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| Volume 6, Issue 8 |
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In This Issue:
 Restoring the shine
 What’s next: The dashboard dilemma
Contagious commercials
 Fixing executive options: The veil of ignorance
A new framework for analyzing & managing macrofinancial risks
The quiet leader - and how to be one
What’s to be done about performance reviews?
 Bernanke talks tough about inflation
Bankruptcy king: More defaults coming
 Photo’s: 2006’s (10) worst political mishaps
 Ask the right (interview) question
In the trenches at VF boot camp
*!#@ the email. Can we talk?
 Pay up
Look before you sit
 Pumping up P-Card programs
Supply Chain Finance: The next cost-improvement battleground
BPM ratchet’s up M&A results
 Are parents killing their kids careers?
Maternal management
Help for the holidays
Surprisingly healthy foods
Holiday party high jinks
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Restoring the shine
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A new report suggests ways to keep America as the world’s leading market for
capital. New Yorkers are no strangers to anxiety, but recently the city’s moneymen have come close to hyperventilating.
A shrinking lead over other financial centres, especially London and Hong Kong, has kindled fears that America is losing its grip on the world’s money. Earlier this
year, consultants were hired and committees set up to suggest ways to stop the rot. The most important, the Committee on Capital Markets Regulation (CCMR)—a diverse group
of bankers, chief executives, academics and investors, tacitly backed by Hank Paulson, the treasury secretary—published its first set of recommendations on Thursday
November 30th. If accepted they could transform America’s financial landscape. Though America is still the world’s biggest market for capital, its lead is narrowing in
almost every area, from syndicated loans to securitisation. To a large extent, this turnaround reflects the tougher competition America now faces. But America has also
got things wrong. In its report—the first of two—the CCMR identifies four areas where change could bring benefits: Sarbanes-Oxley, litigation, shareholder rights
and financial regulation...
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What's Next: The Dashboard Dilemma
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Einstein kept a sign in his office that read, "Not everything that counts can be counted, and not everything that can be counted counts." |
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Do you manage by the numbers? Be careful if you do: Your data may be playing tricks on you.
When the Boston Red Sox reversed their curse in 2004 by vanquishing the Yankees
and going on to take the World Series, many fans and pundits were quick to give
much of the credit to management's decision to enlist sophisticated computerized analyses of player performance data to make staffing decisions. This year, the
team's all-too-familiar collapse left these same observers wondering how the numbers could have led the Red Sox astray. Einstein kept a sign in his office that read,
"Not everything that counts can be counted, and not everything that can be counted counts." Baseball fans are not the only ones being forced to consider that the
best decisions aren't necessarily the ones based on analyzing reams of data. Companies of all sorts are setting themselves up for the same hard lesson, thanks to the
growing excitement over technology's ability to place all manner of salient data
at the fingertips of managers...
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Contagious Commercials
How to get in on the YouTube craze.
One day in June, MerlynDHZ shot a digital video of himself and his buddies flying down ramps, gliding across railings, and doing other skateboardlike stunts in their
Heelys, sneakers with retractable wheels hidden in the soles. The next day, he uploaded the clip onto the video-sharing website YouTube. Within a month, more than 2,000
people had viewed the 90-second snippet. A few fans even linked to it on their personal MySpace homepages. What MerlynDHZ's fans may not know is that he and the other
skaters in the video work for Heeling Sports Limited, the Carrollton, Texas, company that makes Heelys. Heeling Sports is one of a growing number of businesses
seeding YouTube with short videos to generate buzz on the cheap...
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Fixing Executive Options: The Veil of Ignorance
The latest corporate governance crisis is buried in the details of executive compensation contracts.
Don't like the timing of the stock option grant you got or the strike price of the contract? No worries! It turns out that this is nothing an eraser can't fix.
While the full scope of backdating option practices remains unknown, this most recent scandal has deepened the sense in many quarters that option contracts given to
managers distort behavior in destructive ways. The ability to play with, and respond to, the many variables in an option contract—the timing of the grant, the strike price,
the vesting period—appears to vitiate many of the benefits of incentive alignment. How might option compensation be refashioned to deliver the benefits without
the distortions? Perhaps the answer to these problems can be found with...
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A New Framework for Analyzing and Managing Macrofinancial Risks of An Economy
The vulnerability of a national economy to volatility in the global markets for credit, currencies, commodities, and other assets has become a central concern
of policymakers, credit analysts, and investors everywhere.
