Labour flexibility is a value, and it has a price (scarcity principle)

Labour flexibility is a value, and it has a price (scarcity principle)

Work review eyes pay premium for zero-hours contracts

Stopping ‘lazy’ bosses shifting risk to employees a priority

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Requiring companies to pay a premium wage on zero-hours contracts could discourage “lazy employers” from pushing risk on to workers, according to the man reviewing employment rights for the government.

“The problem in the labour market is not security of work, it’s security of income,” Mr Taylor, Tony Blair’s former policy chief, said in an interview.

Mr Taylor was appointed by Theresa May in October to lead an independent review of whether “employment regulation and practices are keeping pace with the changing world of work”.

Employment in Britain is at a record high, but the rise of self-employment; of the “gig economy” of short-term, freelance work; and of zero-hours contracts has sparked debate about whether the changes to the way people work bring welcome flexibility or worrying insecurity.

Mr Taylor told the FT he wanted to discourage employers from forcing workers to accept new burdens that were once shouldered by businesses.

Forcing companies to pay a top-up on the minimum wage for hours not guaranteed in advance is one idea he is considering to redress employers’ demands for “one-sided flexibility” from workers. It would not apply to workers who choose their hours.

According to official data, there were 905,000 people on zero-hours contracts in the final quarter of 2016, 101,000 more than the previous year. Some of these workers are free to turn down the work offered by employers, but Mr Taylor has heard evidence that others do not have that flexibility.

“We’ve been hearing today about people in the social care sector who are told ‘be ready to leave the house at 7 in the morning’, then a phone call [comes to say] ‘no we haven’t any work for you today’,” he said.
He believes that if employers were made to pay a higher rate for every “non-guaranteed” hour the person had to work, they would be incentivised to guarantee more hours in advance.

“I think we can encourage employers to be a bit less lazy about transferring risk, even if it means [an employer] offers 15 hours a week rather than one hour, at least that’s 15 hours that I can know I’m going to be able to pay my mortgage.”

However, he stressed the idea was only a possibility and was still “up for debate”. “The drawback is we don’t want a proliferation of different minimum wages, because there’s something good about the fact the minimum wage is simple and everyone understands it.” It might also be difficult to distinguish between two-sided and one-sided flexibility and to define how much notice must be given.

The CBI employer’s group, said it was “vital” that the success of the minimum wage was not “put at risk by complexity or the unintended consequences . . . [of] trying to reshape employment contracts using a wage rate”.
Mr Taylor and the three members of his expert panel are halfway through a series of regional visits across the UK, where they are meeting employers, unions, experts and workers in town-hall style events. They will publish their recommendations in mid-June. The government will then respond.

Not long after Matthew Taylor was appointed by the government to review the changes to the UK labour market, a barrister sent him a copy of a recent speech about UK employment law. It was 64 pages long. “Dear Matthew,” the barrister wrote, “here’s my speech — I’m afraid it’s a rather superficial account.”

Mr Taylor won a ripple of sympathetic laughter in Cardiff this week when he told this anecdote to a room of academics, trade unionists, employers and members of the public.
Over the course of the next two hours, their debate gave a taste of the wide-ranging and complex issues on Mr Taylor’s plate: a supply teacher complained she was earning half what she should be; a Deliveroo employee said couriers did not want to lose their flexibility; a trade unionist had a spat with the leader of a recruitment trade body over a wrinkle in employment law relating to agency workers’ pay, which is known as the “Swedish derogation”.

Mr Taylor’s ideas for policy recommendations are similarly wide-ranging. They vary in scope from employability skills to zero-hours contracts to longer-term recommendations about the direction of tax and benefit policies.

The UK’s growing “gig economy” is one of the thorniest issues on his agenda. Legal battles have broken out across the UK over whether workers for companies like Uber and Deliveroo are truly “self-employed”. So far, these questions are being settled very slowly by employment tribunals.

Uber lost a test case last year after judges ruled the company had misclassified two drivers as “self-employed” so owed them the minimum wage and holiday pay. However, Uber continues to treat drivers as self-employed while the company appeals against the decision.

If people think good work is impossible, or they think it’s incompatible with business competitiveness, then we’re in trouble
Matthew Taylor
“We all agree in the review, the law should do more of the work and the courts should do less of the work,” Mr Taylor said. He wants to “define in primary legislation” the principles that distinguish “self-employment” status from “worker” status — people in the latter group have more rights than the self-employed but fewer rights than full “employees”.

He is also considering the idea of reversing the burden of proof so that individual workers do not have to go to court to settle disputes over their employment status.

