.

The CMA is a newer certification and is viewed by most recruiters and Human Resources people as below a CPA, but still a major accomplishment. For most financial people working in industry, the CMA is a good alternative to consider.

In conclusion, all advanced degrees like the M.B.A. and certifications like the CPA or CMA certificates are good for your resume and can, in many cases, actually help you on the job. But, again, for young people in business, your best bet is to get an M.B.A. from somewhere that fits into your budget and life plan not from the highest ranking (and expensive) school you could attend.

Good luck in your continued education!

The Wall Street Journal recently had an article titled, “Do CEOs of Family Owned Businesses Work Less?”

The article referenced a study by several major universities of 356 chief executives around the world. They concluded that family owned business leaders work about 8% fewer hours than those in public firms. The study was solely about hours worked, not how effective a given CEO was in their job.

Having worked half my career for a family-owned firm and half for public ones, I will offer some thoughts on this topic. In my forthcoming book, The Business Zoo, I often compare and contrast smaller, private firms and larger, public firms on a variety of topics. For example, I compare their approach to many people issues including rewards and incentives, as well as their approach to mergers and deals. But this topic of work hours is new to me.

Private or family CEOs:  I have found that Founders of firms often work and live their business full-time. It is their passion and they have trouble distinguishing between their work and personal lives. A friend gave me a retirement gift of an ancient Chinese saying called “Master in the Art of Living”. It basically says that those who are happiest and luckiest make no distinction between work or play, but simply pursue their vision of excellence in all they do. That is how I would characterize the Founders of many businesses and their work hours know little bounds as well. Don Brown, the private owner of Donn Corp. was like this. He could call you at any time with some new idea. All of his direct reports met with him on most Saturday mornings from nine to noon. Then he fed everyone a catered steak lunch! The article did mention that Founders’ hours might be much different than the typical second or third generation in a family firm. In those situations, the money is already been made or is guaranteed versus the uncertainty and drive the founder may had shown. There is an old saying which is often true: Fortunes are made and lost in three generations!

Private equity companies CEOs: When private equity firms like KKR or Apollo buy an operating firm, they usually grant the CEO and their staff the opportunity to make a lot of money through stock ownership. Sometimes there are time periods to vest the ownership or incentives if the firm performs even better than forecast. These CEOs, I have observed, work very long hours. Like Founders of private firms, they have a lot of skin in the game.

Public company CEOs:. I have found this group to work less than their private company equivalents. In my two large, public firms, by Friday afternoon, the senior executive area was very, very quiet. This was especially true in the better weather when golf was a major distraction for many. In the winter, Fridays could be quiet as well as some executives had second homes in Florida or somewhere warm. Sometimes customer calls had to be made on the way to that warmer locale. Both my old firms had, from time to time, corporate aircraft. An article a couple of years ago stated that official corporate aircraft logs often revealed that up to a third of all flights were to or from an area where the CEO or other very senior people had a second home. Hmm.

So for what it is worth, I believe that Founders of family owned private companies and CEOs of private equity firm companies, work more hours than many public firm CEOs! The Wall Street Journal article and the university survey may have had too narrow of a scope.

The more interesting factor affecting hours worked may be the amount of equity ownership the CEO has, whether its a private or public firm. Most large, public firm leaders own very little stock and often paid very little for what they do own. I would exclude Founders like Steven Jobs of Apple who often still own substantial amounts of their firms. I believe the more real investment someone has in a company, especially a financial investment, the harder and longer hours that CEO will work to protect what they have and to grow it even larger. Nothing wrong with capitalism here!

Wall Street Journal 2/27/14: Firms Alter Bonus Playbook and Use Nonstandard Accounting Measures to figure (Management) Payouts

Public company earnings are reported in quarterly and annual reports using what accountants, auditors, and the Security and Exchange Commission call ” generally accepted accounting principles.” These GAAP earnings or a multiple of them, based on how the firm is viewed in the stock market, creates the market price of the stock. Shareholders make money when the stock price increases.

