Treat People with Kid Gloves or Hit them with a Hammer?

Businesses are certainly populated with their fair share of jerks. They come in many varieties. There is the “in your face, yelling” type. The “I’m going behind your back to undermine you” type. Even the “if you trust me I’ll steal you blind” type.

The problem is, until a jerk shows their true colors, it can be tough to recognize them for what they truly are – jerks.

When they do demonstrate what they’re made of, the big questions for me were always: Do I believe it? and How do I handle them?

Believing the best

I’ve always had a propensity for believing the best about people. When they explode in anger, I search for provocation to justify their reaction. When they undermine a co-worker, I look for an explanation that indicates they’ve somehow been misinterpreted. When they steal from the company, I have a tough time accepting the person I thought I knew would do such a thing.

Yeah, I was often far too much of a softy.

Others were usually quicker to pass judgment. That explosion of anger became a ticket to a new assignment, and usually not a desirable one. Undermining became a reason to boot the employee off the team, and often out of the company. Theft was dealt with swiftly and often involved the police.

Over time I have come to see there are advantages and disadvantages to each approach, but on balance the quick-to-judge/swift-to-react prescription is safer.

Swift, savage judgment is probably correct 60-80% of the time. When the person judging is wrong, a good resource can be crushed. Even if the judgment is largely correct, there is little room consider mitigating circumstances or work toward reform.

A slow study wastes time, but is more likely to judge correctly. By delaying, however, peers and subordinates often wonder what is taking so long. This delay can often have an adverse impact on morale.

And then what?

Regardless of whether you’re a quick study, or slow and deliberate, there is little doubt that once you’ve identified an employee as a poor performer – and particularly, a jerk – you should act decisively.

By decisively, I specifically mean quickly, and while humanely, without excessive “compassion.”

Why does it take so long?

During a recruiting class I attended several years ago, the instructor – a business professor – remarked that the average amount of time that elapses between when a manager recognizes an employee is not suitable for their job, and when they are removed, is an astounding nine months. Not sure of the source of this tidbit, but after observing many reassignment and termination actions, the interval rings true.

For what it’s worth, I cannot recall a single instance during my career where once I recognized I was having serious doubts about an employee that I didn’t ultimately end up making a change. Often took a long time to reach that point. Why? I was confirming my instincts were correct. I was giving second, third, or even fourth chances. I was trying to coach or counsel an employee to “fix” a problem behavior.

The bottom line was: These measures never worked!

I’ve concluded that once doubts about an employee emerge, it is time to run those doubts to ground. Now. No waiting. Then, as soon as possible, decisive action needs to be taken, usually consisting of job redesign, job transfer or termination.

Why waste time?

Now is not the time to be Mr. Nice Guy

When letting an employee go, I’ve often tried to cushion the blow by offering some options. “You can either take this role, or we’ll help you with outplacement” – that kind of thing.

Most of the time this helped the employee deal with a difficult situation. Having walked in their shoes, I can assure you it would have helped me. And it helped me, too.

But when the departing employee is a jerk, all bets are off.

Under those circumstances, you should set your humane instincts aside, and just get the deed done cleanly and quickly.

How it can go wrong

In one “jerk” termination incident, I offered an HR manager the opportunity to take a specialist role within the department. I was going to recruit a new leader, but he could stay on to handle recruiting – a job I felt he handled well. There would be no pay cut, but at least he’d have a job.

That gave the manager enough time to steal several personnel files he thought contained embarrassing information. And time to engage a lawyer. A short time later, I had a threatening letter from the lawyer in my hands. It was then the jerk was terminated.

Over the course of a couple of years, he filed a lawsuit and discretely threatened to publically reveal details of an incident that would embarrass the company (I was not involved). Eventually, he wrangled a mid-five figure settlement out of us.

Had I just fired him, the whole affair would have been far less damaging.

In another incident, I removed a part owner from his role as general manager of a joint venture. As part of getting him out, I offered an alternative position and proposed to purchase his shares of the JV at a particular price and under a particular set of terms and conditions.

In this case, it was the share purchase that the jerk used to his advantage.

The former general manager wanted the cash, but he also wanted to renegotiate the terms. When I ultimately pulled the deal off the table, he sued. The ensuing lawsuit wasted man-months of my time, and ultimately cost hundreds of thousands of dollars when we lost.

Had I simply sent him packing and worried about the shares later, I would have avoided a huge pile of problems and complications.

Conclusion

Cushioning the blow when an employee is terminated can provide comfort to the employee and reduce your own feelings of guilt. When a jerk is involved, however, it can all go wrong fast. Unfortunately, you can’t always spot the jerk ahead of time. Unless you’re sure you’re dealing with a “non-jerk,” it is better to proceed under the assumption that you have one on your hands.

Under those circumstances, quick, decisive action that is “fair,” but also does whatever is practical to protect both you and company, is your best course of action. 25.4

Other Recent Posts:

If you are intrigued by the ideas presented in my blog posts, check out some of my other writing. Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

Non-Fiction: NAVIGATING CORPORATE POLITICS

To the right is the cover for HEIR APPARENT. In this tale, someone is killing corporate leaders in Kansas City. But whom? The police and FBI pursue a "serial killer" theory, leaving Joel Smith and Evangelina Sikes to examine other motives. As the pair zero in on the perpetrator, they put their own lives at risk. There are multiple suspects and enough clues for the reader to identify the killer in this classic whodunnit set in a corporate crucible.

My novels are based on extensions of 27 years of personal experience as a senior manager in public corporations.

Clock Watchers Redux

Today, I'm taking a break from my series on Work Lessons Learned, to touch on a subject that has been percolating for quite a while.

Starting about three years an ago, I wrote two series of blog posts on the following subjects:

Extreme Boss Behaviors that Employees Hate
Employee Behaviors Managers Hate

The second contained a post on the subject of Clock Watching. Here is a link to the original blog post: Clock Watchers -- Employee Behaviors Managers Hate #8.

In case you're not familiar with the term, in management circles a "clock watcher" is an employee who focuses on putting in exactly the amount of time they are scheduled for, and not one minute more.

The purpose of this series of posts was to point out to employees things they might unwittingly be doing that will undermine them with their boss. For some reason, however, a few readers seemed to think I was somehow advocating in favor of the bosses that engage in this behavior.

To try to clarify, I've decided to dive into the subject in a bit more detail.

Clock Watching is a Choice

If you've been in a corporate environment for any length of time, you've observed Clock Watchers. I'm not talking about an occasional early departure, I'm talking about a systematic pattern of behavior where the employee either arrives at the last minute, leaves in the first minute after the end of their "shift," or more probably both.

Years ago, when I worked in a large, automotive component, manufacturing plant, I used to see shop floor workers literally running for the exits when the horn sounded signalling the end of their shift. Yes, running. It was undoubtedly the fastest many of them moved all day.

Of course, there is a difference between an hourly worker, who is literally trading hours for pay, and their salaried counterparts. Managers expect to pay hourly workers for every minute (well, from a practical standpoint it is usually every 6-10 minutes) they are on the job. Salaried workers are, for better or for worse, are considered "professionals" and expected to conduct themselves in a more "professional" fashion. In many (but admittedly, not all) manager's opinions, this includes committing extra time on the job when circumstances require. Some managers appear to expect extra time most of the time.

Against this backdrop of opinion -- Note, I'm not making a value judgement on this, yet. Just stating the facts as I observe them -- employees that fixate on the clock can easily become a "burr" under the manager's "saddle."

Why do managers feel this way?

Managers themselves are usually expected to dedicate hours beyond the typical forty hour work week. More ambitious managers typically take on more responsibility and commit more time -- hours spend either "on the road" (in other words, traveling) or in the office.

Is it absolutely necessary for ambitious managers to work 50, 60, 70 hours a week? That's hard to say. The answer often depends on the opinions and practices of the "Big Boss." Having spent a number of years working directly with CEOs, in my experience they all evaluate and critique the hours put in by their managers. Why do they do so? Although CEOs may say they value "results," comparing employees and the results they contribute is difficult. Most professional jobs are unique, and it can be tough to determine where the lines between mediocre, good, and great lie. But every employee's commitment level is relatively easy to evaluate by watching the amount of time they put in.

In my experience, a senior manager exhibiting "Clock Watcher" behaviors simply does not exist.

One of my peers was fired and the primary reason was the perception that he was "phoning it in." He wasn't in the office enough (admittedly, probably less than forty hours a week) and the behavior had a detrimental impact on the morale of his subordinates. There was no question in anyone's mind that his behavior (in a senior manager) was unacceptable. A "Clock Watcher" in senior management would invoke a similar reaction.

Why does it matter for lower level management or professionals?

Quite simply, because sh!t rolls downhill. Senior managers expect those working further down in the organization to model their behavioral leads. Particularly if they are ambitious and expect to get ahead in the organization.

For most managers, a certain amount of Clock Watching is tolerated among their salaried employees. Most likely, however, they will also conclude that the employee has little or no interest in being promoted. Why? Because they aren't modeling the behavior of the company managers whose ranks they might wish to join. Whether a first level manager who "watches the clock" would be tolerated depends on the organization and how important the question of time commitment is within the organization. Based on what I've observed, CEO opinion and corporate culture set the tone and should be no mystery to any employee that pays attention.

I can assure my readers that in the organizations where I've worked, I've heard employees repeatedly knocked out of consideration for promotions because of "Clock Watching."

Teams of "A" Players

Managers are coached to develop teams of top performing individuals, or "A" players. Can "Clock Watchers" be "A" players? Probably. All other factors being equal, however, the employee that commits more time to the job will probably perform better. Can managers look past clock watching when determining if a player is grade "A?" That's a lot tougher. Managers may know that their Clock Watcher is a top performer, but may have a difficult time convincing those further up the management ladder. Why? Because those higher level managers see the behaviors and/or know the employee's reputation as a Clock Watcher, but may not be aware of the quality and quantity of their work contributions.

Blatant Clock Watching behaviors -- things like leaving a meeting at 4:01, or cutting off conversations unfinished because the workday is done (or it's break time), or reading at your desk during lunch because that's "your" time -- are very obvious to people.

And these behaviors will also annoy your peers, who will conclude you are trying to "get away with something." Your enemies will use those behaviors against you, making sure those in management are well aware of any obvious signs of Clock Watching.

Odds are, it is going to hurt you.

You may not lose your job over it, but you're substantially less likely to be promoted. Or taken as seriously as other employees that appear to be more committed.

And you probably won't make the list of "A" players.

What can you do?

I detailed this in the original post on this subject. There are many reasons that people leave right away when their shift for the day is done. There are even reasons that management would consider "legitimate." Picking up a child. Ongoing medical appointments.

If the reason you're clock watching is one of these, simply making your manager aware of the reason you bolt for the door at 4:30 every Tuesday and Thursday, will help tremendously.

If you simply don't want to be there any longer/later, and don't have a "good excuse," then at least try not make the behavior blatant. Don't leave meetings or end conversations early or unnaturally. Try not to let you comings and goings be obvious. Park in different locations. Use alternate routes to go in/out. Wait just five extra minutes.

If you can, stay late once in a blue moon. Make sure people notice.

It's all about managing perceptions.

Is It Fair?

Most of the complaints I've heard on this subject are of the following form....

"I don't see why I have to put in extra time. It's unfair. If I can get my job done in forty hours a week, why should I have to waste any of my personal time? Managers should be focused on quality over quantity."

All good points.

The problem is, life isn't fair. Neither is work. As I mentioned above, managers have a much more difficult time evaluating quality of work and productivity than they do quantity of time spent. Their bosses will undoubtedly be wondering why more work isn't assigned to the person who can always get their assignments done in forty hours, anyway.