Instead they could ask an intermediary organisation such as Acas for a judgment. The onus would then be on the employer to challenge that decision in the courts.

Mr Taylor and his team have been unusually open about their ideas, even when they are only on the drawing board. “There’s virtually nothing I’ll say to you that I didn’t say last time I met my Number 10 minders,” he said. “[It] means we may float ideas that don’t end up in the report, but I think that’s a price worth paying for openness.”

Mr Taylor, now the chief executive of the RSA — the Royal Society for the encouragement of Arts, Manufactures and Commerce — is a savvy political operator who led the Number 10 policy unit for several years under Mr Blair. He has seen independent reviews fail in the past, their policy recommendations left to languish on dusty shelves. As a result, he wants to build support for the Taylor Review before it is published. Next month, he will launch a national campaign to encourage people to discuss the notion “good work” and what it means to them.

“If people think good work is impossible, or they think it’s incompatible with business competitiveness, then we’re in trouble,” he said. “So I want to have that conversation and win that argument.”

https://www.ft.com/content/84abe8ea-20f7-11e7-a454-ab04428977f9

 

PE firms way would benefit multibusiness enterprise

PE firms way would benefit multibusiness enterprise

Successful PE firms model practices that would benefit any multibusiness enterprise—as well as some that break the public-company mold.

In many respects, successful private-equity (PE) firms seem to defy economic logic. They acquire most of their businesses through some form of auction, where competitive bidding drives prices above what other potential buyers are willing to pay. Because they manage portfolios of discrete businesses, their acquisitions rarely reap substantial synergies. Their ability to survive, let alone thrive, depends on sustaining returns that attract limited partners to reinvest every few years. And unlike traditionally organized public companies, PE firms can’t underperform for very long, because their track records directly affect their ability to tap into capital markets.

Yet a number of prominent private-equity firms have succeeded for decades, earning healthy returns for investors and founders alike. So it’s not surprising that some public-company managers would look in that direction for new models to address their own myriad challenges—around aspects of governance, operations, and active ownership, among other things.1The way private-equity firms manage strategic planning, for example, offers lessons that might help public companies adapt to an environment marked by heightened shareholder pressure for performance and a fast-paced business cycle.

In our experience, successful private-equity firms excel at some practices that public companies should—but often don’t. These include detaching themselves from the tyranny of quarterly-earnings guidance, deploying highly disciplined business-unit strategies, and developing a competitive advantage in M&A. We believe many public companies would benefit from applying a private equity–like approach more aggressively in these areas, even by going to lengths that might seem unorthodox.

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Don’t be tyrannized by the short term

Private equity’s most powerful advantage may simply be that it is private. These firms can restructure and invest for the future while avoiding the glare of quarterly analysts’ calls and the business media. They can also communicate more intimately with a much smaller investment community, so they don’t broadcast their strategies and growth advantages to competitors. Our research shows that public-company managers can also gain shareholder support for long-term programs by communicating convincingly and making the right progress metrics clear to the investment community.

In the first 100 days after an acquisition, some successful PE firms explicitly collaborate with the new portfolio company during an intensive planning process. Over this period, management and the board develop a five- to seven-year plan, agreeing on new markets, channels, or products; assessing the capital needed to execute these initiatives; and developing an explicit set of new metrics and corresponding management incentives. In addition, they identify tactical near-term moves to build positive momentum from the deal’s most readily apparent benefits.

Such efforts require a highly disciplined, rigorous emphasis on metrics that reflect longer-term value, like cash flow, rather than short-term ones, like earnings per share (EPS). Many private-equity firms separate the financing of a business from its operating performance, which they get management teams to focus on by using cash flow–based measures, such as earnings before interest, taxes, depreciation, and amortization (EBITDA) and free cash flow. EPS reflects nonoperating factors (such as interest and tax expenses) that rely on a deal’s structure, but EBITDA depends more on operating performance. Free cash flow also takes into account the capital expenditures and additional working capital required to generate profits; EPS does not.

During the 100-day planning process, private-equity firms are more active than public companies in considering the furthest horizons of strategic planning. Public companies often focus on nearer-term objectives, including existing baseline products and emerging product lines, though longer-term bets can help to create significant longer-term value. Typically, private-equity firms more actively identify and emphasize strategic planning’s third horizon—including new markets and products—and diligently make tactical bets on it. For example, when PE firm Clayton Dubilier & Rice (CD&R) acquired PharMEDium for $900 million, in 2014, it hadn’t previously invested in outpatient care. But managers identified this as a major growth opportunity and made a calculated bet that paid off handsomely. CD&R ultimately sold the business for $2.6 billion.

