Management: Disclosure

By Harry Dennis for BizTimes Milwaukee

You’re the owner or senior manager of a small- to medium-sized privately-held business. One day, an employee asks you:

•         What are our annual revenues?
•         What are our gross profits?
•         What are our operating profits?
•         How much does the owner take out?

Oops. Are you ready for this? Do you have a company policy regarding financial disclosure?

This month, I’ll explain the pros and cons, and then leave the decision up to you. Among our TEC members, the pendulum swings from one end to the other on this issue. Here are some examples:

1. “We have been a ‘closed” company for 100 years. The family has never shared anything outside the family.”
2. “We have a gain-sharing program in place. Our employees know our operating expenses and profits, and we share with them at that level.”
3. “I share everything. Why shouldn’t I? Our employees know I took a great risk buying the assets of this company when it went belly-up with the prior owner.”
4. “We share selectively on a ‘who should know’ basis. Everyone gets some information. No one gets all the information.”

Advantages of sharing information
First and foremost, it’s an issue of trust. The more you disclose in terms of financial performance, then the less likely that employees will complain that they always end up on the short end of the stick when it comes to raises or benefits, or especially employee concessions.

Second, it’s an issue of simply being informed. Every employee survey I’ve ever seen done by TEC members over the last 38 years always gets the same answer to the question, “How well do you think your company keeps you informed about its performance?”

Employees thirst for knowledge about your company. I hate to be the purveyor of bad news. But your e-mails, tweets and newsletters, in whatever form, do not get the job done. Disclosure, in face-to-face meetings with employees, is the answer, if you truly want your employees to feel that they’re informed.

Third, there are counterproductive rumors whether you have 15 employees or 500. The less employees know about financial performance the last quarter, the more they will fill in the blanks. Rumor always emphasizes the negative, not the positive.

Don’t kid yourself. Rumors affect morale and productivity. It’s like a bad infection. And it isn’t good for business. Disclosure squelches rumors and replaces them with facts, whether the news is good or bad.

The disadvantages
First, opening Pandora’s Box may confuse employees. Disclosure companies invest valuable time helping employees understand what the numbers mean – not just lines on computer graphs. There’s no point about talking gross profit results for the past 30 days if an employee has no clue about what gross profit means.

If you don’t handle the education process correctly, it leads to comments like, “They’re just trying to pull the wool over our eyes.”

Second, the issue is complicated if your company has a union. Your contract might address issues such as disclosure. The union might even have the right to approve or disapprove of financial disclosures not covered in the contract.

Third, in some companies, the performance results are totally due to the result of outside influences, none of which can be affected by employee performance. This is especially true in pure commodity firms, because performance results are determined solely by market influence.

Finally, there’s the subtle issue of owner compensation, in whatever form it might take. My personal preference is to keep this out of the financial disclosure discussion, because each business owner has a different set of ownership circumstances.

In TEC, I know I’m speaking for many of our CEOs who would say that they would never extract more financial reward from their companies than justified.

I believe strongly that while the pendulum still swings from one end of the other regarding financial disclosure, very few of our TEC members favor complete non-disclosure.

Until next month, I hope you’re doing the right thing for yourself, your people and your business.

Handling Changes to Command with Grace, Part 2: Leaving with poise

Photo: http://flic.kr/p/8tt4za

In last week's blog post we discussed how to prepare for higher positions within your organization and how it affects those around you. The same can be said when leaving a position of leadership.

There are many factors to think about when deciding to leave a company. Whether it’s for relocation, a greater opportunity or a better fit, quitting your job is about what’s best for you and your career. However, others are obviously affected.

Before you make the big announcement, there are necessary steps to take to ensure your transition out is seamless for those around you.

Stay positive. As a leader, you are looked up to in your organization. A positive attitude is just as important before your announcement as afterward. If your behavior is obviously different in the weeks and months leading up to your leave, your team will notice. Following the news, your colleagues will want to know details about the decision. It is best to keep it brief and speak positively of the opportunity.

Lead the transition. Be proactive in finding a replacement whether it’s working with your internal team or assisting with the hiring process. Share as much information, documents, tips and tricks as you can with your team so that they can efficiently carry out the work instead of overwhelming them after you leave.

Maintain relationships. Strong business relationships are critical to a strong leader. While it can be difficult to see the long term in an uncomfortable or difficult parting situation, avoid portraying any negative emotions or feedback. After you leave, those you worked keep in touch with closely with and managed. You can still be a mentor to others and may even offer a better perspective when not directly affiliated with the same company.