In theory, companies shouldn't be using the "time spent" yardstick as a means of evaluating employees. In an ideal world they would look only at productivity and quality.

But the corporate environment is anything but ideal.

The point is, you can wish things were different all you want. Reality in most corporations is that time commitment matters. With a few exceptions, Clock Watching is frowned upon. Sorry, but it's a fact.

My personal feelings

In one of my jobs, I worked for a boss that was obsessive about managerial time commitment. In that job I traveled incessantly, worked ten to twelve hour days most of the time, regularly attended evening dinners and fundraisers on the company's behalf, and still listened to my boss complain that "nobody was here on Saturday" when he came in to the office. Unfortunately, he did watch the time I spent at work, and it was an important element of his evaluation of all his subordinates.

I resented his obsession with measuring my time commitment. I found myself feeling guilty when I did need to leave on time, or even (gasp) early. I worried when I had to turn down a dinner invitation. At least when I traveled, he couldn't directly observe when I was leaving for the day.

I short, I hated the situation, and had similar feelings to those I wrote about above.

But I learned that it was the price of admission into a senior management position. I accepted the situation for what it was, and didn't waste energy complaining about why it should be different.

As to my own subordinates, I tried the best I could not to let their time commitment practices impact my evaluation of their work. I attempted to focus on quality and productivity.

But it wasn't easy. And sometimes I failed, defaulting back to the company standard of expecting extra time from my managers.

I never fired anyone for clock watching. I didn't automatically throw them off the "A" team. But I don't recall ever promoting a clock watcher, either. In that environment, doing so would have been virtually impossible. My boss would have never allowed it. And had I even recommended a clock watcher for a promotion, he would have immediately questioned my judgement.

When is it okay to watch the clock?

You can clock watch when any of the following are true:

You are working in a company where committed time isn't a (formal or informal) measure of performance.
You are in an "hourly" type job.
Sometimes (depending on company culture), when you are in a "clerical" position.
When you don't have ambition to be promoted.
When no one can observe your comings and goings.

In general, however, I advise against this behavior. A few modest compromises made to disguise or moderate Clock Watching behavior will pay dividends in the long term. No matter who your employer is.

Other Recent Posts:

If you are intrigued by the ideas presented in my blog posts, check out some of my other writing. Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

Non-Fiction: NAVIGATING CORPORATE POLITICS

To the right is the cover for DELIVERABLES. This novel features a senior manager approached by government officials to spy on his employer, complete with a story about how a "deal" they are negotiating might put critical technical secrets into the hands of enemies of the United States. Of course, everything is not exactly as it seems....

My novels are based on extensions of 27 years of personal experiences as a senior manager in public corporations.

At the Bottom of the Hill is… the Inventory Account

A popular saying holds that “bad stuff” rolls downhill. There are varying opinions, however, as to what lies at the bottom of the metaphorical “hill.” Some say it is their business, their department, or them, personally.

When it comes to manufacturing companies, my experience is that the “bad stuff,” at least when it represents a “sin” of some type, whether intentional or accidental, eventually finds its way into the inventory accounts.

There are several reasons for this:

Inventory accounts are usually large in the typical manufacturing company. If there’s going to be unseen mistakes, problems from sloppy practices, or downright fraud, it’s easiest to hide them in a big bucket. Inventory is usually that bucket.
Inventory is complicated. Sure, raw material is pretty simple, normally including only the costs of things you purchased. Work in Progress (WIP) and Finished Goods (FG) include labor and overhead. It is in these accounts you can find all kinds of things improperly handled and/or buried.
There are lots of adjustments. As the costs and quantities of things change, there are variances, write ups, write downs, quantity adjustments, etc. All of these things are subject to mistakes or outright abuse.
Nobody likes checking it. Inventory counts are painful and expensive. Evaluating standards is even worse.

I think it is safe to say that clean, well-managed inventory accounts are the hallmark of a well-managed manufacturing company. You can tell a lot about a manufacturer by carefully looking at this one account.

This is particularly true when you’re making an acquisition, or evaluating a potential partner.

Who’s got the inventory?

A joint venture company I was once involved in went through a traumatic change of management. When the new General Manager was in place, one of the first things I asked him to do was to look over the financial practices of the company (his background was accounting) with an emphasis on how inventory was handled.. We quickly zeroed in on two practices that ultimately ended up costing us millions.

The company took on construction-type jobs, and would accumulate costs associated with those jobs in a “Work in Progress” inventory account. During construction of the job, they would recognize a percentage of the revenue for the total project, and expense the costs associated with that revenue percentage based on their original job estimate. When the job was finally completed, it was then “closed out” and the accumulated costs were compared to what had been expensed, and everything was “trued up.” If the original estimate had been accurate, everything would be fine at the closing stage.

But that wasn’t how things always went.

We discovered that there were a number of jobs that should have been closed out. Some had been in a state of “suspended animation” for many months. As it turned out, former management knew these jobs were going to result in large losses when they were closed, and in an effort to avoid “taking the pain” they just left them sitting in inventory.

The ultimate cost was hundreds of thousands of dollars. And that wasn’t the biggest inventory problem.

This same Joint Venture also owned millions of dollars of rental equipment. The problem was the equipment was never returned to the company’s offices after being used by the customer. It was, instead, simply left at the customer’s site and a new “warehouse” was defined where it was “stored.” Sometimes these “warehouses” would sit for years without being re-deployed. While the company have records of what was originally rented to the customer, no one was visiting the remote “warehouses” to perform counts or check on the condition of the equipment.

Technically, the rental equipment was a “fixed asset,” but it was managed just like the other inventory accounts in the company. Once we went looking for this rental inventory, no one was terribly surprised to find much of it was not where it was supposed to be. Or it was only partially there. Or it was unusable.

That one cost us millions.

Why this rarely come to light

Most inventory problems build up over time. Once someone begins to suspect they are present, it takes an act of pure will to deal with them.

No one will thank you for discovering it. Senior management will often look for a reason to parcel out blame. Why did this happen on your watch? Who was responsible? What are you putting in place to make sure it never happens again?

Etcetera, Etcetera.

Many managers know about problems, but they simply ignore them. “These problems were here when I arrived, and I’m not taking the hit for them,” appears to be a common attitude.

Normally, it takes a change of management to bring them to light, and then only during that “golden window” when everyone will agree the new manager didn’t contribute to the problem. Even if the new manager is determined to clean up the mess, he or she is likely to meet plenty of resistance from long-term staff as they are still likely to catch plenty of blame for not dealing with the issue earlier.

Flushing the toilet

I ended up firing a long term manager at a remote manufacturing plant a few years ago. The reasons for the termination didn’t have anything to do with what we found buried in the inventory account when the new guy took over.

The plant was large, complex, and old, so I wasn’t surprised when “new guy” told me there was, literally, millions of dollars in obsolete inventory at the site, items the previous manager had simply swept aside, unwilling to deal with them.

The revelation came at a time when I had been in my job for three years. There was, predictably, plenty of criticism leveled at me. Ultimately, this particular incident was a significant contributor to me losing that job.

Of course, the vast majority of the problem occurred well before my watch began. I suppose I could have been more aggressive in looking when I’d first stepped into my job….

But no one would have thanked me for doing so.

Conclusion

A long career in the management of manufacturing companies has repeatedly taught me that few, if any, manufacturing companies have clean, well-managed, inventory accounts. Expect to find bad practices, sins of the past, and even the results of fraud, if and when you start digging.

But make sure you know how the results will be received before you look too closely. 25.3

Other Recent Posts:

If you are intrigued by the ideas presented in my blog posts, check out some of my other writing. Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

Non-Fiction: NAVIGATING CORPORATE POLITICS

To the right is the cover of the audio version of INCENTIVIZE. This novel takes the reader on a trip through some of the most remote areas of the volatile Horn of Africa, as the story follows EthioCupro's attempt to get rid of a pesky auditor -- permanently.

My novels are based on extensions of 27 years of personal experiences as a senior manager in public corporations.

Don't Count on Your Casting Vote

Beware of 50/50 joint ventures. They pretend to represent “equal partnerships,” but in my experience are anything but equal.

Equal?

Equal doesn’t work when it comes to business dealings. Equal leaves everyone and no one in charge. Supposed equality leaves a vacuum that searches for someone or something to fill it.

If you leave it to chance, odds are pretty good that won’t be you or your interests that win.

What Matters

Above all else, relationships matter. When the joint venture is proposed, ask yourself to whom the senior managers of the entity will owe their allegiances. If the answer is “to me,” then you’re already well on your way to controlling your “equal partnership.” If those key execs don’t come from your organization, don’t owe you a deep debt of loyalty, and aren’t dependent on you for their future, then you should have serious doubts.

Proximity matters. Who is going to visit the JV on a regular basis? When loyalties are divided, the “squeaky wheel” does get most of the grease. It’s human nature. When given a choice between disappointing the people they’ll see tomorrow versus the people they’ll see in three months, the vast majority of hired guns will take care of the short term issue – satisfying the visiting party – first.

Culture is critical. If the proposed JV is embedded in the partner’s culture, they have an automatic upper hand in dealing with employees of the entity. They will understand what drives the employees, how to appeal to them, and how to satisfy them better than outsiders.

What Doesn’t

A casting vote on the board of directors, however, doesn’t do anything for you when it comes to controlling the entity. During my career, I was involved in a couple of 50/50 JV’s where my company ostensibly had control of the company through a board casting vote. While this might be a clever way to make sure you can consolidate the financials, it does virtually nothing to help you exert control over day-to-day operations. Why? Because by the time an issue has reached the point where the board is deadlocked and a casting vote is needed, things have already deteriorated to the point of disaster.

Examples

I used the 50/50 with a casting vote structure to manage a small distributor in a distant location in the United States. Our partners in the JV were the managing executives of the company (remember relationships and proximity – neither in my favor). It took little time for me to realize that our partners did pretty much whatever they wanted, and attempted to pacify my team any time we visited or held a board meeting. Getting the partner to implement things that were important to my employer was virtually impossible. First, they would resist. If we were persistent enough, they eventually made a token effort that inevitably failed – along with lots of excuses, and explanation for why it was a “bad idea” in the first place.

Eventually, performance in the JV deteriorated, and it became necessary to remove one of the partners as President. The result was an unmitigated disaster, which included a series of accounting revelations that weren’t for the faint of heart, the loss of key employees, and the uncovering of all manner of sloppy management practices.

In another JV, this one in China, my 50/50 partner – one located very near to the location of the JV – continually sowed seeds of discontent with the employees while advancing their own agenda. The bulk of the management team came from their organization, giving the partner great advantage through relationship, proximity, and culture.

Unfortunately, commercial success wasn’t the partner’s highest priority (alas, their goal was the self-promotion of a handful of their executives). We ended up wasting human and financial resources building an expensive headquarters building rather than focusing on building sales. No matter how much I tried to emphasize the need to work on sales and marketing, little happened. Not surprisingly, the key managers were eventually reabsorbed into the partner’s organization as things moved from bad to worse. Ultimately, the JV was wound down with little to show for five years of effort.

Conclusion

Partnerships are never, and cannot ever be, evenly balanced. One partner will always end up as the primary driver of the JV, although sometimes it can be the partner with the smaller percentage ownership if other factors are tilted in their favor.

Be realistic about your JV and how it will be operated. Look for as close of alignment between your objectives and those your potential partner as possible. If you are not realistically going to be in control, make sure your ownership percentage reflects that reality.

If you do plan to be in control, the deck needs to be firmly stacked in your favor. The more factors that exist allowing your partner to influence day-to-day management of the business, the more compensating ownership and other means of control you will need.