Public companies could emulate much of this. Quarterly earnings can’t be ignored, but long-term shareholder value depends heavily on the generation of free cash and on the third horizon of future growth trajectories. Public companies should also explore the intensive 100-day planning process PE firms put in place after acquisitions, whether every other year or after the transition to a new leadership team.

Create disciplined business-unit strategies

A multibusiness company is the sum of its parts: if strategies for the underlying units aren’t focused and robust, neither will the overall picture. Success requires picking winners and backing them fully—something that often eludes public companies looking for the next new thing. Indeed, most of them pass only three out of ten tests of business-unit strategy.2Although financial theory suggests that capital should always be available for attractive investments, public companies that are constrained, for example, by their EPS commitments to Wall Street or by planned dividends often face intense competition for internal resources. Too often, they spread those resources thinly across business units. The right strategy means little if it isn’t fully resourced.

Private-equity firms don’t plan strategy around business units, but their investment theses for portfolio companies amount to the same thing. They’re a plan for investing across a portfolio of businesses, basing the allocation of capital on ROIC relative to risk, and explicit plans for creating incremental value in each business. PE firms do focus less than public ones on the strategic fit of companies in their portfolios—a tech company in a portfolio of heavy-industry businesses wouldn’t be a concern because they’re managed separately. But the portfolio-management objectives and disciplines ought to be similar. Both public companies and PE firms should evaluate a similar set of expansion options to assess market context, potential returns, and potential risks.

PE firms develop, monitor, and act upon performance metrics built around an investment thesis. That’s in sharp contrast with the one-size-fits-all metrics public companies often use to evaluate diverse business units—an approach that overlooks differences among them resulting from their position in the investment cycle, their prospective roles in the overall portfolio, and the different market and competitive contexts in which they operate. Although tailoring metrics to reflect these differences is hard work, it gives corporate management a much clearer picture of each unit’s progress.

Public companies could go further. Unlike PE firms, for example, they traditionally manage the balance sheets of a business unit against the needs of the enterprise as a whole. But should they always do so? Instead of divesting a slow-growing but cash-generating legacy business unit, should they have it issue its own nonrecourse debt? This would save the tax and transaction costs of divestiture, and potentially preserve additional upside. Would it make sense to bring outside capital into a high-risk emerging business unit—as Google X (now known as X) did for some of its nascent healthcare ventures? This approach would help investors to see the long-term value of such units, which would be more directly exposed to the discipline of the capital markets.

In addition, public companies could emulate the governance of private-equity firms at the business-unit level, where each portfolio company has its own board of directors. These boards are generally controlled at the firm level, but they are often supplemented by knowledgeable and senior outsiders with a meaningful equity stake. Since board activities focus on only one business unit, they can effectively surface, grasp, and debate the critical strategic, organizational, and operational issues it faces. While creating true governance boards for business units isn’t a realistic option for a public company, nothing prevents it from appointing advisory boards, with incentives based on the creation of value at the specific business units they oversee. In fact, freedom from formal governance responsibilities may make such boards more effective, allowing them to spend significant amounts of time on strategy and on developing management.

Finally, public companies could do more to compensate business-unit managers based on their own results. Compensation for private-equity fund managers typically reflects the results of the fund as a whole, but the pay of management teams at portfolio companies strictly reflects their own company’s value creation. This means that portfolio company executives in a lagging business can’t hope to be carried along by strong results at the fund level. It also means that executives in high-performing portfolio companies won’t be affected by the poor performance of entities over which they have no influence. This is a powerful motivator in both directions.

Could it make sense, for example, for multibusiness public companies to link incentive compensation for business-unit managers not to traditional stock options but rather to “phantom” stocks3that reflect changes in the intrinsic value of their business units? That would be counterproductive where businesses are highly interdependent, but in many cases at least some parts of a company operate more independently. And such an approach could generate the kind of entrepreneurial focus on value that private-equity firms get from the management teams of their portfolio companies. In the 1980s, Genzyme, for example, pioneered many tracking stocks for specific business units, and John Malone used them recently for those of conglomerate Liberty Media.

Develop M&A capabilities as a competitive advantage

Among public, nonbanking companies, those that routinely acquire and integrate clearly outperform their peers.4That fact should make unearthing, closing, and extracting value from attractive acquisitions a functional skill—like the effectiveness of the sales force, manufacturing, or R&D. Many public companies don’t treat it that way, but the best private-equity firms do, building and institutionalizing M&A skills as a competitive advantage.