But nowadays some 28% of the largest U.S. public firms calculate Management Compensation using different measures. These firms may start with the reported GAAP earnings but then add back various expenses to make the earnings higher. Some of these add back items can be the cost of stock options (usually to the same group), the write-off of an acquisition premium (or goodwill) even when those same executives may have overpaid to buy another company, and so on.

You are thinking, this is absurd! And very unfair and inappropriate! Well, get used to it. The number of large firms doing this has more than doubled in the last few years and I doubt it will decrease unless the public makes such a stink that the SEC or Boards of Directors force companies to change. One large, public firm in the article, medical products company McKesson’s shareholders voted 3 to 1 to stop this practice, and to require shareholder approval of executive compensation. But their Board of Directors (who are elected by the same shareholders) declined to adopt this measure. The Board cited that they “exercise great discipline” in deciding upon pay. Last year’s McKesson’s calculation started with the reported GAAP earnings of $.75 a share and some how added back enough to get them to $7.21 a share. Now I was the CFO of two large public companies, but even I was impressed with that story of financial artistry!

As discussed several times in my blogs, Shareholders elect the Board of Directors who in turn elect the Senior Executives. Boards rely on the company’s Human Resource people and outside Advisors to decide these matters. In over a decade of Board meetings I attended, only once did a Director get so upset that he convinced the others to throw out an obviously flawed Management Compensation plan. This needs to happen much more often.

In my book, The Business Zoo, I have written that in Board Meetings, the firm’s CEO should explain a new Management Compensation plan and its impact on pay. Not the Senior HR person or the CFO (yes HR often asks us to do controversial things) and certainly not an outside Consultant. If the Board has trouble understanding this new plan, they should hire their own Consultant to explain it or reject the plan until they do understand it and its implications.

And Shareholders, who have the ultimate power, should vote out Boards of Directors who allow practices or compensation plans that enrich Senior Management in ways that are not consistent with Shareholder’s value.

Wall St. Journal article: Activist shareholder Nelson Peltz threatens to break up Pepsi. Their Board says, no thanks.

Facts: The term “activist shareholder” is a Wall Street polite term for a firm that buys a small percent of a company’s stock and then threatens them with either a takeover or demands seats on their Board or something. Many people do this these days. Carl Icahn buys some Apple shares and demands stock buybacks. The activist shareholder does this for a couple reasons: the firm’s stock price seems low to them and they can make a lot of money on re-selling the shares if the price moves up. Corporate Boards really dislike these people.

Facts: Pepsi sales are $66 billion (a Fortune 500 top 50 firm). Half are beverages and half are snacks and cereals. The snacks business is growing well in sales and profits. The original core beverage business much less so, even though this includes Gatorade and Aquafina water. Apparently, selling sugared drinks and old soda pop is not what it was years ago. Pepsi is resisting Mr. Peltz’s suggestions, but said they would increase dividends and buy back more common stock to make him happy (and hopefully go away!) Just don’t mess with our Doritos!

This article reminded me of two related conversations I had recently: First, a friend and I were wondering how very large firms like General Electric are able to manage themselves. Our agreed answer was that they are not. GE sales are $150 billion which ranks it the 8th largest U.S. firm. It is truly a very mixed conglomerate with appliances, energy (nuclear power equipment) , transportation (trains),  aviation (engines) and finance. Very few of these products, industries or markets have anything to do with each other. But GE’s senior management are some of the highest paid corporate people.

Second, a couple friends asked why some giant companies keep buying other businesses trying to get even bigger. One asked if it was due to the egos of the senior people. A very appropriate and partially true comment. But there is another much more basic reason. And it goes back to my old friends in Human Resources and one of my favorite topics, Management Compensation.