Finally, don’t be afraid to walk away from the Joint Venture before it is signed. Better to back away than to live for years with a problematic partnership that saps your resources. 25.2

Other Recent Posts:

If you are intrigued by the ideas presented in my blog posts, check out some of my other writing. Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

Non-Fiction: NAVIGATING CORPORATE POLITICS

To the right is the cover for INCENTIVIZE. This novel is about a U.S. based mining company, and criminal activity that the protagonist (a woman by the name of Julia McCoy) uncovers at the firm's Ethiopian subsidiary. Her discover sets in motion a series of events that include, kidnapping, murder, and terrorism in the Horn of Africa.

My novels are based on extensions of 27 years of personal experiences as a senior manager in public corporations.

The Way it Ends

Even when you don’t necessarily agree with all that a co-worker, boss, or subordinate thinks or does, you can still learn lessons from them. This was true many times over during my career, including a bit of advice one of my bosses passed along to me several years ago:

“The way it starts is usually the way it ends.”

The tenet refers to relationships, specifically business relationships. A relationship that begins respectfully with consideration given and received on all sides will usually continue on that path. When things begin contentiously, or are filled with strife and metaphorical sharp elbows, I can almost guarantee you there will be more of the same. It’s Newton’s First Law (a body in motion tends to remain in motion…) applied to the business environment.

Although I heard this advice repeated several times, I still had learn the lesson by attending the school of hard knocks.

A Cultural Divide.

Early in my career, I had the opportunity to work on an engineering design team that included both German and Korean companies and their respective engineers. From day one, the relationship between these two parties was rocky. The Korean engineer was unwilling to comply with demands made by the German team member, but rather than sort out their disagreements, the Korean engineer simply agreed to everything and then when home and did what he wanted.

It took the German team member about two cycles of this to recognize what was going on. He became exceptionally frustrated, but nothing he could say or do would persuade the Korean team member to change his ways.

The way it started was the way it ended. The project became a minor disaster, and once the product was launched, there were many problems, including an early recall.

Partners at Odds

I advocated and eventually closed a joint venture that was, for me, the penultimate proof of this little piece of wisdom. During negotiations over establishment of the JV, there were extended disagreements over salaries for the two partners. The arguments, which relied on facts and data on my side,and emotion and a single errant example on the other, became progressively more contentious and heated. No matter how much I discussed, reasoned, and compromised, it was clear the pair felt entitled to the stratospheric salaries they were demanding.

Eventually, I compromised, and while they didn’t get everything they wanted, the compensation was far above market levels, and far above what I thought was warranted.

I should have killed the deal.

The battle was a harbinger of what was to come. Many, if not most, of our future interactions involved emotional battles that logic and reason simply couldn’t break through. I watched as one of the pair lied to a supplier in order to win a sizable product defect settlement, an observation that shed a spotlight on how our relationship was also “managed” from their side.

Things ended badly with a firing, a resignation, a lawsuit, and both partners ultimately competing against us.

Emotional Eruptions

An inherited staff member showed me his true colors early in our relationship – I watched as he launched into an emotional tirade during a meeting, savaging pretty much anyone within range.

I knew by then that this type of behavior was unlikely to change, particularly if he was willing to display it so early in our working relationship. I was in favor of firing him, but was overruled by my boss.

In this case, however, I had him pegged. I saw the same pattern repeated over and over during the course of the next year. The guy was a ticking time bomb, ready to go off at the most unlikely of remarks or circumstances. It was a characteristic he had demonstrated from early days.

Eventually, I was able to transfer him to a small acquisition where he would be responsible for his own success or failure – no blaming others for his problems.

He lasted about 6 months.

Conclusion

Behaviors displayed early in a relationship, particularly when they are odd, contentious, or exaggerated, should never be ignored. What you see at “the start” is likely to be repeated with great frequency and intensity as the relationship progresses.

While I don’t subscribe to the notion that people “don’t change,” I will concede that they don’t do so easily or often. What you see at the beginning of the relationship is usually what you’ll see plenty more of as time goes on.

Keep your eyes open, and react accordingly.

25.1

Other Recent Posts:

If you are intrigued by the ideas presented in my blog posts, check out some of my other writing. Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

Non-Fiction: NAVIGATING CORPORATE POLITICS

This is the cover of the Audiobook version of LEVERAGE, which I narrated. The story revolves around an offbeat engineer working for Global Guidance Corporation who shows up one night at Mark Carson's house shot and bleeding out. Mark decides to investigate the crime himself, and plenty of complications ensue as he uncovers a wild conspiracy.

My novels are based on extensions of my 27 years of personal experience as a senior manager in public corporations. Most were inspired by real events.

When to Walk Away from the Deal

This is the last in my short, but popular, series on M&A work in Corporations.

There are many technical reasons to walk away from an acquisition or joint venture. Things like a bad price, a risky market, unreasonable demands for terms and conditions, or arguments over legal details. We're not going to talk about any of these "hard" reasons to end discussions. Instead, I'm going to examine the softer, "red flag" type of issues that leave you feeling something is wrong but still unsure whether the transaction can go forward.

1. Walk away from the deal when the sellers are jerks.

I once completed a joint venture with a couple of business owners who took me on a long rollercoaster ride over their post-deal compensation. They were unwilling to listen to data, third party experts, or the needs of the business, and instead stubbornly insisted that they be paid a small fortune based on a single example ( which was based primarily of hearsay.) Somehow I managed to work through this issue and we completed the deal.

I later wished I would have walked away. The relationship was contentious, time consuming, and ended poorly. My experience with both sellers during negotiation was a clue of what life was going to be like working with them later.

2. Walk away from the deal when something strange is going on in the company or industry.

I once bought a company where a group of employees at one of the plants had recently won a major lottery. While the employees each received a sizable amount of winnings (around $700K), I didn't think it was enough for most of them to retire, and so wasn't terribly worried about the impact on the company. Unconcerned, I pushed forward and closed the transaction.

That was a mistake. The plant quickly divided into two camps (lottery winners, and non-winners), and the employees in the two camps found it very difficult to cooperate with each other. Eventually, nearly every lottery winner left the company, but not before extreme turmoil, lawsuits going multiple directions, and significant production problems that resulted in angry customers and financial losses.

3. Walk away from the deal when there is any hint of dishonesty.

A peer purchased a company where the owners refused to let our environmental inspectors inside the building to sample water under the production floor. The refusal was a red flag that something was likely wrong, but because of an attractive bit of technology the company had, my peer pushed forward with the transaction.

Oops! As it turned out, there was a major environmental problem at the site, but that was just one of several things the sellers tried to hide during the negotiations and due diligence. The entire deal turned into a disaster of substantial proportions.

4. Walk away from the deal if there are governmental conflicts or problems.

I wish I would have had the opportunity to pull the plug on a deal for a small company I inherited when changing jobs. Within two years of the closing, the company was being sued by a state attorney for improperly selling components it supposedly wasn't qualified to sell. The problem came out of an alleged patent violation that my predecessor discovered just days after the deal closed (see point #3 -- yeah, I think this was hidden from us during negotiations).

Because government has the ability to punish far beyond the ability of a commercial competitor, we ended up suffering millions in losses, firing a key employee and losing many others, and ultimately closing the business. If there's even a hint the company has a significant problem with a governmental entity, you should either pull the plug or, at a minimum, get iron clad coverage of all potential liabilities in your terms and conditions.

5. Walk away from the deal if you can't get your conflicts settled in an impartial court.

I had a license agreement with a company in Saudi Arabia where the contract was written with the Saudi courts as the final referees should things end up in a conflict. While we had an arbitration requirement that would be carried out in the UK, we were ultimately dependent on the Saudi courts to enforce the arbitrator's rulings.

That was a huge mistake. Because of the reliance on Saudi courts, we ultimately didn't pursue the licensee when they stole our intellectual property. While I was sure we would win an arbitration ruling, I became convinced we would ultimately fail to enforce that ruling in the courts. If I'd had it to do over again, I would have insisted on U.S. law for dispute resolution, and walked away from the deal if I hadn't been able to get it.

6. Walk away from the deal if you can't complete it with your credibility intact.

I realize this admonition is more controversial, but I'm convinced it is essential to post-deal management of the acquired business.

In the first transaction I described above, my credibility was damaged during my long back and forth negotiations over salaries. As a result, my new partners felt it was perfectly permissible to run roughshod over me as I attempted to manage the entity. Admittedly, I probably would have had a major challenge on my hands given the personalities of the individuals involved, but it was much more difficult with damaged credibility. Once again, I later wished I'd never completed the transaction.

Conclusion

There are undoubtedly many other reasons to walk away from a deal, but these are the ones I've learned during my career. Alas, many of the rules here are listed because I made mistakes that I later paid for with many hours of management attention, some missed bonus opportunities, and many a sleepless night. Learn from my mistakes rather than repeating them.

Not all of these errors are obvious during the negotiation phase of the deal, when it is relatively simple to "walk away." But transactions can be undone even after closing if the issues are significant enough (assuming you haven't irreversibly "scrambled the eggs"). If dishonesty or extreme risk raises its ugly head at that stage, you shouldn't hesitate to try to reverse the deal. It will be difficult and time consuming, but won't compare unfavorably to the difficulty and challenge of living with a bad deal for an extended period of time.

Walk away from a deal whenever you're not confident everything is above boards, on track, and fair. It's a lot easier to find another deal than it is to manage a bad one. 24.5

Other Recent Posts:

If you are intrigued by the ideas presented in my blog posts, check out some of my other writing. Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

Non-Fiction: NAVIGATING CORPORATE POLITICS

To the right is the cover of LEVERAGE. This novel explores the theft of sensitive DOD designs from a Minneapolis Tech Company, and the dangers associated with digging too deeply into the surrounding mystery.

My novels are based on extensions of my 27 years of personal experience as a senior manager in public corporations. Most were inspired by real events.

How many Execs does it take to Screw Up a Deal?

Too many cooks spoil the soup. Nowhere in business have I found this old maxim to be more true than when trying to put together an acquisition. Every senior manager, "C" suite executive, and board member in the company will have their own opinions about the transaction -- what to watch out for, what to make sure you get, who to retain, or when the timing is right, and a plethora of other things as well.

The problem is -- if you try to take all this in, you'll most likely end up not doing the deal.

The theory

Every acquisition occurs because the range of acceptable outcomes in the negotiation for each party has an area of overlap. Imagine, if you will, a circle with a dot in the middle. The dot represents the ideal outcome for a particular party during negotiations and the outer circle represents the limits of what is acceptable.

Both parties have a circle like this, and deals can happen when parts of both circles overlap. If the circles don't touch at all, no deal is possible. If the circles do touch, it doesn't guarantee agreement will be reached, however, as things like pride, mistrust, and other bidders can still derail a possible agreement.

During successful negotiations, the two parties find themselves in somewhere in the overlap area. In a "fair" negotiation, both are approximately equal distant from their ideal point. The art of negotiation is try to move the point of agreement as close to your ideal outcome as possible.

How do unwanted opinions impact this?

In my experience, opinions about what should or could be acceptable as an outcome for the company usually have the effect of shrinking the area of the circle (I think of them as taking a "bite" out of the available area of overlap. When you hear things like: "We have to have majority ownership," or "Don't buy it during a downcycle," or "That price is too high (or low)," it makes the zone of possible agreement smaller.

It also normally causes the point of agreement to move closer to the objecting side's ideal outcome, which is why you find difficult to work with parties often getting a better "deal" when there is one struck.

It also tends to anger the other side, thus making a "non-agreement" outcome more likely for emotional reasons (distrust, irritation, etc.).

So much for theory...