Public companies that do behave like successful PE firms engage in M&A around a handful of explicit themes, supported by both organic and acquired assets to meet specific objectives. Achieving this competitive advantage calls for proactively identifying attractive strategic targets, often outside banker-led deal processes. It calls for managing a reputation as a bold, focused acquirer that can offer real mentorship and distinctive capabilities. And it calls for effective commercial and financial diligence based on the detailed information available to acquirers after signing letters of intent. Other requirements include reassessing synergy targets, adjusting them as appropriate to provide a margin of safety, and being highly disciplined about the price paid for acquisitions, to ensure accretion.5Most public companies seek to develop these skills, but many don’t dedicate enough time or resources.

http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/what-private-equity-strategy-planners-can-teach-public-companies?cid=other-eml-alt-mip-mck-oth-1610

Comp and skills of the 7 most promising finance jobs

Comp and skills of the 7 most promising finance jobs

When it comes to careers, “finance” is a sweeping term.

So before you hit Wall Street, you’ll need to figure out which role is right for you.

LinkedIn broke down the top finance jobs of 2017, based on high median salaries, job openings, year-over-year-growth, and potential for promotion.

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Improve your Business fitness to meet the challenges of tomorrow

Comparison of Ideas and Actions for the Corporation and its Board , the Entrepreneur and his Company

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Here are LinkedIn’s top seven picks:

1. Financial analyst

Median base salary: $62,000

Job openings: 1,700+

Top skills: Financial analysis, financial reporting, accounting, Microsoft Excel, financial modeling

2. Underwriting manager

Median base salary: $102,000

Job openings: 100+

Top skills: Underwriting, general insurance, commercial insurance, property and casual insurance, liability

3. Quantitative analyst

Median base salary: $105,000

Job openings: 200+

Top skills: Quantitative finance, derivatives, visual basic for applications, quantitative analytics, Matlab

4. Scrum master

Median base salary: $100,000

Job openings: 500+

Top skills: Scrum, Agile methodologies, Agile project management, software development, requirements analysis

5. Data analyst

Median base salary: $63,000

Job openings: 1,000+

Top skills: SQL, SAS, statistics, databases, Microsoft Excel, data mining

6. Product manager

Median base salary: $99,000

Job openings: 500+

Top skills: Product management, product marketing, product development, competitive analysis, product launch

7. Credit analyst

Median base salary: $52,500

Job openings: 400+

Top skills: Financial analysis, credit risk, credit, banking, loans

http://www.businessinsider.com/best-finance-jobs-of-2017-2017-2

Swiss unstable about corporate tax reforms

Swiss unstable about corporate tax reforms

Bern must rethink rules after 60% dismiss proposal to cut overall rates in referendum

Switzerland a more UN-stable and less competitive country … a growing mood against establishment and global corporations special tax regime …no more discretionary and advantageous rules. Www.maltaway.com for a very stable country and a fully OECD and EU compliant jurisdiction

