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| Volume 7, Issue 3
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In This Issue:
 China's $1.2 trillion cash hoard
Smart ways to play the M&A boom
Think before you hit 'send'
 Who Owns Reference Checking?
Performance Management Strategies
Talent On-the-Bubble: Addressing Human Behavior at Work
 Who Owns Health Care in Your Enterprise?
 Lender Roundtable: Outlook on Debt Markets
Where the Next Big Bets Lie for Venture Capitalists
Firms Look for New Ways to Court Private Equity Deals
 [CFOs] Emulating Private Equity
Managed Growth: How to Establish and Achieve Optimum Financial Targets
Getting More From [Your] ERP
 The Long View
Finance vs. Marketing
Board Battles
The [Finance] Replacements
 What Makes Employees Loyal
Top Brain Boosters
Tech Toys for Business Travelers
Ten Cool Summer Cocktails
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China's $1.2 trillion cash hoard
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U.S. Treasury Secretary Henry Paulson and Chinese Vice Premier Wu Yi. |
With $1.2 trillion in reserves, most of it in dollar-backed assets, China plans to launch the world's largest investment fund. It could play havoc with the U.S. economy.
China, Long recognized as the world's factory, is earning a new distinction: America's banker. As it continues to suck in foreign investment and crank out exports, the world's fastest-growing economy is piling up foreign currency, mostly dollars, at an
astonishing rate. In April, China's central bank stunned economists with the disclosure that, in the first three months of the year, China had added $136 billion to its
official foreign-currency reserves, more than double the increase in the previous quarter. The influx boosted China's foreign reserves to $1.2 trillion - an Everest of
money that towers over reserves held by any other nation. U.S. Treasury Secretary Henry Paulson and Chinese Vice Premier Wu Yi. Beijing's burgeoning foreign-cash pile is a
consequence of its effort to boost exports by fixing the value of its currency, the yuan, to the U.S. dollar. To keep the yuan from appreciating too quickly...
Read the article. Back to top
Smart ways to play the M&A boom
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Buyouts and takeovers are driving the market. Fortune's Yuval Rosenberg tells you how to get in on the action without getting burned.
Every week, if not every day, new mergers and acquisitions hit the headlines. Even after a blazing-hot year for dealmaking in 2006, healthy stock prices, accommodating
debt markets and private-equity firms flush with cash continue to fuel the frenzy - and those factors are widely expected to remain in place for the remainder of the year. The
latest blockbuster: the bidding for ABN Amro, which has topped $100 billion. "It seems as if CEO investment libidos are very strong," says Curtis Jensen, co-chief investment
officer of Third Avenue Management in New York. "The odds are that we're going to continue to see a very strong M&A environment for the foreseeable future." With so many
deals in the news, it's only natural for investors to wonder which company will be bought next - and which stock will be next to see a pop. Before you start chasing
rumors, though, bear in mind that you may already be profiting from the action...
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Think before you hit 'send'
Careless e-mailing has brought down some high-flyers. Here are a few of the executives who lost their jobs, their careers or their reputations thanks in part to e-mail.
A saucy detail in the scandal surrounding Wal-Mart's firing of Julie Roehm is an e-mail that she sent to her subordinate, Sean Womack. In it the former senior vice president of marketing communications wrote: "I think about us together all of the time. Little moments like watching your face when you kiss me.
Steven Heyer stepped down as CEO of Starwood Hotels after the company's board reportedly pressed him to explain allegations of suggestive e-mails between him and a younger female employee...
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Who Owns Reference Checking?
Reference checking is often relegated to Human Resources in organizations. In my mind, that's not who should own reference checking. The manager of the position should check the employment references. He or she has the most to lose if the needed skills and cultural fit don't work out. The manager's "feel" for the viability of the candidate is also key for the person's eventual success as an employee.
Sure, HR can:
* own the reference checking process,
* check references for entry level jobs, and
* check the candidate's list of prepped references.
But for most jobs, the manager of the position is the best person to reference check. This is especially true for talking with past employers and the candidate's former
bosses. The manager knows the technical qualifications a candidate must bring to a position. The manager knows the appropriate questions to ask the current and / or
former employer about the candidate's work. The manager can listen for statements that indicate cultural fit and that the strengths listed match the strengths you need.