A number of years ago, I was involved in a joint venture negotiation with a company located in Israel. After a visit and lengthy negotiations, I brokered a deal that would be good for my employer. When I returned home, however, numerous objections were raised by several company executives. The Israeli factories were not included in the joint venture (they were part of a Kibbutz, a communal holding), which was considered unacceptable. The mechanics for bidding jobs was cumbersome. The management team, because many were Kibbutz members, was considered suspect. I ended up with a list of five or six restrictions that I needed to go back and resolve.

The second go round of negotiations was twice as difficult. Even with the restrictions, however, we were still in an overlap region and I came back with every one of the objections resolved.

Unfortunately, that wasn't the end of it. An additional round of internal reviews resulted in more objections, including one I knew would eliminate all possibility of a deal -- we couldn't do a joint venture with a Kibbutz as our partner. That meant that the only possible acceptable outcome would be a total purchase of the business, which I knew from my prior discussions, wasn't acceptable to the other side.

Predictably, the deal fell apart.

In another deal that jumped the tracks, I watched as a peer proposed the acquisition of a company in the "green energy" sector to our Board of Directors. One director expressed doubts about the sustainability of the industry and whether the deal was taking place at the "right time" due to the industry's highly cyclical history. That started the ball rolling. Pretty soon other objections were raised, and the deal went down in flames without a hope of rescue.

I know that predicting the future is difficult, but in this case the board was absolutely wrong. The deal would have been a good one, as was later proved by the target's continued success. And the transaction would have provided a beachhead in what turned out to be a rapidly growing market.

Ten years later, the company finally took their first step by entering the industry with an acquisition. Now, however, they were a latecomer.

Conclusion:

Too many opinions mess up deals. The attentive deal maker will try to keep the number of layers of decision-makers to an absolute minimum in order to keep the number of restrictions on the acceptable outcome as small as possible. Ideally, presenting decision makers with a go/no go decision is a pretty effective way to do this, but just make sure that you have thought through all possible objections ahead of time if you do this. Otherwise, you're likely to get a "thumbs down" without any hope of reviving the transaction. 24.4

Other Recent Posts:

If you are intrigued by the ideas presented in my blog posts, check out some of my other writing. Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

Non-Fiction: NAVIGATING CORPORATE POLITICS

Below is a montage of my published books. The four to the left are Novels, all in the "Corporate Thriller" genre. The book on the right is a non-fiction work which provides a framework that managers and executives can use to think about nd utilize corporate politics.

The books can be purchased on my website, or by clicking on the image and following the page to the reader's preferred supplier and reading format.

My novels are based on extensions of my 27 years of personal experience as a senior manager in public corporations. Most were inspired by real events.

Redialing the Deal

Once upon a time, I negotiated an acquisition. It wasn't the best deal I'd ever negotiated -- not the biggest, not the best fit, not the lowest price -- but it was still a good deal for the company.

Then a curious thing happened. My boss, who had previously been supportive of the transaction, suddenly backed off. I wasn't sure what had happened. Maybe he saw something in the deal that scared him. Or perhaps he received an indication from the Board that there was something they didn't like. Or maybe he just couldn't make up his mind.

As quickly as it was in line for approval, the acquisition was off.

Like a typical executive, I talked to my boss to find out where we went wrong. He mentioned that the price looked high, but that otherwise he appeared happy with the agreement. So I tossed aside my pride, put my tail between my legs and went back to the target company and told them we needed to renegotiate.

I half expected they would throw me out the door. But it didn't happen. Instead the we worked out a scheme that resulted in a lower initial purchase price with a kicker for the sellers if the business met our forecast over the next three years.

I learned a key lesson from this experience -- that I'd left value on the table when I'd negotiated, and that when I was negotiating as a proxy on behalf of someone else, I was more effective at extracting that value.

But I hated doing it. I felt... diminished. I'd lost a substantial amount of credibility with the seller. Originally, I was the key executive, the one that would have been managing the business post-closing. Afterward, I was nothing more than an errand-boy sent by my boss to impose his will. The sellers were now looking past me to him. And we were all frustrated by the entire episode.

At first my boss was enthusiastic with the outcome, but a short time later he expressed concerns about the concentration of customers in the target company. It seemed they pulled in most of their revenue from just three customers, and "what if one of them wasn't happy about the deal?"

Again, the deal was off.

Again, I meekly returned to the sellers, and together we contacted the three customers, getting assurances that our ownership of the business wouldn't influence their purchase decisions.

Again, I returned home, triumphant. Again, the boss welcomed the changes. But soon there was yet another problem -- this time with their planned expansion into the United States (the target company was European).

One more time, the deal was off.

This time I didn't go back.

I simply couldn't put up with the complete destruction of my credibility in the eyes of the Seller. Not to mention the lack of credibility I apparently had with my boss, the board, and my peers on the executive team. And I felt like we were unreasonably jerking around the sellers (which we were).

The deal had been improved twice already, but apparently it still wasn't good enough. Despite the fact that my boss turned responsibility for the deal over to another proxy, the transaction fell apart. We'd gone back to the "well" one too many times.

I quit that job a few weeks later.

There are several important lessons I learned from this experience.

You negotiate better when you do so on behalf of someone else, particularly when you don't know their "bottom line"
Most deals are struck with room to capture more value on both sides.
If you try to redial the deal too many times, it will fall apart.
You can lose a committed employee by over-manipulating them.

24.3

Other Recent Posts:

If you are intrigued by the ideas presented in my blog posts, check out some of my other writing. Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

Non-Fiction: NAVIGATING CORPORATE POLITICS

Shown here is the cover of NAVIGATING CORPORATE POLITICS my non-fiction primer on the nature of politics in large corporations, and the management of your career in such an environment. This is my best selling book. Chocked full of practical advice, I've had many managers and executives say they wished they'd read it early in their career.

My novels are based on extensions of my 27 years of personal experience as a senior manager in public corporations. Most were inspired by real events.

Buy Low

Of course, buying at a low price is rather obvious general advice. When involved in an acquisition, however, it is, without question, the single most important element of the deal. In fact, I'd go so far as to say the success or failure of more than 90% of all acquisitions is determined during price negotiations.

And I'm not talking about the sometimes quoted "there is no bad acquisitions, only bad prices" mentality. I'm referring to the normal modeling, negotiation, multiple-comparing, pricing that goes on in acquisitions every day.

Why can't we just say "no?"

Buying low seems so straightforward, so simple, so obvious, yet I've seen instances over and over during my career where doing so went by the wayside during negotiations. Buyers very frequently get sucked into the deal and convince themselves to overpay. Why? There are several reasons:

They fall in love with the deal. Adding this cool new business becomes the objective, rather than making a great investment for the shareholders.
The acquisition is "strategic." People invoke "strategic" when they want to take the argument away from pricing reasonableness. In my experience "strategic" means "over-priced."
The "platform" argument, where the buyer convinces themselves they can afford to overspend on this business because it will become part of a platform they can use to make further, cheaper deals in the future. Check. In most cases the future deals either never happen, or aren't cheap.
The synergies are overwhelming. Maybe they are, but why would you giving any part of their value to the seller? Talk about counting your chickens before they're hatched -- when buyers use the synergies argument, they're not just counting them, they're giving them away.
Sunk costs. Sometimes the buyers have so much time invested in negotiating the deal that they can't seem to back away from concluding the transaction, no matter how overpriced it becomes.
Lost face. Kind of the opposite of number 1. The buyer finishes an overpriced acquisition because he will be horribly embarrassed if the deal falls through.
Keeping the deal out of the hands of someone else -- usually a competitor. Why not let them waste their resources by overpaying?
Mistakes in analysis -- I've seen this happen a couple of times where the price fits the "normal" multiples, but the analysis still contains major errors.

Example #1

A number of years ago, I helped negotiate the purchase of a small engineering services company. This was a company where the primary assets got in their cars and drove home each day. Lose the employees and you lose your revenue stream. The characteristics of the company dictated a very modest price, but the sellers had other ideas. My boss, sucked into the belief that the deal represented a "platform" and seeing major cross-selling "synergies," advocated for a much higher price.

We did the deal, but as a result I ended up saddled with an acquisition forecast that was completely impossible to deliver. In hindsight, the deal didn't represent a "platform," because we needed it to pay off before the board was willing to venture any further in this direction. Many of the proposed "synergies" simply didn't work. What was a nice little business turned into a failed acquisition, primarily because we paid too much.

Example #2

More recently, I had the opportunity to purchase a smallish manufacturing business. In this case, the seller was motivated, and I stepped in at the last minute when a previous sales contract fell through. Because I was ambivalent about getting back into the swing of managing, I was able to be completely unemotional about the value of the business. I offered a fair price that was on the low end of the range, and concluded the transaction soon afterward.

In this case, because there was no impossible forecast, nor any foolish synergies, I was able to earn a good return on the investment. In fact, with some restructuring and relocation, the costs of the business have dropped, and I am making more money than I originally expected.

Example #3

I continue to regularly look at acquisitions, and recently had the opportunity to consider a small division of a large corporation, one where the sellers recognized the business wasn't core and wasn't something they were willing to invest in to grow.

Before discussions ever got started, however, the seller's CEO was demanding to know "how much I was willing to pay" for the business (before I'd even seen the financials, no less!) While I was definitely interested in making the deal happen, I couldn't imagine paying more than 5x earnings for a small manufacturing business with only two customers in a cyclically peaking industry.

That didn't hit the CEO's expectations. Needless to say the talks immediately ended. Based on my previous acquisition experiences, however, I wasn't about to get sucked into overpaying for the business just because I liked the look of it.

Conclusion

Buying low requires discipline, tenacity, and an ability to recognize when emotion is starting to overtake your better judgement. Yet it is critical to success in almost every deal I've ever seen. Buy a good business at an overly-inflated price and you'll regret it for years to come as the returns -- good by some objective standards -- will fail to meet the inflated expectations of the purchase price. 24.2

Other Recent Posts:

If you are intrigued by the ideas presented in my blog posts, check out some of my other writing. Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

Non-Fiction: NAVIGATING CORPORATE POLITICS

This is the cover of my new, and soon to be released novel, PURSUING OTHER OPPORTUNITIES. This story marks the return of LEVERAGE characters Mark Carson and Cathy Chin, now going by the name of Matt and Sandy Lively and on the run from the FBI. The pair are working for a remote British Columbia lodge specializing in Corporate adventure/retreats for senior executives. When the Redhouse Consulting retreat goes horribly wrong, Matt finds himself pursuing kidnappers through the wilderness, while Sandy simultaneously tries to fend off an inquisitive police detective and an aggressive lodge owner.

My novels are based on extensions of my 27 years of personal experience as a senior manager in public corporations. Most were inspired by real events.

Businesses Always Look Simpler from the Outside

Having been involved in numerous acquisitions throughout my career (At last count, I had twenty completed deals, and dozens more that didn't go all the way -- a pretty substantial total for someone who spent their career as an operating executive), I've become aware of a prejudice many buyers carry into their deals -- one that does them no favors.

There is a tendency to think of the target company as much simpler that it actually is.

Falling victim to this belief is almost always a mistake. It causes you to underestimate the complexities involved in integration -- particularly the drain it will put on your talented people -- and at its worst, it can cause you to overlook a fatal flaw.

An example

One acquisition I didn't complete, but later lived with, was of a small manufacturer on the East coast. The company had various state governments as its primary customers, and produced primarily a single product line. Sounds simple, right?

What was missed, was a tiny little product line the company manufactured for only a few years, one where they were producing a copy-cat version of a competitor's design. A year or so after the deal was closed, that product ended up at the center of a huge dispute between the acquired business and their largest customer. Ultimately, the tiny product line caused a series of events that resulted in us closing the business and losing millions of dollars.

