Archives for posts with tag: business

Not many firms have had the continued bad press as Uber has over the past couple years. Sued on their business and employment practices and then on their self-driving car technology. Employees filing numerous sexual harassment and discrimination suits. Now the private Board throws out the Founder and CEO, Travis Kalanick. Mr. Kalanick is a self-described bad boy who admitted before his firing that he needed help managing the company. He is also the person most people believe created and encouraged the firm’s toxic culture.

Uber has fired some twenty managers and brought a couple female executives on board. But all of these measures may be too little and too late.  So what is Uber to do?

Leadership and Culture are the flip side of each other. What Uber needs is not only a new CEO but a new senior management team. Uber should also replace most of the Board, especially the long time Directors.  Mr. Kalanick is no longer CEO but he was allowed to remain on the Board, which is another mistake. Why? Because it will take a new CEO, senior team and Board to create a new corporate culture. This is not an easy or a quick thing to do. Leadership starts at the top and that is the Board. If the existing Board could not figure out the many legal problems and ethical missteps that Mr. Kalanick and his team were subjecting the firm to, they need to be replaced. Actions speak much louder than words. And major cultural change, in this and most cases, must start at the top. The Board is who everyone in a company look to for guidance.

Uber is often cited as an example of industry disruption as taxi cabs are disappearing. But Uber has other capable competitors like Lyft. These competitors may find a way to gain an advantage while Uber tries to rebuild both its Leadership and Culture. We will see if Uber can truly change and survive.

Two recent articles in the Wall Street Journal raised some new thoughts about Boards of Directors. This, often little understood group, technically manage the biggest public companies. I have written before on the lack of attention and professionalism of some corporate directors and I keep hoping this governance area will improve! Here are a couple ideas that might help.

One article dealt with the growing trend of large investors, like hedge or private equity funds, who buy a block of a firm’s stock and then trying to force the company to elect a number of their nominees as directors. On the surface the concept sounds good and a way to shake up underperforming  firms. But here is the catch. The people nominated by the outside investor are not subject to any review or disclosure of their positions on critical matters that might impact the target firm. They are just listed as part of the slate of directors that the investor wants. So the shareholders who are asked to vote for the new directors do so with very little useful information. The Journal article suggests that these nominated directors appear at public forums with independent moderators or even some of the current directors to debate views. To make this work the very large institutional equity owners like Fidelity or the California Pension funds would have to insist on this additional step before voting. I really like this idea!

The second article rethought the current trend of having only one corporate officer like the CEO on the Board with all outside independent directors. The concerns here are twofold.  First, in large and diverse businesses the entire board might benefit from more internal knowledge especially during a crisis or new initiative. For example if the firm is about to launch a huge capital or technology project, another corporate officer on the Board might add a lot.  Second, if the Board has only one insider and something happens to that person-health or an unexpected dismissal- the other outside directors may be at a loss as to name their replacement. So the thought is on a board of 10-12 directors having 2 or 3 inside officers might be best. Again this seems like a worthwhile idea.

So as I have said before, the buck stops with the Board of Directors. All the officers report to them and the Board represents the mass of shareholders. The more knowledge shareholders have about directors the better and the more directors know and are comfortable with the senior officer group the better as well.

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 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!

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!

A lot gets written about the importance for young people in business to work or live abroad for a period of time. Years ago, an international assignment was very unusual and not often a good career move due to the uncertainty of what job might be available when you returned to the U.S. Companies often had trouble reintegrating an expatriate or recognizing the increased value of their employee. This was especially true in large firms with rigid job categories and inflexible pay scales. Fortunately this is changing.

Nowadays many of the young professional I advise are looking forward to and planning on an international assignment. This is very possible in the consulting field but also workable in many businesses. The timing can vary but it is often in your late twenties or early thirties after you have made several moves and/or promotions in the domestic business. I always strongly urge these “clients” of mine to push internally to get an international assignment. The young people I know used to lean to Western Europe but now the focus is on Australia or Asia.

Why is this international experience so important? I wrote earlier in my blogs about developing  “an International frame of mind”. This is much easier for many young people outside the U.S. Other countries study English for years and young people long to visit and be educated in our country. We are still a very U.S. centric focused country. But this is changing. And it better change as we are truly a global marketplace.

I was personally fortunate to spend a lot of my earlier years with Donn Corporation working with our businesses outside the U.S. I was often in both Canada and Europe six times in year and every few years in Asia. Many of the experiences I write about in The Business Zoo relate directly to these international involvements and the great people I was fortunate to get to know. Here are a couple examples and stories from the book.

Dining with Europeans. These are some of the most sophisticated people in the world. They have made the art of dining  an essential and integral aspect of both business and life. Much can be learned by mastering their skills.

Learning the nuance of language and words. From Donn’s European Controllers I learned that the word Yes means different things depending on your country and its culture. To the French, Yes meant I heard you and I will consider (not always do) what you said. To the Germans, it meant Yes, I will follow it in great detail and they would then ask a dozen questions to clarify what i meant. The Asian countries bring their own unique cultures to this.

So if you work for an organization where you can get International work, go for it. If you work for an organization that does not have the kind of International involvements that you want , find another organization!