This paper describes a new framework for analyzing a country's exposure to macroeconomic risks based on the theory and practice of contingent claims analysis.
(A contingent claim is any financial asset for which future payoff depends on the value of another asset.) In this framework, the sectors of a national economy are
viewed as interconnected portfolios of assets, liabilities, and guarantees that can be analyzed like puts and calls. The framework makes it transparent how risks are transferred across sectors, and how they can accumulate in the balance sheet of
the public sector and ultimately lead to a default by the government...
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The Quiet Leader—and How to Be One
If you look
behind lots of great heroic leaders, you find them doing lots of quiet,
patient work themselves.
—Joseph L. Badaracco Jr
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It sounds almost paradoxical. A quiet leader? Yet quiet leaders—managers who
apply modesty, restraint, and tenacity to solve particularly difficult problems—are
more common than we think, says Harvard Business School professor Joseph L. Badaracco.
In his new book Leading Quietly: An Unorthodox Guide to Doing the Right Thing
(HBS Press, 2002), he describes what quiet leaders do and how they make their
workplace, and their world, a better place. Badaracco recently sat down with HBS
Working Knowledge Senior Editor Martha Lagace to talk about quiet leaders...
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What's to Be Done About Performance Reviews?
It's the season for many employee performance reviews.
Why do they seem to rank alongside root canal dental work on our list of things we
look forward to as managers and employees? And what are we doing about it? If we
assume that the basic purpose of employee evaluations is to build better-performing organizations, then this has to be one of the most important things we do as
managers. But if formal evaluations weren't required, would we even provide them? Much of this season's debate has centered around whether a forced ranking system works
in such efforts...
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Bernanke talks tough about inflation
Fed chief indicates growth is moderating, inflation is a more 'predominant' risk.
Federal Reserve Chairman Ben Bernanke painted a relatively healthy picture of the economy in a speech Tuesday, indicating that weakness in the housing market may not
put a significant dent in growth. But the head of the nation's central bank also maintained that inflation remains a threat, a possible sign that the Fed is more
likely to raise interest rates next year instead of lowering them. Speaking at a lunch in New York City hosted by the National Italian American Foundation, Bernanke
indicated that the economy would likely grow at a moderate pace in the fourth quarter and early 2007 but that growth would pick up over the course of next year.
Bernanke added that the worst may be over for the slumping housing market...
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Bankruptcy king: more defaults coming
Wilbur Ross expects bankruptcies in Europe, United States to surge in '07 due to rising debt levels.
Billionaire turnaround specialist Wilbur L. Ross predicted that bankruptcies in
Europe and the United States would increase sharply next year because of soaring corporate debt levels. Ross, dubbed the 'King of Bankruptcy' by Fortune magazine
in 1998, said at a conference in London on Wednesday that defaults would rise to about 7 percent of all companies by the end of next year - one of the most bearish
predictions in the industry - from about 1 percent now...
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Photos: 2006's (10) worst political mishaps
No 10: Representative Katherine Harris (R-Fla.) plays Mrs. Robinson with a college reporter.
Soon-to-be-former Congresswoman Katherine Harris made a name for herself as
Florida's Secretary of State during the controversial 2000 presidential election. Characterized by outlandish statements about religion, abrupt staff
shakeups, tight-fitting shirts, and questionable colors of eyeshadow, Rep. Harris was considered a longshot indeed in her (unsuccessful) bid to unseat Democratic
Senator Bill Nelson this year. But she never lost her campaign trail spirit--or her charm, as was evident when photographer Stephen Elliott snapped some photos of
the Senate hopeful conversing intimately with a college newspaper reporter this
past April. According to political blog Wonkette, Elliott recounted to Majority
Report Radio that Rep. Harris "sat (the reporter) down, sat next to him, and her foot was brushing...
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Ask the Right (Interview) Question
Job seekers' questions typically fall into one of three categories. To impress
and learn about an employer, it's important to know the protocol for each.
Savvy job seekers have learned that it's important to show up at a job interview
armed with smart, pithy questions. A few years ago, it was perfectly fine to ask,
"Who are your company's competitors?" But these days, employers expect you to know
the answer to that—and a dozen other company-specific questions. The first thing
to know about job-interview questions is that there is more than one kind. In
my experience, job seekers' questions fall into one of three categories, and it's
good to know the difference—and the protocol for each...