Its not just the small things

While I've never been tripped up by failing to understand the primary product or service itself (tangible things are usually a bit more straightforward than some of the other critical characteristics that make a company succeed or fail), other areas can be vastly more complicated than they appear at first blush. The top areas to watch (based on my personal experiences) are: distribution channels, how customers derive value from the product or service, intellectual property protection, environmental issues, supplier power, and the likely competitive reactions. All of these areas can be deceptively subtle, and may hold a surprising revelation that can blow up your acquisition.

Another example

A company I purchased in a foreign country (which, in itself, makes accessing the market and competitive dynamics substantially more difficult and risky) was locked in an emotional battle-to-the-death with a smaller competitor in their home market.

Unfortunately, we somehow missed the nature of this relationship, despite the fact that the sellers provided a few hints (hindsight is 20/20, after all). When the deal was announced, the competitor immediately swept in with predatory pricing, trying to grab all the available business in the market -- a total surprise to me. In response, we let them take as much as they wanted, figuring they would eventually get their stomachs full of money-losing projects.

Unfortunately, it took a year. During that time, our original projections for the business were completely turned on their ear.

A knowledge deficit

Sellers always have buyers at a disadvantage. The know much more about their markets, competitors, products, and the internal company dynamics than an outsider ever can. It is in the seller's interests to keep the buyer operating at the highest possible level of detail, where they are only scratching the surface of how things really work. The simpler they can convince the buyer the business is, the more likely they are to get their hoped-for price.

To get beyond this, you have to dig. That means gathering information using unconventional methods. The best sources I've found include: former employees, distributors, competitors, analysts, or other outside industry experts. Relying only on the information provided by the seller is just asking for disappointment.

One more example

On company I eventually walked away from had several hidden secrets. When talking to the sellers reaching a deal seemed pretty shaky, but by completing the purchase we would be removing a major competitor from the market -- one that was a habitual bad actor in the market. Despite the challenges, the emotional appeal of the deal was huge.

Then things started to unravel. We discovered the main facility was built over a creek, which created some strange layout limitations and also raised concerns about pollution. That was followed up by a revelation about two remote sites with massive groundwater pollution problems. The final nail in the coffin was the discovery of a 20 year supply contract with a customer for excess capacity on one of their key pieces of equipment. Unfortunately, the pricing on this contract was pretty much guaranteed to produce a loss.

All three of these problems came to light through conversations with former employees. The sellers offered none of the information on their own, although when confronted they did admit the truth. Of course they tried to minimize the impact of these complications and ill effects. We halted discussions still wondering what other issues we might be missing.

Conclusion

When considering an acquisition, dig deep and long using whatever means are at your disposal. Assume the business is an order of magnitude more complex than it appears from the outside, and require facts to convince you that isn't true. Utilize any form of unbiased information you can put your hands on, remembering that if you rely on the seller alone, you are just asking for problems.

If a deal is worth doing, it's worth doing with your eyes fully open. 24.1

Other Recent Posts:

If you are intrigued by the ideas presented in my blog posts, check out some of my other writing. Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

To the right is the cover for HEIR APPARENT. In this tale, someone is killing corporate leaders in Kansas City. But whom? The police and FBI pursue a "serial killer" theory, leaving Joel Smith and Evangelina Sikes to examine other motives. As the pair zero in on the perpetrator, they put their own lives at risk. There are multiple suspects and enough clues for the reader to identify the killer in this classic whodunnit set in a corporate crucible.

My novels are based on extensions of 27 years of personal experience as a senior manager in public corporations.

Non-Fiction: NAVIGATING CORPORATE POLITICS

The Consequences of Being Fired

"You should wait until they fire you rather than quitting," a friend offered as advice as I sensed the end of my employment was coming. "If you wait, they'll give you a severance package, but if you quit, you get nothing."

He was absolutely right. The dollars and cents of waiting for the ax to fall versus moving first, were undeniable. It was months worth of pay, not to mention continuation of health insurance coverage (pre-obamacare) versus what? Basically nothing.

Only the other side of the equation did hold value -- all of it emotional. I knew it then, but I didn't appreciate how valuable that would be until later.

In this case I went with option "A." I went for the money, never even seriously considering the alternative.

In my defense, it was a time of extraordinary uncertainty. The credit markets had recently nearly collapsed. The stock market's value had dropped in half. My ownership of company stock (where, at the board of director's insistence, 90% of my wealth was held) was a third of what it had been only a year ago. Getting another job was uncertain, and at my level would have almost certainly forced a relocation. At that moment my wife and I were nearing the completion of a long adoption process -- relocating would not have been good, if even possible. And maybe a miracle would occur. Maybe I would be able to turn things around. There seemed to be plenty of good reasons to wait.

So I opted for the cash.

There was damage as a result. Plenty of it. I jumped at the first job that came my way -- a major reduction in responsibility and one the ultimately proved to be incompatible with my management style. My confidence dropped through the floor. I struggled to grapple with all the negative implications about my abilities. I'd been a high flyer who seemed to succeed at everything I tried. Now I was a loser. I was angry, feeling like I'd been unjustly punished for things mostly outside of my control. "Their" expectations were unreasonable, impossible even.

Eventually, I came around to a more balanced view of what happened. I'd made mistakes, and the company had been decidedly unhelpful or forgiving in response. I'd been fired, and had to face up to the facts.

Had I quit, I could have held onto my own, narrow view of the problems and how I fit into them (one where I did everything right, and was unjustly persecuted). In the long haul, taking the money and coming to grips with a new reality might have been a better long term outcome.

But it sure hurt. For several years.

If you find yourself in a similar situation, make sure you think through all the implications of waiting to be "let go." In my case, it rocked my life and later sent me off in a completely different direction. Don't underestimate the impact of being fired on your drive, confidence, or ability to lead others. 23.5

Other Recent Posts:

If you are intrigued by the ideas presented in my blog posts, check out some of my other writing. Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

To the right is the cover for DELIVERABLES. This novel features a senior manager approached by government officials to spy on his employer, complete with a story about how a "deal" they are negotiating might put critical technical secrets into the hands of enemies of the United States. Of course, everything is not exactly as it seems....

My novels are based on extensions of 27 years of personal experiences as a senior manager in public corporations.

Non-Fiction: NAVIGATING CORPORATE POLITICS

The Rich Really are Different...

But maybe not in the ways you think. During my career, I've had the opportunity to work with a number of wealthy and super-wealthy business people (even had a few of them reporting to me -- the primary subject of this post). They were all as different from one another as any random group of people with a few exceptions.

But those commonalities seemed to make a big difference in the way they saw and approached business and career. Nowhere is this more evident than when you wind up having someone wealthy reporting to you. Here are the key characteristics I observed:

1. Wealthy business people have "go to hell" money. It means they do not need to submit to the same demeaning, heavy-handed, managerial pressures that other, less wealthy managers often must endure. The have the resources to elect to refuse to allow themselves to be demeaned by egotistical superiors.

2. Wealthy business people are more patient when making major decisions than average, probably because they can afford to wait. They don't rush into a deal, an investment, or a job without taking the time to make sure it fits with their interests and desires. Because of this, they probably say "no" to opportunities a lot more often than the average person, and may be substantially more likely to quit if things aren't going the way they expect..

I have never found wealthy people to be any less hardworking or less achievement driven than the rest of the population. In fact, I'd say they had far more of both of these characteristics than average, even when compared to managers who's careers are in their ascendancy.

But they can be really difficult to have as employees.

It's not common to come across this scenario. Usually, a wealthy business person is either high up in their existing organization's heirarchy -- and pretty much unavailable to hire -- or they're running their own show. Almost every experience I've had with the wealthy as subordinates came as the result of the acquisition of their company.

And I can tell you, handling them after the deal was done was almost always difficult.

One wealthy owner who joined our company after we bought the firm he founded turned out to be very quirky and more than a bit odd. He simply couldn't or wouldn't adapt to the changes in corporate culture that were required to make his company a part of our larger organization. Unfortunately, it seemed to do little good to talk to him. I left my position before things came to a head, but the manager didn't last long after that.

In another instance, my predecessor purchased a small manufacturing company. The senior manager there (whom we'd made quite wealthy as a result of the purchase) decided abruptly to retire. No amount of money or alternative structure could be found to entice him to stay. Unfortunately, I wasn't so lucky with his replacement, and the business ran off the tracks. I was never sure what the motivation was for his retirement, but clearly it was something beyond my control to change.

A few years back, I had a key opening (Controller) and found a candidate that I thought couldn't be beat in skills, demeanor, and track record. Unfortunately, he had enough money to insist on defining the job the way he wanted. When I couldn't make that work, he walked away. If he didn't have the wealth, I would have forced him into the job opening I had and he undoubtedly would have accepted the position.

In previous blog posts, I've repeatedly maintained that the manager:employer relationship is tilted in favor of the employer -- all the way from the selection process through termination. Seeing a candidate or employed manager that has options other than complaint-free compliance demonstrates the degree of tilt. If we lived in a world where the typical manager had adequate "go to hell" money, we would see a completely new set of skills and managerial techniques required to deal with situations where the manager is on a more even playing field with his employer. 23.4

Other Recent Posts:

If you are intrigued by the ideas presented in my blog posts, check out some of my other writing. Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

Non-Fiction: NAVIGATING CORPORATE POLITICS

To the right is the cover for INCENTIVIZE. This novel is about a U.S. based mining company, and criminal activity that the protagonist (a woman by the name of Julia McCoy) uncovers at the firm's Ethiopian subsidiary. Her discover sets in motion a series of events that include, kidnapping, murder, and terrorism in the Horn of Africa.

My novels are based on extensions of 27 years of personal experiences as a senior manager in public corporations.

You Purchased a Subordinate?

When you make an acquisition on behalf of your employer, you're normally focused on what you will gain. This can be a variety of things such as: a new product or technology, access to a new market or geography, a new service or service model, or even a new set of skills and capabilities.

Rarely, in my experience, do people make acquisitions to acquire particular managers or specific management skills.

The managers that come with the acquisition, however, have caused more problems for me than all other post-acquisition integration issues combined. Typically, the most senior managers in the target company are the biggest potential problem, as they're the ones accustomed to having the "bit between their teeth" and are the least likely to submit to outside direction.

Any odd behaviors, eccentricities, needs or wants, or anything that will clash with your company's culture is a potential problem area.

One acquisition I made started off with long, contentious arguments with two senior managers about their post-deal salaries (they both expected massive raises). The troubles during the discussions was an indication of things to come. Pretty much every major action I wanted them to take after the deal was completed, they fought. Eventually, I had to fire one of the pair, despite the fact that he was essential to the long term success of the company. In retrospect, I should have simply walked away from the deal when those initial problems surfaced during negotiations.

In another acquisition, I observed some significant eccentricities in the company's most senior manager. These were obvious in his decorating style (Victorian frills), the way the firm's website was put together (way, way too much detail about individual employees), and even the car he drove (a Rolls Royce). While I wasn't put off by any of this, I should have recognized that he would clash in a major way with our corporate culture. I spent significant time and effort defending him to my boss and others on the company's senior staff. Once I left that particular job, the manager in question lasted less than six months.

In this case, I would have saved myself considerable time and headache by putting someone in place over the acquired manager that could have acted as a "buffer" with the corporate staff.

In an example of a "bullet dodged," I once visited an acquisition target and found the senior manager busily working on converting his extensive record collection to digital files. His office was decorated with twenty-some stuffed animals that he confessed he'd shot on the property. I couldn't even imagine my boss's reaction to all of this.

We never had a second meeting.

When you're contemplating an acquisition and detect odd, or just out your firm's cultural norm, behaviors in the target's senior managers, there are really only four ways to handle the situation.