Before you turn your managers loose on reference checking, however, training in how to check references is required. Since you never get a second chance, particularly with
the candidate's former manager, doing it right the first time is paramount. And, this training needs to include how to reach the manager, how to bypass the HR office, if
possible, and how to help the reference open up and communicate about the potential employee. Here's a handy reference checking format that you can modify for use in your
organization...
Third Party Background Checks
If you use a third party screener and they get the background check wrong, you could be missing out on potentially good employees. Plus, who checks the background and the work of the background checkers? Never sign a contract that indemnifies the checker from liability. Here's an interesting piece at the Christian Science Monitor: Who Is Checking the Background Checkers?
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Performance Management Strategies
Do you have responsibility for supervising the work of others? If so, you know that employees don't always do what you want them to do.
On the one hand, they act as if they are competent professionals. On the other, they procrastinate, miss deadlines, and wait for instructions. So, what's a supervisor to
do? Performance management is your answer. You must begin by finding out why the employee is not meeting your expectations.
This checklist for diagnosing employee performance management issues will help. Take a look at my newest article...
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Talent On-the-Bubble: Addressing Human Behavior at Work
One of the great lessons from Talent IQ is that the performance of talent gone awry is very seriously under-addressed in organizational life. Called “Talent
On-the-Bubble,” a pattern of human behavior was identified that can take any organization and its leadership team down if left untended.
Talent On-the-Bubble can make a mockery of organizational values, sap creative energy
and drive highly talented top performers out. To the extent that positive energies from
high achievers create a magnet of hope and achievement, talent on-the-bubble behavior constitutes an anchor of negativism, irresponsibility and contempt. While leaders want
to get to the positive side of the performance equation, to the extent they avoid taking responsibility to address the talent on-the-bubble challenge, they drop an
anchor on progress and an evidentiary path of their own on-the-bubble behavior. Here’s what human behavior on-the-bubble is and how to correct it...
Read the article. Back to top
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Who Owns Health Care in Your Enterprise?
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Enterprise companies constantly struggle to align their health care plans with the organization's financial goals as well as employee needs. As the war for talent
intensifies, and insurance premiums continue to climb, this already difficult task is becoming even harder for businesses to manage.
In this competitive environment, many organizations have refocused their benefits selection processes, moving away from traditional, cost-oriented practices in favor of
more collaborative solutions that emphasize the importance of employee opinion.Traditionally, companies have applied a one-size-fits-all business model to
selecting health care benefits. They would take bids from insurance providers, negotiate executive perks and choose vendors that could do the most to improve their
return on investment. Although elements such as employee co-pays and premiums would be considered, financial factors and "old-boy" networks often played integral roles in
executives' final decisions. It seems as if this trend has shifted recently, with financial officers making room for...
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Lender Roundtable: Outlook on Debt Markets
In March, members of the Wharton Private Equity Club coordinated a roundtable discussion between four influential lenders to talk about the currently robust debt
markets, trends in the sub-debt markets, the impact of hedge funds, and ways firms can differentiate themselves from the competition, among other topics.
[Balance sheet management is always something of interest from a lender's perspective. Even in this frothy market our hold sizes continue to be in the $20 million to $30
million range, depending on deal size and PEG preference. PEGs are more interested in who is holding their paper, and it certainly has bearing on who is awarded debt
mandates. PEGs want to see their relationship lenders hold more meaningful positions and bank groups don't want to see one or two lenders of a syndicate (for a middle
market transaction) control voting. Most PEGs, unless necessary, don't want to see hedge funds leading their deals because of the portfolio management uncertainty or loan
to own reputation…]...
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Where the Next Big Bets Lie for Venture Capitalists
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The venture capital sector is finally bouncing back from its post-bubble blues, although it's still a long way from the euphoria of the late 1990s.