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Switzerland’s attempts to overhaul its corporate tax regime have suffered a setback after voters decisively rejected reforms to bring the country’s practices in line with international standards. The government had hoped to secure approval for changes that would keep corporate tax rates globally competitive while abolishing special treatment for many multinational companies. In a referendum on Sunday, however, the plan was rejected by 59.1 per cent of voters — a much larger margin of defeat than opinion polls had suggested. Bern and the Swiss cantons must now rethink the proposals in the face of threats that important trading partners could take retaliatory action. The defeat is a blow for the business lobby in Switzerland, which fears damaging uncertainty over future corporate tax bills. The defeat meant Switzerland would no longer fulfil its promises to abolish special privileges by 2019, said Ueli Maurer, finance minister. He feared companies would quit Switzerland, or no longer move to the country as a result of the uncertainty created by Sunday’s vote. Read more Luxembourg expects more companies to leave over tax scrutiny Finance minister expects some international groups to follow lead set by McDonald’s Switzerland faced increasing international tax competition — including possibly from the UK, “so we don’t have much room for manoeuvre,” Mr Maurer warned. Given the scale of the government’s defeat, he expected it would take at least a year to draw up a revised reform package — with legislative approval following afterwards. The result had created “great insecurity”, according to Swissmem, the Swiss industry association. A revised reform package was “urgently needed” to preserve the country’s competitiveness. Ahead of the vote, Switzerland was warned that failure to dismantle practices considered harmful by other countries could result in an international backlash. “Switzerland’s partners expect that it will implement its commitments in a reasonable timeframe,” Pascal Saint-Amans, head of tax at the Paris-based OECD, said. The unexpectedly clear No vote suggested that the global anti-establishment mood had reached Switzerland. The reforms had been backed overwhelmingly by the two chambers of the Swiss parliament as well as the government, with opposition largely from leftwing parties. Since the second world war, multinational companies have helped the small Alpine economy become one of the world’s most successful economies. Under the reform plans, the country’s 26 cantons would have continued to compete to offer companies the most favourable tax rates, but multinationals would have paid the same rates as other businesses. To avoid imposing much larger bills on multinationals, the cantons announced plans to slash corporate tax rates for other companies, while the federal government in Bern said it would help fill shortfalls in tax revenues. The canton of Geneva, for example, planned to cut its general corporate tax rate from about 24 per cent to 13.5 per cent. Opponents led by the Swiss Social Democratic party argued, however, that the new system would have been too generous to business and led to large gaps in cantons’ budgets, which in turn would have hit public services. Further alienating voters was a complex system of internationally acceptable tax reliefs that would have been available under the new system, for instance for research and development or income from patents and on shareholders’ equity. Critics argued they would have simply boosted the income of tax advisers, lawyers and shareholders. Opponents also argue the reforms could be modified relatively easily — a point disputed by supporters, who said that the package took years of careful negotiation between the cantons and federal government. What happens next is unclear. The cantons could still push ahead with corporate tax changes that bring them into line with international standards — but without help from the federal government. Jan Schüpbach, economist at Credit Suisse, said: “Switzerland has promised to abolish the special status [of many multinationals], so we think retaliation is unlikely in the short term, if the government comes up soon with a Plan B.” “What actually happens will depend on whether there is international pressure on companies, and the cantons feel obliged to offer them a tax regime which is internationally acceptable. But the leeway for cantons to lower taxes is now less because they won’t get the extra federal funding.” Supporters of the reforms have argued that by securing Switzerland’s competitiveness, they would boost jobs and investment. Critics, however, have said that multinationals like Switzerland because of other factors — including its high quality transport infrastructure and skilled workforce.

https://www.ft.com/content/92a6ec56-f113-11e6-95ee-f14e55513608

Professional services, are Clients Loyal to Your Firm, or the People in It?

Professional services, Are Clients Loyal to Your Firm, or the People in It?

MALTAWAY BOARD GOVERNANCE AND NON EXECUTIVE DIRECTOR (NED)

Furthermore having a NED with international experience in the BOARD, reinforce widely the diversity, independence and compliance requirements for a better Corporate Governance, Leadership and Business results

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Employee turnover can be a big challenge for companies. But it creates a unique problem for professional services firms, which have to worry about employees taking clients with them if they leave.

Because of the client-facing and customized nature of service work, such as in law or consulting, clients can become loyal to individual employees rather than firms. This impacts firms of all sizes, and it can be quite costly. For example, when bond manager Bill Gross left Pacific Investment Management Co (Pimco) in 2014 to join rival firm Janus Capital, his clients quickly withdrew over $23.5 billion from Pimco funds. The industry was then thrown into intense competition to win over these clients over, with a number of them choosing to follow Gross. Small business owners and entrepreneurs also focus on increasing their client retention rates should their employees leave. However, due to data limitations, large-scale empirical research on this subject has been lacking.

I decided to look at the issue in the context of the federal lobbying industry. In a forthcoming study in the Strategic Management Journal, I empirically investigated when clients follow federal lobbyists who switch firms. The Lobbying Disclosure Act of 1995 (LDA) and Honest Leadership and Open Government Act of 2007 (HLOGA) mandate that lobbying firms file reports for every client they actively lobbied for on a biannual (LDA) or quarterly (HLOGA) basis. These reports include the lobbyists registered to each client, the dollar amount of lobbying revenue earned from that client, and the specific issues lobbied for on their behalf. This data let me link individual lobbyists to their clients over time and observe when clients followed lobbyists who switched firms. My final sample consisted of over 1,800 lobbyists who switched firms between 1998 and 2014. I analyzed the decisions of approximately 18,000 clients (to stay with their current firm or follow their lobbyist).

There were a few significant findings. First, the duration of a client’s relationship, with both the lobbyist and the lobbying firm, influenced where client loyalty resided. I found evidence that, on average, the probability that a client follows an employee who switches firms increases by nearly 2% for each six-month period that the client works with the lobbyist, but decreases by approximately 1% for each six-month period that the client enlists the services of the lobbying firm. This means that a client who hires a lobbying firm and works with a specific lobbyist from day one will be more likely to follow the lobbyist to another firm than a similar client whose relationship with the firm preceded the relationship with the lobbyist. The relative magnitude of these effects is not small: On average, the probability that a client follows a lobbyist doubles after the lobbyist serves the client for 3.5 years.