You see, most companies set their salaries and bonus levels in large degree based on the size, usually in sales, of a business. When I was at USG Corporation, the headquarters people were paid the most. Then those who ran the largest business, Gypsum Wallboard,  the next most and so on down the line. And this is not just the President or CEO of a given business, it included all the senior management and on down to managers. For in Management Compensation, size does matter. You might ask, isn’t it harder to manage a bigger business? Answer, no; it’s harder to manage a more multi-faceted or troubled business. Or to manage an international firm with many different country locations, laws, and taxes than one giant U.S. based business. You might also ask, shouldn’t a firm’s Board of Directors figure this out and pay what is right? Well, the Board usually relies on outside Compensation Advisors who are hired by….. you guessed it the company’s Senior H.R. person! Not much help there.

So why do people like Nelson Peltz or Carl Icahn go around and threaten these giant firms? To make a fortune off the money they invest in these companies’ common stock, of course! But how do they know that nine times out of ten they will make money doing this? Because they know the following secrets. First, giant firms really do not maximize shareholder value over the long run by buying (often at huge premiums) and then trying to manage very different businesses. Most of these bolted together giant firms would be more successful and worth more as a smaller  firm or as a part of a similar business. Peltz wants Pepsi’s snacks to merge with Mondelez International which used to be Kraft’s snack business before he and some of his activist friends got involved. The second and most important secret is that the Senior Management of most of these giant firms will do anything in their power to get rid of these activist investors so they can continue to collect large salaries and bonuses based on the fact that they are a Fortune 10 or 50 giant firm. It takes a unique CEO and team to decide to breakup this game and take a chance on actually trying to run a smaller company versus a conglomerate. And remember it is tough being a CEO since their average tenure (or corporate life) is 5 years. They may need that money someday.

So good luck to Pepsi and their Senior Management. As an aside, I have not drunk a Pepsi in years (Vitaminwater instead) but I do love their Doritos and Lay’s chips!

As a retired business guy, I get a lot of enjoyment of working with and advising young people on their careers. Friends or work associates of my own age group I avoid advising. They should be retired or about to be because it is almost impossible to get a new paying  job after a certain age. But the younger “kids”, as I call them are fun to work with. The most challenging group are those just leaving college and about to enter the workforce.

Getting that first real job is always hard. This is not just because of the economy today, which is slowing improving from a few years ago. It is also that companies are not hiring like they did a decade or so ago. Companies use new technology to get their increasing workload done, not new staff.  On campus recruiting is way down and has given way to online employment boards at many firms. I tell young people that it is a full-time job to get a full-time job. And some of the young people are easier to help than others.

The easiest ones to advise are those with a specific degree that has some technical aspect to it. With business degrees this would include accounting, finance or some computer degrees. In nonbusiness fields this would include engineers. These majors are easy because the world still keeps hiring these folks since they come with some skill that can be used right away. My old field of accounting, even more than finance, is a great example of this. Small firms, startups, large public companies and even not for profits all need people who can do basic accounting work. If you combine one of these degree areas with a MBA that is great too, especially if you have worked for even a couple years before getting your MBA. One of our friends’ son had worked as an engineer for a few years before receiving his MBA and got a great starting job with a subsidiary of GE Capital by applying online!

This brings me to the hardest young business degree people to help. You may have guessed, its marketing which is only slightly better than communications. These areas sound good when you are in school but when you are looking for a job, not so good. I tell young people with these degrees their best hope is to get a job with a well known firm doing cold calls to try to sell something. It might be a financial service firm where you are doing screening calls to be passed onto someone with only slightly more experience. Or, as one of my young clients did, advertising cold calls for a radio station in Chicago. Cold calling is brutal, humiliating and prone to early burn out. But if you are either with a well known firm or selling some well known product or service, your time of suffering can lead to a much better job elsewhere. Because now you have something on your resume! Our radio ad calling young person is now, a couple moves later, the Director of Alumni Events for a major university.

So, as I am allowed to preach as a blogger, hear this young people! Choose your major in college wisely and with an eye to one that could actually help you get a good job afterwords. This will make both your life and the work of any advisor you meet go much easier. Thanks.