Blockbuster deals -- like YouTube's recent sale to Google for $1.65 billion and Skype's sale last year to eBay for $2.6 billion -- are giving venture investors new confidence
in their ability to cash out, said a group of venture capitalists who spoke on a panel at the 2007 Wharton Economic Summit. In addition, new sectors like "clean tech," an
umbrella term for environmentally friendly technologies, and trends like the aging of populations in the developed world are creating promising investment opportunities.
Even so, times remain challenging for many venture capitalists, the panelists warned. According to David Mathias, a managing partner at the Washington, D.C.-based Carlyle
Group, "15% of the firms have provided something like 90% of the returns." One leading firm, Sevin Rosen in Dallas, Tex., decided last year to abort plans to raise money for
a new investment fund, telling its investors that the industry's business model was broken. The New York Times called the decision "a kink in venture capital's gold
chain." Contributing to industry-wide woes is the fact that many more venture capitalists are fighting over a smaller pool of money and deals. "A lot of firms flowed
into the sector during the bubble," said Doug Given, a partner with Bay City Capital in San Francisco. According to a report by the National Venture Capital Association and
PricewaterhouseCoopers, venture investors...
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From Star-power to Branding, Firms Look for New Ways to Court Private Equity Deals
The days when private equity fund managers pursued proprietary deals at their own pace are long gone.
As more investment capital flows into the market, deal makers find themselves in a scramble to court potential targets using sourcing strategies ranging from hiring marquee-name rainmakers like Jack Welch, to hiring brokers, to relying on old-fashioned
cold calling. According to experts from Wharton and private equity practitioners, deal sourcing techniques are becoming increasingly important as firms look for any kind of
lead in the competitive market. John Cozzi, managing director of AEA Investors, says only about 20% to 25% of the firm's deals are proprietary, with another quarter coming
from affiliated funds and half from bankers. Last year, the company looked at 600 companies and invested in three. A year ago, he says, AEA would only have had to meet
with 100 companies to secure three deals. Relying on relationships and reputation are not necessarily enough to bring deals through the door, he says. "Today, you need a
much more process-oriented approach." Industry wide, only a third of respondents to the most recent Association for Corporate Growth/Thomson Financial DealMakers Survey are
able to make half their deals exclusive. In most cases, private equity firms prefer a proprietary deal, but the reality is that more and more companies are hiring investment
bankers to stage actions, forcing quick decisions about transactions which fund managers fear they may ultimately regret...
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[CFOs] Emulating Private Equity
Private equity firms continue to sit at the pinnacle of the business universe with annual average returns that every public company wants but rarely achieves.
The standard explanation for the disparity is that only private equity owned companies are free to take on extraordinary debt and ignore the enormous regulatory burdens that
preoccupy public companies. Private equity managers produced record-breaking results in 2006, with buyout firms posting returns of more than 25 percent, according to Mercer
Investment Consulting. The best private equity firms are now pulling capital and executive talent out of the public company realm at an alarming rate. No one disputes the private equity advantages derived from the lower cost of capital that comes from
higher leverage -- or the benefits gained when companies live beyond the reach of Sarbanes-Oxley. But the growing amount of evidence available on the private equity
experience is forcing a new consensus that the high returns stem from differences that go to the very essence of how private equity owned companies are run....
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Managed Growth: How to Establish and Achieve Optimum Financial Targets
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Developing achievable financial targets and managing to those targets is an ever-increasing challenge for CEOs and CFOs in the era of Regulation FD, Sarbanes-Oxley and globalization.
Effective strategic planning and performance management processes are critical to efficiently allocating corporate resources and managing towards growth goals. Which new
products, markets and channels should be supported, which should be exited, and which need more direction? At the corporate level, these decisions require an almost
scientific level of rigor and discipline.Archstone Consulting recently completed a study of financial target setting for the consumer packaged goods (CPG) industry
evaluating practices for strategic planning and performance management that set and support those targets. We benchmarked companies against 35 attributes, including
strategic planning capabilities, selection of core metrics for planning and performance management, and use of structured analytics to support planning and evaluate corporate
performance. Our study found that...
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Getting More From [Your] ERP
A CFO would want to know why a plant manager is keeping machine tools idle when they could be put to profitable use -- and rightly so.