Leaving any position is difficult to do and when in a position of leadership, your actions are monitored more carefully. What is a mistake you’ve seen leaders do when leaving? In your experience, what is the most important thing to keep in mind?

Management: Ready for anything

By Harry Dennis for BizTimes Milwaukee 

Something happened to me recently on the job that was totally unexpected and very disappointing.

Each one of us in business will eventually face what I call a, “reversal of the expected.”  This month, I’d like to share some experiences I’ve seen in TEC over the years involving the unexpected. But with good thinking and action, you can often salvage a bad situation.

An old pilot adage remains true today, whether you’re flying a Piper Cub or a Boeing 747. It says that when the unexpected occurs, maintain the aircraft control at all costs, analyze the situation and take the appropriate action.

That applies to business, too.

When the unexpected occurs, look at the bigger picture, analyze the event in terms of its impact on the bigger picture and react in a positive way to keep the ship on course.

A “reversal of the expected” has three important qualifications:

Usually, the business relationship was built on a foundation of trust.
The players have had no reason to doubt one another in the past.
A mutual set of seemingly agreed upon expectations existed before the unexpected event.

The two unexpected events that occur most frequently are in sales transactions: a broken relationship with a key customer; and failure to consummate a business sale.

What to do when you lose a customer

Your customer might unexpectedly terminate a contract, or contract with one of your competitors based on a marginal price decision.

What’s your first step? Look at the bigger picture surrounding the event. A long-term contract that’s lost, as TEC members have explained, can always be reinstated based upon new terms. It might take a year or more, but a proactive approach can and will work.

If you lost a customer based upon a marginal price decision, that usually means that the new vendor will compromise somewhere.

Once again, stand back. Ask yourself, what’s the value proposition that won the customer in the first place? Then do what you need to do to put that value proposition back in place. It may take some time, but it will be well worth the effort.

What to do when the sale stalls

You’re down to the final hour. You and your attorneys are meeting with the seller and the seller’s attorneys to sign on the dotted line. At the last minute, the seller gets cold feet and backs away.

You’ve invested considerable time and money to make this happen, and you’ve diligently complied with all seller requests to provide minimum business disruptions among employees, vendors and customers.

Again, it’s important that you step back and consider the big-picture possibilities:

1. The seller did get cold feet, and that’s the issue you must address.
2. Another buyer emerged at the last minute, most likely a competitor, and offered a better deal.
3. Family members never supported the sale to begin with and have intervened with a compelling argument.
4. The seller’s advisors have reassessed the terms and conditions, and risk factors. They’ve concluded that the sale isn’t in the seller’s best interests.

If the decision by the seller appears to be based on emotion, be patient. Reopen discussion and listen carefully to their concerns. Let some time go by. But you might also look for help from a third-party seller associate who can convince the seller that your offer is fair and in their best interest.

If the decision by the seller appears to be based on finances, your alternatives are to consider a higher down payment, offer shorter terms, offer a higher interest rate, offer more secure paper, or suggest a consulting contract that covers other key benefits – or any combination of those.

Know who the influential players are in the overall decision. Know where they are coming from. And then readjust your approach accordingly. In most business sale transactions, things seldom are what they appear to be.

Until next month, make sure you’re prepared for the unexpected.

Knowing when to ask for help

As business leaders, others constantly look up to you for advice and guidance. The expectation is that you’ll know what to do and the pressure to deliver a timely and helpful answer is high. But what happens when you need to ask for help? Who do you turn to?

The first thing to do is stay in control. Take ownership and responsibility for the situation so that you maintain your employees’ confidence.

Ask the right questions. Sometimes finding the answer is dependent on what questions you ask. Create a list of well thought out questions before approaching others. 

Be open to suggestions. Invite other team members to contribute in solving the problem. However, don’t hand-off the situation to someone else. Make sure you are collaborating and working together to find a conclusion.

Reach out to your network. Sometimes help is just a call away so think of a peer removed from the situation, either internal or outside of your organization. Ask for their perspective and they might be able to see the answer more clearly from an outside view.

Participate in regular training. Asking for help doesn’t always have to happen when a problem arises. Identifying professional areas that need improvement and seeking out training or additional resources is another form of reaching out. 

The Economy, Roller Coasters and Management’s Responsibility

We are witnessing one of the unique economic periods in our current history. Hopefully this will be our great one time economic event such as our Grandparents witnessed the Great Depression. In many ways this trip has been similar to a ride on a roller coaster: the ups and downs, the creaks and groans of the rails, the screams and fears of the riders.