The way that a client relationship is structured is also important. Clients served by teams are much less likely to follow an employee who quits than those who work with single individuals. To put that in perspective, on average, the probability that a client follows a lobbyist decreases by approximately 2.5% with each additional team member who works directly with the client. In fact, using teams even helps firms retain clients who have an extensive history of working with one lobbyist. The vast majority of clients in my sample worked with teams.

The characteristics of team members matter as well. When clients work with teams of specialists, they are more likely to stay loyal to the firm than when they work with teams of generalists. By specialists, I mean employees who focus on a single area; in the context of lobbying, specialists are those who lobby primarily on a single issue, be it defense, education, energy, or any other of the 79 defined issue topics. Generalists tend to lobby across the board on a variety of issues. My analysis suggests that although teams are helpful for guarding against client loss, they’re more effective when the team comprises specialists rather than generalists. I reason that more specialization and division of labor within teams makes it harder for any individual lobbyist to replicate the services that the team can provide.

That said, one risk of using teams to manage clients is that team members may collectively leave to join a competitor or start their own firm. About 19% of lobbyists quit with a coworker, a phenomenon we call “co-mobility.” When this happens, the likelihood that a client follows skyrockets — but only if team members had jointly served the client prior to exit. In other words, if two employees quit together but a client has only worked with one of them, the client is not more likely to follow. This highlights the precarious position that managers are in when it comes to maintaining client relationships. Because professional service firms are increasingly serving clients with collaborative teams, firms should try to find ways to reduce the incentive for whole teams to quit.

My study focused on lobbyists, but these effects should generalize to other professional services firms, which share a number of characteristics with lobbying firms. Outside of the professional services industry the results are less clear, but we could imagine similar patterns for customer-facing positions in settings outside of professional services. That said, some important questions remain. For example, do firms benefit from hiring employees who bring clients from their old firms? The answer may seem to be yes, but recruiting these employees could result in a winner’s curse where hiring firms overestimate the value these employee will create and systematically overpay them. Another area worth investigating is how and when firms use nonsolicitation clauses to legally prevent employees from taking clients when they leave. Ultimately, however, clients may move as they please, so my findings provide initial evidence that can help managers identify which clients are most at risk of defecting as well as some advice on how to structure relationships to keep their loyalty.
https://hbr.org/2017/01/research-are-clients-loyal-to-your-firm-or-the-people-in-it

 

Boards Must ensuring companies change quickly enough to face competition and not just risk protective

Boards Must ensuring companies change quickly enough to face competition and not just risk protective

When you have a Board role, remember this post and keep your focus straight on the shareholders’ interest … MALTAWAY BOARD GOVERNANCE AND NON-EXECUTIVE DIRECTOR (NED)

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Boards of directors play two roles. They must protect value by helping companies avoid unnecessary risks, and they must build value by ensuring that companies change quickly enough to address emerging competitive threats, evolving customer preferences, and disruptive technologies.

With technology and business model cycles becoming shorter and companies facing unrelenting pressure to innovate or suffer the consequences, more and more boards need to focus on the second of these roles. To do so, they must be willing to challenge executive teams and stress-test their strategies to ensure they go far enough and fast enough. For boards used to preserving the status quo, this shift can be uncomfortable. Here are four ways boards can become better challengers and champions of change.

Confront Unwelcome News and Trends

Changing strategy is extremely difficult, especially for successful businesses. In the early 1990s Blockbuster commissioned a study on the future of video-on-demand technologies and how they would impact traditional video rentals. The report concluded that expanded cable offerings and broadband internet would begin to impact video rentals around 2000, and would grow rapidly thereafter. The good news was that Blockbuster had a good 10 years to prepare for the new environment. But the shift never happened: Management ignored the study’s findings and continued with the same strategy, supported by the board. In September 2010 Blockbuster filed for bankruptcy protection. In this case, value protection was not enough. The company had clear advance notice that seismic change was coming.

The board’s role was to acknowledge the warning signs and challenge management’s lack of action — even if it meant contention and dispute in the boardroom.