Convince yourself you can live with it. If the eccentricities are not too severe, and the need for the person is great, you might be able to tolerate the situation. Remember to consider how the manager may be perceived by others in your company. In some cases, you can preserve the person by adding someone over them as a buffer.
Have a "hot spare." If you're worried about the long term viability of the manager, you can identify a successor, either in your organization or the target's. Make sure, however, to take the time to convince yourself your "successor" can handle the job and will take it. It does no good, for example, to check this box, and later discover your identified "solution" won't relocate.
Replace the questionable manager with someone you know/trust. This is usually the safest approach, although sometimes it isn't possible due to specific skills the manager is bringing to the deal.
Walk away. Don't be afraid to do this, even if everything else in the deal seems to be falling in place. Better to move on to the next opportunity rather than sending endless hours dealing with a problematic senior manager.

I've spent more time sorting through personnel problems post-acquisition than all other integration challenges combined. When reflecting back on these, there was almost always adequate indication that something was bound to go wrong well before the deal closed.

Make sure you spend plenty of time with the key managers in your target prior to sealing the deal. Look for behavioral concerns, and carefully lay out your plans.

Then cross your fingers. I promise you hindsight will be 20/20 if anything should go off the tracks. 23.3

Other Recent Posts:

If you are intrigued by the ideas presented in my blog posts, check out some of my other writing. Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

Non-Fiction: NAVIGATING CORPORATE POLITICS

This is the cover of the Audiobook version of LEVERAGE, which I narrated. The story revolves around an offbeat engineer working for Global Guidance Corporation who shows up one night at Mark Carson's house shot and bleeding out. Mark decides to investigate the crime himself, and plenty of complications ensue as he uncovers a wild conspiracy.

My novels are based on extensions of my 27 years of personal experience as a senior manager in public corporations. Most were inspired by real events.

A House of Cards

How good are we at predicting the future more than five years out?

Generally speaking, not too good. How many of us saw the 2008 Credit Crunch coming? How about the stock market recovery of the last four years?

I can think of some particularly silly sounding statements I made during my career that demonstrated just how little I knew about the direction of the future (let alone it's magnitude). Here are a few choice predictions:

We'll always have a Highway Bill in the U.S., it's one of the few things that both parties can agree on because it benefits every state and congressional district. (prior to July of 2012, the last Highway Bill was signed in 2005, leaving a three year funding gap).
If corn prices would just get to $2.50 a bushel, we'll sell so much our only problem would be how to make it all. (Corn last year was at $7.50 per bushel. The part about the problem being making enough product was probably true).
All this talk about Weapons of Mass Destruction is just saber rattling. We're not going to invade Iraq. (Duh. That prediction was wrong in just a matter of months.)

Acquisitions

Sam Goldwyn once said: "It is difficult to make forecasts, especially about the future."

Nowhere have I seen this statement be more accurate than with acquisitions. The forecasts have usually barely been worth the paper they're written on, including the ones I've bought for myself.

The problem is, putting a forecast together to justify an acquisition is basically a fool's errand.

Think about components of the typical acquisition analysis. In most of these financial models, the "answer" is a "fair value" for the business which is arrived at by estimating the cash generated by the business in the future, and discounting those back using an expected rate of return.

Expected rates of return are a bit problematic, as they change over time. A 5% return from 2009 - 2010 would have been pretty good by most people's standards, although it might still not cover a firm's theoretical "cost of capital." Even coming up with this relatively simple estimate is like hitting a moving target.

A bigger problem, however is forecasting the projected cash flows. These are built based mostly on history (remember those prospectus warnings: past performance is no guarantee of future results), a few prognostications about the future of the economy, the industry, and/or the company, and a handful of rules of thumb. If you examine the accuracy of forecasts for your own business five years into the future (which you should, arguably, know more about than any acquisition candidate), the results would not inspire confidence.

In most models, somewhere around half of the value comes from cash flows out beyond year five -- the so-called perpetuity calculation This is particularly worrisome because small changes in assumptions there can impact the results dramatically.

In aggregate the financial model for an acquisition is a house of cards built on assumption piled on top of assumption. All it takes is for one assumption to be wrong and the entire model crumbles.

Fun Fact: I recently completed the second draft of SYNERGY, a novel dealing with the some of the problems with Acquisition Integration. I hope to have the book released in 2015.

Holding people responsible for Performance.

There is intense clamoring in the investment community and among senior management to hold people's feet to the fire, insisting they take "ownership" for "their" performance.

Yet where acquisitions occur, how reasonable is this?

I've seen many a senior executive's career wrecked by being shackled to an inaccurate acquisition forecast. The problem almost always comes from one of three areas:

The world changes in an unpredictable manner (a deep recession, for example), and senior management and/or the board of directors stubbornly demand delivery of the original forecast despite its present irrelevance.
Something big was missed in the original analysis. I've seen instances where some key assumption (receivables as a percent of sales, gross margins of a new product, competitive response) was just plain wrong. In these instances the typical senior management response is to lean on those responsible for implementation to compensate for the error and still deliver the original plan.
Something goes wrong in implementation. A key person is lost, a synergy doesn't end up working, some aspect of integration takes much longer than expected. While in these cases it is probably reasonable to apply pressure to the post-acquisition team to compensate for the problem, this is still often as much a problem with the original forecasting as it is with implementing.

The Scapegoat

One of the critical problems with being involved in acquisitions is the CEO and Board's fingerprints are usually all over these deals. I've witnessed many instances when the post-acquisition implementation was going sour, and senior executives heaped pressure and blame on an underling in an attempt to distance themselves from the impending disaster.

In most corporate environments, the implementation, not the strategy or forecast, will be where the blame falls.

How do you navigate through all these risks?

My advice here has to fall more in the category of "do what I say, not what I did." I loved doing acquisitions, and was rarely in doubt about my ability to deliver on the forecasts, no matter how wild they might have seemed in the cold, hard, light of day. Following that path, however, got me in plenty of trouble along the way.

Express your doubts and concerns early and vocally. This can be tricky because you don't want to develop a reputation as a "nay-sayer." Better that, however, than being overly optimistic. Look for vulnerabilities and ways to work around or offset them. As a rule, I'd recommend you spend twice as much time exploring the downside risks as you do the upside opportunities.
Make the project some else's. The biggest risks with any acquisition are on the implementation end. Avoid being responsible for leading the implementation, if at all possible.
Point out errors in the forecast as they develop. There will undoubtedly be plenty of unforeseen things that happen. Pointing these out may not get you off the hook, but it will help to put things in perspective.

My worst acquisition

Hands down, my worst deal experience was handling the post-acquisition integration of a company supplying highway components on the east coast. Before the time of my involvement and a few days after the deal closed, the company apparently received notification from another party that they were in violation of certain design patents. My predecessor wisely decided to avoid selling the product in question, and the matter was quickly settled with the third party.

Unfortunately, that didn't stop one of the States in the east from bringing debarment proceedings against the company when I was running it. To settle the issue, we ended up with a multi-million dollar remediation program (which was totally unnecessary), a terminated general manager, extremely high employee turnover, a punitive state-led quality control process, millions more in losses, and the ultimate closure of the business.

Yeah, I had more than a few sleepless nights over that entire episode. For the many, many hours spent dealing with these issues, I received nothing positive in return. In fact, I'm sure my stock with CEO and Board dropped, because I wasn't anywhere close to the original acquisition forecast.

While in principle, everyone acknowledged that the acquisition forecast for the business was completely irrelevant under the circumstances, that forecast was still occasionally trotted out for self-flagellation purposes. It became a ball and chain I just couldn't take off.

Conclusion:

Acquisitions are a high risk aspect of corporate life, one that can make -- but more often break -- a career. To the degree you can avoid them, you probably should. Where you must be involved, there is far less downside to conservatism than to optimism. When you're stuck with implementation of a forecast, hold on and prepare for a wild ride. 23.2

Other Recent Posts:

If you are intrigued by the ideas presented in my blog posts, check out some of my other writing. Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

Non-Fiction: NAVIGATING CORPORATE POLITICS

To the right is the cover for INCENTIVIZE. This novel is about a U.S. based mining company, and criminal activity that the protagonist (a woman by the name of Julia McCoy) uncovers at the firm's Ethiopian subsidiary. Her discover sets in motion a series of events that include, kidnapping, murder and terrorism in the Horn of Africa.

My novels are based on extensions of 27 years of personal experiences as a senior manager in public corporations.

The Graying of your Reputation

History is written by the winners. This tidbit of wisdom usually refers to war and the accounts of nations, but it applies to business as well. There, history is written by the corporate survivors.

No matter how great your accomplishments, how minimal your shortcomings, or how glowing your reputation, they day you walk out your employers doors for the last time, you lose all control over how you are remembered.

Warning: Shameless plug -- to learn how you can control this while you're still at the company, see my book: NAVIGATING CORPORATE POLITICS

How far your reputation falls after departing (in my experience, it is almost never enhanced) depends more on the needs and whims of your former bosses, peers, and subordinates than anything you did or can now do.

Blame it on the "Dead Guy"

One of my employers had a grand tradition of blaming every possible problem on recently departed employees (known as "the dead guy"). All possible current and future problems were linked back to former employees, even where everyone pretty much knew they most likely not really responsible.

In this process, former employees were usually reduced to a caricature of their real selves. The stories that survived about the employee were often absurdities or insulting anecdotes. Accomplishments were most often lost in the shuffle.

One former boss of mine, a man who launched an entirely new, successful business unit for the company, is today remembered as "an aggressive street fighter that didn't fit with the company's culture." The most commonly retold tales were a very unfitting tribute to his eight years of contributions to the company, and revolved around a few events where people thought he exhibited "extreme" personality traits.

What have you done for me lately?

Another employer was so obsessed with the next quarter's results that no matter what an employee's track record, they were automatically associated with the most recent failures. In this company, there was little chance to build a strong, positive reputation as most senior managers only lasted until they had a couple of poor performing quarters. When they left, those last few months of performance became their legacy when they were replaced by another faceless executive.

One senior executive I knew well ran a particular business unit for ten years before he retired early due to an illness. Within six months the many contributions of his ten year reign were basically forgotten.

Don't Look Back

The Chief Executive Officer at one of my employers seemed to be obsessed with wiping out the memories of his predecessors. Early in his time at the top, he relocated the corporate headquarters. Within five years he had replaced almost every key employee on his staff. Everything possible was done to separate from any remnants of the old culture -- this despite the fact that the company was considered quite successful by most industry observers.

In this company, no one ever talked about the founders or previous senior management teams. Past regimes, when mentioned at all, were thought of as a part of the "old, dark days." Whatever reputations former employees thought they had left was completely unrecognized by those that came after.

What do you leave?

All these examples suggest that worrying about your legacy -- your post employment reputation and record accomplishments -- is most likely a waste of time. If your focus on your legacy is pinned to the idea that people will know about and appreciate what you have achieved, it probably is just so much wheel spinning.

If your satisfaction, however, lies in knowing yourself what you have accomplished -- realizing full well that it may be warped, lost, or altered in the eyes of others -- then maybe it is worth thinking about.

Just remember that once you depart, your reputation takes on a life of its own, and is controlled by those remaining in the company. Protect your reputation while at work, and take the knowledge of what you've done and how you've done it with you when you leave. Odds are good what remains in the organization will bear only fleeting resemblance to your own memories. 23.1

Other Recent Posts:

If you are intrigued by the ideas presented in my blog posts, check out some of my other writing. Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

Non-Fiction: NAVIGATING CORPORATE POLITICS

To the right is the cover of the Audiobook version of LEVERAGE, which I narrated. The story revolves around an offbeat engineer working for Global Guidance Corporation who shows up one night at Mark Carson's house shot and bleeding out. Mark decides to investigate the crime himself, and plenty of complications ensue as he uncovers a wild conspiracy.