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In The Trenches At VF Boot Camp
A skeptical reporter attends the apparel maker's Leadership Institute and comes
out a believer There were six of us,squinting down the length of a conference table at a single laptop. It was past 9 p.m., and what we could make out on the screen
wasn't encouraging.
We'd all met just 13 hours earlier--when I was thrown together with five fast-climbing executives at apparel maker VF Corp. (VFC ) for an exercise in management boot
camp. Over the four days of the Leadership Institute, as VF calls it, we would face more important challenges, but what had us all flummoxed at the moment was a computer
game at which we were failing spectacularly. I'm a dyed-in-the-wool HR skeptic. So after a day of lectures on communication--and tossing around Nerf footballs to "loosen
up"--I wasn't so sure why we were puzzling out "Launching a High-Risk Business," a simulation cooked up by two Harvard Business School academics. Another of our band,
Rob Purvey, echoed my doubts. An executive at skateboard shoe brand Vans, Purvey had once been an entrepreneur himself and had raised $30 million of the real green
stuff for one venture. We tried strategy after strategy. They all failed. But about a half-hour before our 10 p.m. deadline, something clicked. We partnered with
the inventor, poured cash into marketing, and begged every virtual venture capitalist and bank for seed money. The offers started to trickle in, and soon our company
was worth $5 million. We actually whooped with joy. Score one for team bonding...
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*!#@ The E-Mail. Can We Talk?
Face-to-face meetings can trump technology. Some companies call for "no
e-mail Fridays" Scott A. Dockter knew things were bad when he found himself
e-mailing his assistant seated a few feet away.
But it was more than his own e-mail habit that prompted the CEO of PBD Worldwide Fulfillment Services in Alpharetta, Ga., to launch "no e-mail Fridays." He
suspected that overdependence on e-mail at PBD, which offers services like call center management and distribution, was hurting productivity and perhaps sales. So in
July, he instructed his 275 employees to pick up the phone or meet in person each Friday, and reduce e-mail use the rest of the time. That was tough to digest,
especially for younger staffers and some senior managers. "We discovered a lot of introverts...who had drifted into a pattern of communicating by e-mail," Dockter
says. But in less than four months, the simple directive has resulted in...
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Pay Up
A Perfect Fit
The demand for finance talent may be soaring, but candidates refuse to settle for just any job.
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Shuffling the Equity
Percent of finance positions eligible to receive long-term incentives* |
| Title |
2002 |
2004 |
2006 |
| Corporate Controller |
52 |
57 |
55 |
| Corporate Treasurer |
64 |
66 |
68 |
| Top Corporate Tax Executive |
70 |
76 |
80 |
| Top Corporate Audit Executive |
56 |
62 |
68 |
| Top Corporate Investment Executive |
58 |
50 |
70 |
| Top M&A Executive |
81 |
85 |
87 |
| Top Financial Analysis Executive |
79 |
66 |
79 |
| Top Corporate Accounting Executive |
56 |
60 |
56 |
| Top Risk Management & Loss Prevention Executive |
57 |
64 |
55 |
| Division Controller |
64 |
45 |
61 |
| Cost Accounting Manager |
48 |
43 |
25 |
| Payroll Manager |
30 |
25 |
21 |
*Long-term incentives include incentive stock options, nonqualified stock options, phantom stock, restricted stock, SARs, performance units, performance shares and cash.
Source: Mercer Human Resource Consulting |
With finance talent in high demand, companies are boosting compensation — and making some demands of their own.
The past few years have been good for Occidental Petroleum CFO Stephen Chazen. In 2005, he earned nearly $33 million, including gains on options he exercised and
long-term incentive-plan payouts. That puts him at the top of the latest list of highest-paid finance executives, compiled for CFO magazine by Mercer Human Resource Consulting. He was number four when we did the study last, in 2004. Chazen
owes some of his wealth to luck. He became CFO of Los Angeles–based Occidental in 1999, when the price of oil was below $20 a barrel and few expected much of the company.