Make Sure You Have Challengers in Your Midst

Boards will be far more effective in their challenger role if they offer seats to individuals with professional experiences and viewpoints that are very different from those of the executive team. Directors can learn to be more direct with management, but it’s hard to fake contrarianism when everyone is of the same mind. When a board resembles the CEO in mindset and outlook, it’s a recipe for a gatekeeper board, not a challenger board. But when boards mix it up by bringing in members with different perspectives, they can effect powerful strategic changes, something I have seen many times in my work with corporate boards.

Often, these “challengers” will be tech-savvy young executives from digitally disruptive companies who can press their fellow directors and senior management about potential blind spots related to digital disruption. But disruption is not always about technology. For example, one highly successful, privately-held producer of canned foods actively sought a board member who could challenge management to think differently but who would still fit with the company’s family-oriented governance culture. The successful candidate was the CEO of a well-known, family-owned California wine business that catered to consumers who would not dream of buying canned food. The board member helped the company “think outside the can” to identify new product forms that would broaden their customer base and appeal to health-conscious consumers.

In another instance, a leading chain of retail pharmacies appointed as vice chair someone with a background in health care manufacturing and pharmacy benefit management. The new board member helped management better understand the efficiency advantages of mail-order pharmacies, which rely on automation. As a result, the company added low-cost automated pharmacy services to its existing retail outlets, giving it a competitive advantage over traditional retail pharmacies.

Stay Fresh with Term Limits and Checks and Balances

Beyond accessing the right expertise, boards can maintain a challenger perspective by ensuring they don’t become complacent and drift toward an approver role. One of the most effective ways to do this is to establish mandatory term limits as a part of the board’s bylaws. Term limits can help boards maintain a level of independence between the outside directors and executive leadership.

Moreover, if the CEO and chair roles are separated, the chair can take more active responsibility for ensuring that alternative views and perspectives are brought before the board. Separating the roles is a common practice in Europe, and it’s becoming more so in the United States. Another option is to appoint an independent lead director, a less drastic change that can have a similar effect. In fact, the New York Stock Exchange essentially requires listed companies with nonindependent chairs to appoint one of their independent directors as lead director. The lead position, among other duties, is responsible for scheduling and helming board meetings that take place without management. Today the majority of S&P companies with combined CEO and chair roles have chosen to counterbalance this arrangement by appointing an independent lead director.

Turn Courage and Candor into Core Competencies

Having directors with valuable insights is worthless if they do not feel comfortable sharing their perspectives and debating issues with management. A recent study by Women Corporate Directors and Bright Enterprises found that more than three-quarters (77%) of director respondents believed that their boards would make better decisions if they were more open to debate, and 94% said that criticism can help bring about change when it is used properly.

Nevertheless, board members are often hesitant to offer criticism, especially to CEOs. The same survey found that only about half (53%) of respondents felt that the CEOs of their companies take criticism well. This is not surprising. As a board member it is much easier to empathize with a CEO under pressure than with an abstract group of shareholders. One way to address this issue is to offer board members training in giving and receiving constructive criticism. Board members need to understand that failing to confront difficult issues will not help the CEO. If a CEO’s first indication that the board is dissatisfied is hearing they are searching for his or her replacement, then the board is not fulfilling its responsibilities.

Challenger boards are those with the strength to put the hard questions to management and to poke holes in suboptimal strategies. They bring a diversity of perspective that can help management understand the company’s vulnerabilities and how to overcome them. For companies struggling to exist in a world where disruption is rapidly becoming a business constant, challenger boards may well be one of their most important survival tools.

https://hbr.org/2017/01/boards-must-be-more-combative

Executives and Salespeople Are Misaligned and the Effects Are Costly

When you have a Board role, remember this post and keep your focus straight on the shareholders’ interest … MALTAWAY BOARD GOVERNANCE AND NON-EXECUTIVE DIRECTOR (NED)

U.S. companies spend over $900 billion on their sales forces, which is three times more than they spend on all ad media. Sales is, by far, the most expensive part of strategy execution for most firms. Yet, on average, companies deliver only 50% to 60% of the financial performance that their strategies and sales forecasts have promised. And more than half of executives (56%) say that their biggest challenge is ensuring that their daily decisions about strategy and resource allocation are in alignment with their companies’ strategies. That’s a lot of wasted money and effort.

So what’s the problem?

According to an assessment of over 700 sales professionals and senior executives conducted by GrowthPlay — a sales-focused consulting firm where one of us is Managing Director — the problem stems from gaps between the perceptions, attitudes, and information flows between executives and sales reps.