My novels are based on extensions of my 27 years of personal experience as a senior manager in public corporations. Most were inspired by real events.

When it's Right for You, but Wrong for the Business

In your business career you are going to be continually tested by experiences where your own interests diverge from those of your employer. The way you decide to handle such situations is an outward demonstration of your character, revealing the kind of person you are in a way that words never can. Do you stay true to your pledge to act as an agent of the company's shareholders, making calls and decisions that serve their good, or do you default to enhancing your own position?

Observing this kind of situation over the years, I'd guess that at least eighty percent of the time managers take the selfish route. In fact, there are many tools in our modern management toolbox specifically designed to get managers interests and those of the shareholder "in alignment." But no matter how clever the design of incentive systems, or how well-crafted the company's strategies, there are going to be plenty of instances where these interests diverge.

It starts by the example set at the top.

Having had the opportunity to work in several public companies where I served in high level positions, I've been able to see how CEOs sometime serve their own interests at the expense of the shareholders.

In one company, I participated in multiple meetings to decide what to do with "loser" business units, ones that were significantly under-performing expectations. In this case, those business units were actually destroying shareholder value, and many had been doing so for years. There was an obvious answer to the dilemma presented by these "losers" -- divest. But doing so would represent the admission of an error committed under or by the CEO. Instead of enacting the obvious solution, we burned huge amounts of management time (not to mention destroying the careers of some capable managers in the process) trying to "fix" the "unfixable." Is it any wonder that when a new CEO makes an appearance, they very often take take the divestiture actions everyone has known for years were needed, a set of actions often referred to as "flushing the toilet?"

In another company, the CEO (probably feeling insecure about his position) couldn't seem to make up his mind about what to do with a variety of projects and ideas. Instead of assembling the evidence, making up his mind, and defending his decision, he was constantly flip-flopping often based on the latest comments from his board. The consideration of the right move for the future of the company never seemed to come up, rather every major decision seemed to revolve around what was "sellable" to the board.

Another "tell" about top management's attitude on this subject is how they see the behavior of their subordinates. One CEO I worked for interpreted every subordinate's actions through the lens of "what generates their largest bonus payout." Needless to say, since not all employees are motivated by short term bonus payouts, he was sometimes confused by why particular decisions were made.

How does this play out further down in the organization?

Managers tend to emulate the behaviors of those at the top, learning what is acceptable from those in charge. Even if the example set is proper, however, you can still expect plenty of self-interested behavior where the manager puts herself ahead of other stakeholders. This is probably simple human nature, but is also a statement on the priorities and character of the managers involved.

One peer running an independent business under the same corporation provided a perfect illustration of this. His division sold a product to mine, and he was angling for a major price increase. His plan had nothing to do with increased costs, he simply felt his group should make more money from the transaction, which would translate into a higher bonus and rosier reputation for him. In the ensuing standoff, he was more than willing for me to take the business to an outside company -- an action that was clearly not in the interests of the shareholders -- rather than suffer with the margins he found to be unacceptable. What was best for the company didn't interest him.

It was textbook example of local optimization, global sub-optimization.

Does working on the business's behalf pay off in the long run?

Sometimes it does, but not always. I'd like to believe that acting unselfishly in the interests of the shareholders inevitably builds your reputation for reliability, honesty, and trustworthiness, but in my experience these personal sacrifices largely go unnoticed. Perhaps it is because so much self-interested behavior occurs, making most people consider selfish behavior to be the norm. Unless they know the details of your decision, they don't recognize that you're putting the company first.

I can think of one instance where my reputation for working on the shareholder's behalf did help me considerably. A former subordinate that had engaged in a strictly illegal behavior (unbelievably self-interested, but too complicated to describe here) made accusations that "others" in management were aware of and condoned his scheme. I was on the list of potential "others" but no one higher up in management believed I could have been involved. First, because I was the one that brought the situation to light, and second because I had a reputation of being transparent and acting in the company's best interests.

I hate to say it, however, but I think this kind of situation is the exception rather than the rule. If you decide to act unselfishly, don't think that your reward will be waiting for you somewhere down the line.

What to do?

When you're faced with the choice between your interests and the company's, your character and conscience should be your guide. If you act based on self-interest alone, it is unlikely anyone will blame you. But if your own moral compass directs you to act in favor of the company's interests, you can't get into much trouble doing so. Just remember, the "treasure" gain may be marginally less as a result.

Coming to the rescue of a third party, however, where doing so goes against both self-interest and company interest can be quite dangerous. In those situation (often where one perceives that an individual is being unreasonably treated) you must tread lightly -- both because you can cause great harm to yourself, and because you can inadvertently injure the party you're trying to protect.

In all cases, however, you will likely be the most important judge of your decisions. Do the "right thing" according to your own conscience, and let the chips fall where they may. 22.3

Other Recent Posts:

If you are intrigued by the ideas presented in my blog posts, check out some of my other writing. Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

Non-Fiction: NAVIGATING CORPORATE POLITICS

To the right is the cover for DELIVERABLES. This novel features a senior manager approached by government officials to spy on his employer, complete with a story about how a "deal" they are negotiating might put critical technical secrets into the hands of enemies of the United States. Of course, everything is not exactly as it seems....

My novels are based on extensions of 27 years of personal experience as a senior manager in public corporations.

Rushing into a Recruitment

There is probably no decision a senior manager makes with greater bearing on long term success (or failure) than determining who will be on your team. If things go right, you will be making a choice you will live with for years to come. Make no mistake, your subordinates are the ones that make or break you. They are the ones that implement your strategies, sort through your problems, and are often your strongest political allies or detractors.

Yet every day I see managers rushing to get positions filled, making compromises and potentially crippling their own careers.

I've never completely understood the logic behind doing this. Perhaps it is driven by complaints from existing employees over temporarily shouldering the extra load of a open job. Or it could be managerial laziness -- not wanting to engage in the hard work of finding a great candidate because of the necessary commitment of time and effort. I've even seen instances where a manager simply threw up his hands (figuratively, of course) in frustration, unable to separate good candidates from bad ones because... well, because candidates misrepresent themselves.

All these reasons are nothing more than bad rationalizations for compromise.

Those employees that are currently complaining because they're covering for an absence are the same ones that will soon be complaining about the "bad fit" candidate you hired. They're the same employees that will ask: "Why did it take you so long?" when you eventually fire the lazy candidate you hired in a rush. They're the same employees that will badmouth you to others, claiming they (and possibly you) "knew" that candidate was "no good."

What manager can deny that their best employee accomplishes at least twice as much as their average employee (unless they have already managed to recruit a team of superstars)? And what manager could deny that their worst employee takes up twice as much of their time as the average? Isn't it worth the investment in time and effort to try to find those great candidates?

Sure, candidates lie. So do companies when they try to recruit them. Both sides are guilty of shading the facts to meet what they think are the expectations of the other. Is that any excuse to compromise on your hire, accepting what appears to be "good enough" rather than continuing trying to uncover "great?" There are many ways to work around this problem, admittedly none of them foolproof. I've found all of the following to be helpful.

Focus on what the candidate has done, not what they say.
Look for a track record of hard work starting from an early age (pre-18).
Check references yourself. Ask references for other names and call them, too.
Be skeptical of "evaluation" tools. People are smart and are likely to try to game them.
Run the other way at any hint of dishonesty.
Look for people that are brave enough to disagree with you, but smart enough to know when to accept a decision.

I'm sure there are many additional rules that could be added. Each of these appear because not using them resulted in a personal, bad hiring decision. No matter how complete the list, however, I'm convinced errors will still occur. Hiring is a flawed, human process. While we can continue to improve our recruiting skills, we will never achieve perfection.

Here are a few of the larger hiring mistakes I've made, and the recruiting error that led to them.

I hired an HR manager that tried to steal from the company within his first thirty days. The problem with that recruitment -- I was rushing to fill the job, and deferred judgement to my staff, letting them pick the candidate that they "liked the best." I also failed to personally check references, which might have tipped me off to the manager's unethical behavior.
A general manager I hired ended up stubbornly focused on the wrong priority, and intentionally misled me about the status of a major project. In this case, I used a selection tool to screen out arguably better candidates. After a long search with many rejections, I accepted the candidate because he "scored well." Frustration with the testing screen-outs drove me to rush ahead with the first person that "passed." I should have dug more deeply into the reason he was leaving his current job, which would have uncovered his stubborn streak.
An engineering manager I hired couldn't seem to make up his mind without testing the direction of wind (meaning, without getting my opinion) at every turn. He lacked the courage to have and pursue his own ideas, thoughts and opinions, and instead turned out to be a classic "yes man." In this case, which was early in my career, I simply didn't have the experience to recognize that the guy was telling me everything I wanted to hear during the interview. Adding to that was the fact that I was in a hurry to bring on board a successor for a manager I was planning to demote.

So while there are plenty of rationalizations for why a manager should hurry to "get a body" in a particular job, rushing the process simply because it is hard, time consuming, or flawed, is not an acceptable response if you want to build a top quality team. And a high performing group of subordinates is your greatest asset if you want to be a high performing manager, yourself. 22.2

Other Recent Posts:

If you are intrigued by the ideas presented in my blog posts, check out some of my other writing. Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

Non-Fiction: NAVIGATING CORPORATE POLITICS

HeirApparent_internet cover low res (533x800) (80x120).jpg

To the right is the cover for HEIR APPARENT. In this tale, someone is killing corporate leaders in Kansas City. But whom? The police and FBI pursue a "serial killer" theory, leaving Joel Smith and Evangelina Sikes to examine other motives. As the pair zero in on the perpetrator, they put their own lives at risk. There are multiple suspects and enough clues for the reader to identify the killer in this classic whodunnit set in a corporate crucible.

My novels are based on extensions of 27 years of personal experience as a senior manager in public corporations.

Managerial Flip-Flops and the Flavor of the Month

Consistent direction delivered consistently over the long haul.

That's what I've always seen as the chief hallmark of a successful business strategy. And while there are other important elements to a successful strategy (such as: Simple, understandable messaging that is easy to communicate and presents an effective rallying cry, or internal and external alignment of all resources, etc.) if your strategy has consistency and longevity, it is much more likely to be successful.

The opposite of consistency and longevity is what I like to call "Flip-flopping."

One type of flip-flopping that is commonly seen in corporations is popularly called: "Flavor of the Month" management. In this type of strategic error, the company adopts a series of popular management techniques, attempting to put 100% of organizational attention behind the idea, while essentially discarding whatever was it's predecessor. For example, when a company spends a year or two developing "Six Sigma" programs, moves on to "Lean Manufacturing" while forgetting "Six Sigma," and then a couple years later engages in "Total Quality Management" while ignoring both of its predecessors, they are partaking in "Flavor of the Month" behavior.

If the company simply spent six consistent years developing their "Six Sigma" (or any one of the three) program, they almost certainly would achieve much greater impact than can possibly be accomplished by engaging in the flip-flopping behavior. At the outset of any major strategic change in company direction, management should expect to commit for at least a decade, recognizing that nothing short of an emergency should be the basis for changing.

So why doesn't that happen?

Probably the biggest reason is that managers change jobs. A new senior executive will reach into her toolbox and grab something that worked for her in a prior position. Respect for the existing strategy being pursued by the company will most likely be minimal. In fact, if the perception exists that the prior incumbent "failed" their strategies will likely be seen as "damaged goods" as well.

The other common cause is a bit more insidious. Most managers have long ago figured out that it is better to be busily "doing something" than accepting what is already in motion. The need to make a visible impact drives ambitious managers to constantly tinker.

Tinkering when not appropriately sized or timed, as I've mentioned above, is often bad.