Since then, of course, the price of oil has more than tripled, and Occidental's stock price has followed suit. "When the company gave out [the executive team's] options,
our stock had traded at $20 to $30 per share for years. No one actually thought it would be a $100 stock," says Chazen. Still, much of Chazen's options-related pay depends
not on the simple rise of Occidental's stock price but on whether shareholders' returns exceed competitors' returns — and they have for several years. Starting this
year, Chazen will have to clear a new hurdle to receive restricted stock grants. In July, Occidental declared that the top five executives will get stock only if the
oil company meets or exceeds its cost of capital. If Occidental's average return on equity over three years matches its 11 percent cost of capital, executives
receive one-fifth of the (undisclosed) target number of shares. They receive the full target number at 15 percent ROE, and double that number at 20 percent. Even if the
surge in his pay has been extraordinary, much about Chazen's arrangement shows how compensation for a growing number of CFOs is evolving: they're making more, but
boards are also making them work harder to achieve the mega-pay levels that became common in the 1990s.The Price of Experience On average, CFOs have seen a
significant — if not extravagant — increase in their earnings in the past year.
Average base pay for corporate finance chiefs in 2004 was...
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Look Before You Sit
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Why They Say Yes, and Why They Say Good-bye
Top Reasons for Accepting a Board Position:*
Reputation of company and its financial position: 62%
Comfort with the CEO: 34%
Composition/membership of board: 21%
Experience can be applied to own company: 21%
Top Reasons for Leaving:
Change of control: 32%
Overload/lack of time: 14%
New opportunity/time for a change: 8%
Conflict: 8%
Source: Spencer Stuart/Corporate Board magazine, May 2006. Survey of 350 past and present board members in S&P 500 companies.
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A seat on a corporate board can be a great opportunity, but choose carefully.
When Howard Atkins, CFO of San Francisco–based Wells Fargo, was asked to join the board of Ingram Micro, a $30 billion technology distribution and sales company, he
asked himself many questions and did plenty of homework before accepting the post in 2004. "I had to determine whether the time commitment was worth it for me and
my company," he says, "and whether what the company needed matched what I could bring to the table."He also wanted to make sure he had a level of involvement that suited
his interests, so he joined the executive and finance committee and the compensation committee, rather than the audit committee, which already had a sufficient number
of financial experts. While his financial acumen would no doubt have made him a valuable addition, he was primarily interested in addressing strategic issues. That
combination of caution and focus is a good model for other CFOs as offers to join corporate boards continue to roll in. As a generation of board members
approaches retirement age, and as improved corporate-governance practices prompt companies to transform their boards from cozy collectives of insiders to
(in theory) more-active advocates for savvy management, CFOs find themselves in high demand...
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Pumping Up P-Card Programs
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Piedmont Natural Gas has had a purchasing card (p-card) program in place for about eight years. Although the program has always worked well, the Charlotte,
N.C.-based natural gas distributor decided to kick it up a notch in late 2005.
The company originally set up the p-card to provide employees with a convenient
way to purchase miscellaneous items such as office and cleaning supplies, but they couldn't use it for capital expenditures or travel and entertainment (T&E)
expenses, according to Patricia Neal, treasury/finance analyst. In addition, cards were assigned to employees by department. A worker who made purchases for several
departments would have at least two cards, Neal reports.All of that changed last year, when "we came into the new world," reports Neal. To overhaul the program, Neal
worked with Concur Technologies, a provider of expense management solutions based in Redmond, Wash. Employees now have one card that covers all purchases. They can
view their transactions online and code them to a specific department, rather than having to use a separate card for each group. Plus, employees' spending limits now
vary according to their position; typically, senior employees receive higher limits...
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Supply Chain Finance: The Next Cost-Improvement Battleground
Building a reduced-cost, low-risk supply chain from top to bottom will become the new frontier for CFOs, according to new research from Aberdeen Group.
The study found that although only 13 percent of companies are actively using supply chain finance (SCF) techniques to improve cash flow and enhance access to capital
for their supply chain, more than two-thirds of organizations surveyed are investigating these techniques. Businesses that fall into the survey's best-in-class category
post 13.6 higher days payable outstanding (DPO) than their peers on average and obtain trade financing at a 2.86 percent lower annualized rate. Most important, SCF
leaders are creating a lower-cost and a more financially stable end-to-end supply chain, which will result in a strategic advantage...
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BPM Ratchets Up M&A Results
Cash may be king, but it can also be a killer if it sits on the balance sheet too long while investment opportunities pass fleetingly by.