Yet most companies are guilty of not fully utilizing another expensive capital asset: their enterprise resource planning (ERP) system. Although the term "business process
reengineering" may sound passé, companies should be putting more effort into process reengineering to improve efficiency and effectiveness by instituting end-to-end
processes. In many cases the ERP software that companies already own can help them do this, without even having to make a major upgrade to it. What's the biggest hurdle? It
may simply be understanding what's possible. ERP software's capabilities -- and the expectations that users place on them -- have evolved substantially since mass adoption
began in the early 1990s. Most companies have achieved simple process efficiency. The Hackett Group found that the cost of running the average finance organization shrank by
nearly half during the 1990s; this achievement can be attributed largely to the nearly universal adoption of ERP systems over that period. And the impact of this improvement
is not trivial: We calculate it adds $60 billion annually to the operating profit of the Fortune 500 alone. With that mission accomplished, it's time for companies to focus
on raising their use of ERP to the next level...
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The Long View
Companies are trying to shift investors' focus from short-term results to long-term goals.
Warren Buffett may be the most celebrated stock picker of our time, but many investors ignore his advice. Instead of taking long-term positions in undervalued businesses,
they fixate on short-term performance and clobber companies that miss quarterly earnings forecasts. That goes double for the aggressive hedge funds.Corporate managers
have long complained about the pressure to focus on the short term, but now, for the first time, critics and business groups are racing to their defense. The U.S. Chamber
of Commerce recently called short-termism one of the biggest threats to America's competitiveness. "This focus on the short term is a huge problem," agrees William
Donaldson, former chairman of the Securities and Exchange Commission. "With all the attention paid to quarterly performance, managers are taking their eyes off of
long-term strategic goals. "The cure for the myopia? Stop giving quarterly earnings guidance, says Donaldson, the Chamber of Commerce, and others. "In the life of any
public company, no three-month period is ever going to be that important," says David Chavern, the chamber's senior vice president and chief operating officer. The
Conference Board has also called on companies to abandon quarterly guidance. And in March, the CFA Centre for Financial Market Integrity and the Business Roundtable
Institute for Corporate Ethics proposed a standard template for quarterly earnings reports that would, in their view, obviate the need for earnings guidance. [One of the
first companies to stop issuing earnings guidance was Gillette, in 2001. The decision was urged by board member Warren Buffett, whose own Berkshire Hathaway Inc. had never
practiced the quarterly ritual. Gillette's move came after the razor company missed its own earnings targets seven times in a year and a half — and took a hit to its stock
price each time. The next year, Coca-Cola (where Buffett also sat on the board) and Intel also abandoned quarterly guidance, as did McDonald's in 2003. It became a trend. By 2005...
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Finance vs. Marketing
Why they still don't see eye to eye on measures of return.
Companies are still struggling to measure their returns on marketing investments, and two recent studies shed some light on why. For one thing, marketing and finance
disagree as to how well current programs to measure the ROI of expenses such as advertising and direct mail actually perform. At many companies the two functions do
not work together to develop measures; sometimes they battle one another.One study, by Marketing Management Analytics (MMA), finds that just 7 percent of finance executives
are satisfied with their companies' ability to measure marketing ROI. A higher portion of marketing executives, 23 percent, think they are doing a good job of measuring
returns...
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Board Battles
Even as conflicts between CEOs and directors erupt, finance chiefs can wield influence on both sides.