And, of course, size matters. The larger the company, the more pressure there is for managers to make a name for themselves. This makes them much more likely to add, subtract, and alter all kinds of strategies, activities, and programs. The flurry of activity can quickly and subtly undermine the enthusiasm and motivation of employees.

In one of my division president positions, I came into the job having had good success with Lean Manufacturing in my previous position. I immediately discarded the Six Sigma program that had been in place for more than a year, and shifted focus. At the time this seemed perfectly reasonable to me, but later I came to realize my flip-flop had resulted in a one-step-forward, one-step-backward situation from the point of view of the employees. Getting them enthusiastic about Lean was difficult. When my successor then shifted gears to focus on "Brand development" it must have been even harder. And what was the justification of all these changes, really? Did Lean deliver much better results than Six Sigma could have? No. Was neglecting Lean and moving on to Brand Development the key to a better future? It didn't turn out that way. In fact, the division was behind where they would have been once the impact of multiple changes in direction was taken into account.

As bad as strategic flip-flops are, flip-flopping on individual decisions is even worse. This goes beyond the draining enthusiasm and substitution with sarcasm, instead confusing employees and destroying their credibility with their constituents.

In one of my assignments, I worked on an acquisition that my boss flip-flopped on four times. Each time, I was expected to halt forward progress on the deal and go back and renegotiate points that the other side felt were already resolved. With each flip-flop cycle, I lost credibility with the sellers, until the last time I simply refused to be the messenger.

I quit that job a few weeks later.

While I can understand "buyer's remorse," or even later recognizing an element of the agreement wasn't what we originally thought we had. In this case, however, the flip-flopping manager simply couldn't make up his mind. Not only did I feel he was failing to stick by his prior decisions, but I also felt he was indirectly micromanaging the negotiations. The result was both demotivating and irritating.

I'd be hard pressed to describe a single managerial flip-flop I've ever heard of that led to improved outcomes. The only possible exception I'll admit to would be a strategic flip-flops that occurred when a program was clearly failing. Come to think of it, however, I'm not sure I can think of a real example of that!

As a manager, you should constantly be on the watch flip-flops, always asking yourself if the step back you are about to take is going to be fully compensated for by the new direction you are trying to put in place. And if you find yourself flip-flopping on individual decisions -- just stop. Delegate authority, set direction, and then step back. If you feel you can't do this, there is either something wrong with your subordinates or your own management technique. 22.1

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If you are intrigued by the ideas presented in my blog posts, check out some of my other writing. Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

Non-Fiction: NAVIGATING CORPORATE POLITICS

This is the cover of my new, and soon to be released novel, PURSUING OTHER OPPORTUNITIES. This story marks the return of LEVERAGE characters Mark Carson and Cathy Chin, now going by the name of Matt and Sandy Lively and on the run from the FBI. The pair are working for a remote British Columbia lodge specializing in Corporate adventure/retreats for senior executives. When the Redhouse Consulting retreat goes horribly wrong, Matt finds himself pursuing kidnappers through the wilderness, while Sandy simultaneously tries to fend off an inquisitive police detective and an aggressive lodge owner.

My novels are based on extensions of my 27 years of personal experience as a senior manager in public corporations. Most were inspired by real events.

On Being Sued

If you're involved in business long enough, particularly at a high level in management, chances are pretty good that you'll be involved in a lawsuit. Not that you will necessarily be personally named in a suit, or have to be deposed or testify, but at the least you will have to sweat the outcome, suffering more than a few sleepless nights.

There are quite a few lessons I've learned over the years when it comes to lawsuits.

Goliath, beware.

Our legal system, most probably a reflection of the personal biases of the population at larger, tends to favor David in every "David versus Goliath" contest. If you're part of a large organization being sued by a smaller entity -- or worse yet being sued by an individual with a sad story -- you've got your work cut out for you. Having a very good lawyer on your side of the equation helps, but I don't think it levels the playing field. Consequently, if you can somehow manage to convert the case to a bench trial -- one adjudicated by a judge, rather than a jury -- it is probably in your best interests. And if offered an opportunity to settle, you should seriously consider it.

Getting sucked into the vortex.

It seems to be standard operating procedure today for plaintiffs to sue anyone and everyone that might be remotely associated with any catastrophic loss. These cases are usually horrific in their damages, and someone is almost certainly going to pay. Typically, as the theory seems to go, naming additional defendants in the case costs little and often leads to additional contributions to what is hoped will be a massive settlement. On these kinds of cases, I advise you to avoid wasting time feeling violated (if, indeed, you really have no business being a part of the suit), and get down to practical matters -- how quickly can you settle your claim, and how little can you pay. While it might feel wrong, most likely you will end up paying much more and wasting infinitely larger amounts of time if you fight.

Settle early, settle often.

Early in my career, I often found myself feeling violated by some of the ridiculous lawsuits that came our way. I was ready to fight virtually everything to the bitter end, propelled onward by the feeling that "right" was on my side. Trouble was, in half of the cases where I insisted that we fight, we lost or at least ended up with an outcome that was worse than an intermediate settlement proposal. Some of this was undoubtedly due to the David vs. Goliath aspect I mentioned above, but some of it occurred simply because I was only seeing things from my perspective and was mis-reading the overall situation. And as a corollary, I've decided it is very difficult -- if not impossible -- to really see the case from the other side's point of view.

I have decided that, despite the fact that in may indirectly encourage more claims to be brought against the company, it is almost always better to settle -- and usually, the sooner the better. This saves you immense amounts of time spent trying to justify your actions, and also substantially cuts down the attorney fees.

Rolling the dice.

In addition to the David vs. Goliath thing, juries often don't see things the same way we do. This is particularly true with detailed, complex questions where the jurors need to understand something complicated to see your side of the disagreement. When that happens, many jurors seem to punt on comprehension, and focus on things like "who they like" and "who they find the most believable." If you take a case like this to a jury, the outcome could be almost anything you can imagine. My recommendation is to simply avoid getting into this kind of situation, and settle.

Anybody can sue anybody over anything.

Yeah, it may seem like a lawsuit is frivolous, without merit, or just plain stupid. That doesn't mean it's going to go away. The unfortunate truth is that you are vulnerable to lawsuits at any time for pretty much any reason. Be prepared to take these things seriously, and make the ones you can go away as quickly as possible.

Fifty-fifty.

I must have asked my attorney's at least a hundred times what they thought my chances were of winning a particular lawsuit. In the vast majority of those cases, the attorneys would start out giving me a very high chance of victory, one that inevitably declined to 50% as the trial approached. My recommendation is that you instead explore and understand the defects in your case, and if there are major ones, you lean toward settling early. Forget percentages from the lawyers and rely on your own judgement. You want the odds to be heavily stacked in your favor before you even think about going to trial.

My worst lawsuit.

One of the last lawsuits I was involved in proved to be one of the worst. This particular case revolved around a JV partner that had been removed from management of the Joint Venture company. During that process there was a deal offered to purchase his shares, one that later fell apart because of revelations and suspicions of misconduct during the time he managed the business. Eventually, he sued my employer to compel us to purchase the shares at the original price. I tried to settle the case on several occasions, offering what I thought was a "fair" price for the shares based on where the financials had landed after we fixed all the accounting "errors" from his tenure (did I mention his wife was our accountant?). The plaintiff, on the other hand, insisted on getting the original price for the shares mentioned during his separation.

There was a lot of detail that I'm leaving out here, because it doesn't change the story. The bottom line was the plaintiff was intransigent, and unwilling to compromise. The case went to trial -- a bench trial -- and took weeks to complete. In the end we pretty much lost on every element of the case.

I've often reflected on this particular case, leading me to my final and last bit of advice.

Sometimes the other side is looking for vindication.

Lawsuits, while mostly about money, are also sometimes about "proving" who was right and who was wrong. While I might think of this aspect of lawsuits as "foolish" or "misguided" it doesn't prevent your legal opponents from pursuing cases against you for that very purpose. If you find yourself in one of these, I suggest you simply do your best to defend your decisions/position, and hang on. You're in for a long ride. 21.5

Other Recent Posts:

If you are intrigued by the ideas presented in my blog posts, check out some of my other writing. Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

Non-Fiction: NAVIGATING CORPORATE POLITICS

Shown here is the cover of NAVIGATING CORPORATE POLITICS my non-fiction primer on the nature of politics in large corporations, and the management of your career in such an environment. This is my best selling book. Chocked full of practical advice, I've heard many career-oriented people say they wished they'd read it early in their career.

My novels are based on extensions of my 27 years of personal experience as a senior manager in public corporations. Most were inspired by real events.

Keeping Secrets

Keeping quiet about various things is a part of normal business, but is it a behavior that one can build a strategy on? Can you expect a secret to remain a secret? Should you bet company resources on it?

In my experience, doing so is extremely risky. Just like the old chestnut says, "a secret shared by more than one person is not a secret for long."

But the idea of secret strategies and plans shouldn't just be discarded. After all, surprising competitors and other opponents can lead to huge advantages. Do you simply walk away from such ideas hoping, developing only plans and strategies that simply don't utilize secrecy? I don't think so.

Strategies that are completely dependent on secrecy to succeed, you should avoid. Strategies that are enhanced by secrecy, but should succeed even if the "cat gets out of the bag," however, are well worth investigating.

For example, I once developed a strategy to partner with a Chinese company to manufacture a very low cost version of a complimentary product (not our main product line) for the market. The strategy would have disrupted all the current suppliers, forcing them to spend significant resources restructuring their businesses or face severe price compression. I believed the strategy was solid because the Chinese manufacturer was significantly lower in cost than the present companies dominating the market segment.

You can imagine, however, how the strategy would be enhanced by keeping it secret for as long as possible -- more time to get marketing and distribution systems worked out, less opportunity for preemptive moves by competitors, and a longer lead time for them to respond.

Unfortunately, I was never able to test this particular project, as it was shot down for other reasons. But I'm sure we would have succeeded without secrecy, and succeeded bigger with it.

If you are going to weave secret actions into your strategies, here are some guidelines you might want to consider:

Keep the circle of employees "in the know" to an absolute minimum. I've learned about more of my competitor's secret moves from their employees than any other source. Common ways leaks occur are hire/fire actions, trade show blabbing, and premature sales channel "selling."
Watch what you tell suppliers. Many suppliers work with more than one company in a given industry. Don't assume they'll keep your secrets. Give them only what they need to know, and make sure it isn't enough to figure out your strategy themselves.
Watch who you meet with at public events -- trade shows, sales meetings, symposiums, etc.. People watch who you spend time with, and are always looking for clues about what you might be up to.
Fly commercially. I can think of one big secret that fell apart when someone recognized a private airplane's unusual destination and put two and two together.
Use code names. Sure, they seem silly, but at least it's a speed bump to someone casually discovering what you're doing.
Don't build successfully keeping the project a secret into your projections. It's okay to mention it as part of an "upside" scenario, but don't count on it in your financial forecast.

Hoping for secrecy in your strategies is not necessarily a bad thing, but counting on it is. If the entire idea will be spoiled by the secret coming out -- as it inevitably will -- you'd be well advised to change your strategy. 21.3/4

Other Recent Posts:

If you are intrigued by the ideas presented in my blog posts, check out some of my other writing.

Novels: LEVERAGE, INCENTIVIZE, DELIVERABLES and HEIR APPARENT. Coming soon -- PURSUING OTHER OPPORTUNITIES

Non-Fiction: NAVIGATING CORPORATE POLITICS

Shown here is the cover of NAVIGATING CORPORATE POLITICS my non-fiction primer on the nature of politics in large corporations, and the management of your career in such an environment. This is my best selling book. Chocked full of practical advice, I've heard many career-oriented people say they wished they'd read it early in their career.

My novels are based on extensions of my 27 years of personal experience as a senior manager in public corporations. Most were inspired by real events.

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