Excess liquidity has become a nagging problem for many organizations, and perhaps the most popular solution has been to increase mergers and acquisitions. "There have
been record profits reported over the past two years, which have helped give the S&P 500 more cash than it's ever had in its history," says Kevin Prokop, director of
Southfield, Mich.-based Questor Management Co., a private equity firm specializing in turnaround situations. "We're seeing a growing number of companies using M&A to
put that cash to work. "Many deals, however, are being done on the basis of just the financials, employing an LBO [leveraged buy-out] model and running cash flows out
four or five years to determine the value of the acquisition target," says Prokop. "It's an old approach that doesn't often lend itself to successful results." The deeper,
more operational type of performance analysis is frequently ignored, in part due to time constraints. Acquiring companies figure that the window for any particular deal is
only open for so long. But in M&A activities the stakes are high, and a superficial analysis may be risky...
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Are Parents Killing Their Kids' Careers?
As an executive recruiter for healthcare consultancy Stockamp and Associates, Kate Carson is used to talking to plenty of job applicants.
What she’s not used to is talking to their parents. But that's exactly what she’s doing more of these days. Recently she received a call from the mother of a
24-year-old graduate student who wanted to know why her daughter didn't receive a job offer with the Oregon-based company. "I was a little taken aback," says Carson.
And then there was another call from the parent of a college undergad who called Carson to let her know that her daughter was sick and wouldn’t be able to make her
scheduled job interview. In some human resources circles, these over-involved moms and dads are known as helicopter parents. They've hovered around their children
(the Millennial generation) their whole lives, over-scheduling their childhood and pushing them throughout college. With graduation comes the next step: the job
search. Now, more than ever, career counselors and recruiters say parents attend job fairs, accompany their adult children to job interviews and even make their
interview appointments. Rather than ridicule the behavior, companies like Merrill Lynch, Office Depot and others are...
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Maternal Management
Did you ever stop to wonder why we have best-selling management books drawing lessons from Winnie the Pooh, whale trainers, Shakespeare, the teachings of Mao and even
Jesus Christ but not one book based on the leadership lessons learned by parents, our original leaders and managers?
After all, people who take the job of parenting seriously can teach us a great deal about managing and motivating people at the office, handling crises and keeping
the life/work balance in healthy perspective. My own epiphany happened in the mid-1980s, soon after my son was born. I had been an economics reporter for The
New York Times and was familiar with the books on how to be an effective manager. As a new parent, I began to devour all the parenting books I could find and
was immediately struck by the uncanny similarities. Could it be, I asked myself, that the same material was being packaged differently for various audiences?...
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Help For The Holidays
It doesn't take long for the holidays to chip away at a healthy lifestyle.
It starts with a few too many trips to the buffet at the office party. Then you skip your evening workout a couple of times to go shopping. And you can't really be
blamed for digging into seasonal favorites, like stuffing, sugar cookies and blintzes. Thanksgiving, Hanukkah, Christmas, New Year's--they only come once a year, and
thank goodness. The holidays can wreak havoc on even those most dedicated to healthy eating and fitness routines. Then there’s the stress of picking the perfect
gifts, rushing through busy, germ-filled airports and spending time with family--you can be a top financial exec or a successful entrepreneur, but once you're in your
parents' home you're suddenly not sitting at the head of the table anymore. But it doesn't have to be that way. With a little planning, you should be able to at
least maintain your weight and minimize stress...
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Surprisingly Healthy Foods
What you didn't know might help you.
Eating healthy may be virtuous, but it just doesn't seem like that much fun.
Truth is, most of us prefer the taste of French fries over that of oat bran. A
glass of Burgundy sounds more tantalizing than a cup of wheat grass juice. And
while a nice piece of fruit is no punishment, chocolate is exceedingly more
tempting. The good news: Not all of those seemingly unhealthy choices actually are...
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Holiday Party High Jinks
Matthew Green, marketing manager at Corky's Catering in Chicago, has witnessed a lot of inappropriate behavior while working corporate holiday parties.
There's the typical stuff like too much drinking and flirting with co-workers. But among the most uncouth was the time he witnessed a woman wrap shrimp into a napkin and
stuff it into her purse. "It's a high-priced item, so I guess people want it," says Green. What would make anyone risk being known as the office’s “Shrimp Lady"? Chalk
it up as just another miraculous mystery of the holiday party season, when bosses become buffoons and martini-soaked office mates turn mischievous. This year, 94% of
businesses will throw a holiday celebration, according to executive search firm Battalia Winston International. That's a 7% increase from 2005. While alluring plates of
seafood may pose a few problems, it’s alcohol that is usually behind most talked-about holiday party high jinks. This year, 86% of companies will serve alcoholic
beverages. While it’s appropriate to have a drink or two, remember...
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