The assessment asked respondents — executives, middle managers, and sale reps from companies of all sizes in a variety of industries such as consumer goods, telecommunications, manufacturing, wholesaling, and travel/hospitality — to answer a series of questions about how well their companies’ strategic directions inform six critical elements of their sales approaches: their target customers, the sales tasks generated by those customers’ buying journeys, the type of sales people best suited to perform those tasks, how the firm organizes its sales and other go-to-market efforts, and the cross-functional interactions required to sell and deliver value to customers.

The results show that executives feel that they have a high level of understanding of their companies’ strategic priorities, while sales reps — who aren’t typically in the planning meetings, on the conference calls, or roaming the halls with the people crafting strategy — said they did not.

There are other gaps, too. For example, leaders sees deficiencies in most categories related to core sales tasks and sales personnel. The only category in which executives rate more positively than salespeople is compensation, which isn’t surprising since executives determines pay policies!

 

From these results, a broad story emerges: Senior leaders have a better relative understanding of the company’s direction than sale reps, but are concerned that they don’t have the right sales processes and people.

For their part, salespeople are confident in their abilities to execute, but admit they have little understanding of the strategic direction, and its implications for their behavior, at their respective companies.

To add to that, the groups are far apart on basic elements such as recruiting, hiring, training, and role alignment. You can see why a simple statement —“I’m from Corporate and I’m here to help you”— is one of the oldest jokes in many firms.

If and when leaders want to make changes, misalignment sets up a costly and frustrating cycle.

The sales force gets better and better at things that leaders and customers value less and less while remaining unclear about performance expectations.

Companies fail to get the most out of the $12 billion a year they spend on sales enablement tools and the billions more on CRM technology.

And hiring the right candidates also becomes a problem, especially as new buying processes, driven by online technologies, reshape selling tasks. If information isn’t flowing between senior execs and front-line customer-contact people, leaderswon’t be able to keep up with the new skills and sales tasks they should be hiring for.

If any or all of these steps are taken without improving the sales team’s understanding of the company’s business objectives, the result is a “competency trap”: the salesforce gets better at their routines, but these same routines keep the firm, and its top team, from gaining experience with procedures more relevant to changing market conditions.

In order to achieve alignment, companies need to break these routines and treat causes, not symptoms. This is often difficult because multiple stakeholders across functions must invest in a new approach while still meeting their own obligations to keep the current business running. But good planning and proper leadership support can help.

Consider a large home energy provider in a mature, commoditized market where deregulation is driving down revenue and profit. To spur growth, the company committed to a strategy of diversifying their product offering. This meant transforming a salesforce, which had been conditioned to sell on price, to sell value-added services.

Here is what the leadership team did:

They linked strategy to behaviors. Beginning with conversations with frontline salespeople and managers, they asked, “Are the salespeople having a conversation that helps customers see the value of these services?” In the cases where reps weren’t, the team identified the selling behaviors that needed to be abandoned and then established a new sales process and set of sales tasks that needed to be clarified and executed.

They changed their approach to training. They also committed to an intensive effort that spread the learning out over a series of weeks, allowing the incumbent salespeople to apply behaviors gradually rather than trying to learn the entire process at once.  The process was tweaked for the new hires and incorporated into their on-boarding. This is aligned with what research tells us about the importance of deliberate practice in training for results. Acquiring new behavioral skills (versus concepts) requires repetition; people must try a new behavior multiple times before it becomes practiced enough to be comfortable and effective.

Simultaneously, sales managers went through a series of development sessions to develop their coaching skills. The goal was to focus performance conversations on how sales people were serving their customers and the value-selling process inherent in the strategy.

They revamped their compensation and performance evaluations. Commissions were adjusted to reflect the importance of the value-added services, and additional incentives were added to reward those sales reps that exhibited the behaviors required to execute the strategy, not only the revenue outcomes. Further, adherence to the sales process was added to the salesperson’s evaluation scorecard and, perhaps most important, reviews were now taken seriously — by managers and individual reps — as a strategy execution and development tool, not only a compensation discussion.

They changed their hiring/recruiting efforts. The biggest personnel shift related to front-line sales managers.  The company began evaluating potential managers based on their ability to coach and reinforce the process, not simply on their performance as a salesperson.

Sales performance and competitive positioning have improved significantly for this company. Its leadership articulated the firm’s strategy in a clear and consistent manner and analyzed the gap between the current sales tasks and those required to meet the new strategic objectives. And while their approach involved elements of training, compensation, performance reviews, and hiring practices, it was the sequence in which they addressed those areas that drove alignment.

https://hbr.org/2017/01/executives-and-salespeople-are-misaligned-and-the-effects-are-costly