You could have cut the tension with a putty knife. As one shareholder group was squeezing Home Depot Inc.'s board to divest a major unit last winter, other investors
tried to chip away at CEO Bob Nardelli's $38 million pay package. Earlier this year, the shareholder turmoil cost Nardelli his job. But the troubles didn't end. The audit
committee's discovery of two decades of backdated stock options led to a $200 million noncash charge and Securities and Exchange Commission and Department of Justice probes;
employee morale sank; customers were unhappy; and the economy got in a few kicks as a bleak housing-market outlook curtailed America's obsession with home renovation. Behind
the scenes, CFO Carol Tome was scrambling to tune out the distractions and focus on the core business. She held two to three times her standard number of investor meetings
last year and devoted untold hours to gathering information for the backdating investigation. In what she understatedly calls "a year of drama for Home Depot," she
watched the general counsel and the human-resources head follow Nardelli out the door. An obvious question loomed: Would Tome be next? Boards are getting hammered from all
sides these days, thanks to a potent combination of Sarbanes-Oxley rules and shareholder activism. More often than not, management receives some of those blows as
well. Wealthy, reform-minded investors like Carl Icahn, former SEC chairman Richard Breeden, Nelson Peltz, Ralph Whitworth, and longtime corporate shaker Kirk Kerkorian
are at the corporate gates, if not inside them, through board representation.The companies they have sought to change include some of America's best-known names:
Motorola, H.J. Heinz, Blockbuster, Home Depot, Cadbury-Schweppes, Sharper Image, and Applebee's International. In other cases, board warfare has brought new visibility to
companies such as Ceridian Corp. and Take-Two Interactive Software Inc. As investors demand to be heard, boards are responding — and CEOs are leaving. Caught in the
crossfire is the CFO, whose relationship with the board is becoming ever more complex. Sometimes this new reality works to the CFO's benefit...
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The [Finance] Replacements
With staff defections on the rise, CFOs are paying more attention to new hires.
If ever a move was guaranteed to fan the flames of worker cynicism, this was it. In March, embattled retailer Circuit City announced it was laying off about 3,400
employees. The company's management went on to note that it planned to immediately refill most of the vacancies — at reduced salaries. No wonder employee loyalty is at an
all-time low. Decades of downsizing, offshoring, and outsourcing have plumped up corporate coffers, but the moves have also sapped most of the allegiance employees once
felt for their bosses. At the same time, reduced health-care benefits — along with the rise of more-portable pension plans — have left workers with fewer ties binding them to
employers. The result? Many employees now see themselves as free agents. This is especially true of younger workers, many of whom routinely scour the Internet looking
for better gigs. They seem to be doing so with remarkable proficiency: the Department of Labor reports that, between the ages of 18 and 35, the average American employee now
holds 10 different jobs.This flitting about is no longer restricted to sales personnel and techies, either. Buoyed by an acute manpower shortage, finance professionals are
now changing jobs at a...
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What Makes Employees Loyal
There are lots of reasons why people end up quitting their jobs.
For some, the decision is the result of a bitter fight with a boss. Others win the lottery, get a better job offer or leave because a spouse is transferred to another
city. But a recent review of 15 years of research on employee job satisfaction and voluntary job turnover shows that employers might be better at retaining workers if
they focus less on what makes people quit and more on what makes them want to stay. Thomas Lee, professor of management at the University of Washington and president-elect
of the Academy of Management at Pace University in New York, says leaders should realize people may be leaving their positions for reasons that have nothing to do with
being unhappy. But focusing on building a social network that makes people feel like they fit in can prevent them from quitting and potentially save the company the
expensive loss of institutional knowledge. "Most companies should very seriously think about the value of creating a community," says Lee, who, with UW professor Terrence
Mitchell, conducted the review, the results of which appeared in the February issue of Current Directions in Psychological Science...
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Top Brain Boosters
Wrinkles, gray hair, age spots. There are lots of downsides to aging. Losing the mind, though, tops the list of many.
But fear not. Just as research has demonstrated how important physical exercise is to aging well, experts now say there are things we can do to reduce our risk of mental decline, or even reverse it. It's called the mental workout, and as baby boomers search for more ways to enjoy their longevity, interest in it is beginning to explode...
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Tech Toys for Business Travelers
In the air five days a week and finding yourself calling the Ritz Carlton home?
We understand. You need a one-way ticket to Canyon Ranch. Sadly, man must work. But business travel doesn’t have to be so tough. Taking along a few time-saving, stress-free can mean the difference between a trip without a bump in the road and a trip that is, well, bumpy....
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Ten Cool Summer Cocktails
Thirsty? Good. There's lots here to keep you hydrated.
But if you think this list is going to be made up of gin and tonics, watermelon punch and seabreezes, think again.Try a Caiparinha De Ipanema, Tab with Champagne and a Pimm Pomm...
Read the article. Back to top
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