Active Board, First advisor for the CeO

Active Board, First advisor for the CeO.

MALTAWAY BOARD GOVERNANCE AND NON EXECUTIVE DIRECTOR (NED)

Apart Compliance, Advisory matters!

How CEOs Can Work with an Active Board

At companies of almost all sizes, across all sectors, boards are undergoing a profound transformation. Largely as a result of intensifying shareholder intolerance of mediocre or poor corporate performance, the ceremonial boards of the past are being replaced by active boards that are more demanding of managers and more intrusive in their affairs.

This change can be daunting and frustrating for CEOs. However, based on our experience of advising CEOs, operating as CEOs, and sitting on boards, we have found that executives can be effective in the new environment by revamping their interactions with their boards. It consists of four approaches.

Work with board members individually as well as in the group — and selectively seek their help.

It’s remarkable how many CEOs focus mainly on formal boardroom relationships. Yet by investing the time in regular one-to-one informal interactions, a CEO will help address the new active board members’ sense of duty to get close to the business. Through a personal dialogue, the CEO can better enlist them in important initiatives and address issues before they become crises. In addition, by creating a personal bond with the individual directors, the CEO lessens the odds that they will undermine or blindside him.

It is especially important to create a bond with the lead director and/or the chair. As boards have become more active, the lead director and board chair hold the keys to setting productive agendas and managing issues with the total board or individual members. One of us served on an active board that included members who frequently threatened to derail agendas and process with counterproductive questions. The CEO quietly recruited the lead director and chair to restore order, which they did. As boards have become more active, the lead director and board chair hold the keys to setting productive agendas and managing issues with the total board or individual members.

CEOs should consider recruiting one board member as an informal advisor. This must be done with great care and an ear for political nuances. For example, as one CEO we know discovered, a prospective board advisor actually had his eye on the CEO role for himself — hardly the right confidant! By using already-scheduled one-on-ones to assess board members for this advisory role, the CEO can better identify an appropriate advisory board member. This board member can be of great value as a sounding board and a guide to working effectively with the rest of the board.

Communicate less formally, more intensively, more often.

Many CEOs and their teams still deliver traditional 80-slide PowerPoint summary presentations at board meetings. But given that today’s boards increasingly want a substantive dialogue, we advise replacing the presentation with a thoughtful, verbal review and Q&A around critical updates, challenges, and opportunities. (Further background can be provided in brief pre-reading material.)

This will show that the CEO is  using his or her face-to-face time with the board for serious discussion. It will focus board activism on topics where the CEO will benefit from directors’ insight and counsel. And by taking the lead in inviting the board to engage on business-critical matters, the CEO can better manage the process and avoid one of the biggest downsides of the active board: disruptive interference by board members in business operations.

It may seem obvious that CEOs should communicate with board members regularly and substantively between board meetings. But in reality, CEOs often communicate mainly when there is a problem. Many also have difficulty regularly addressing a balanced mix of important topics.

One very effective approach to this issue is regular CEO letters to the board. The management of this letter should be delegated to a top lieutenant such as the head of communications or the COO. A monthly rhythm has proven effective with many boards. To assure balanced, relevant content, the letter should routinely address a fixed set of regular topics (e.g., business-environment trends, business updates, people/talent news, and early warnings of potential upside and downside developments).

Expose Level 3 and 4 managers to the board.

While boards in the past were typically focused on CEO succession planning and the talent among the CEO’s direct reports, active boards are also very interested in the levels below. They rightly see these executives as the future leaders and the operational leaders of today who should be driving performance. Active board members will therefore seek to get to know them.

Some CEOs feel this is overly intrusive or worry that the lower-level executives are not ready for board exposure. But, in fact, it’s positive to have board members engaging with deeper levels of talent. They learn more about the business and the next generation of the company’s leaders. Board members can also give the CEO valuable feedback about the people they meet and their view of the company’s overall bench strength. And for the executives, the right kind of exposure to board members is a great development opportunity.

The CEO should take the lead with the board in driving the engagement process, which will allow him or her to have greater influence over it. She can select the highest potential individuals for the interactions and organize the interactions so that they are most productive — for example, by holding them as one-to-ones over a breakfast or dinner. She can also brief the executives in advance on the style of the board member and potential question areas and brief the board members on the executives they will meet.

Handle strategic planning… strategically.

Older-style boards typically become involved only at the end of the strategic-planning process — typically in a board meeting devoted to review and approval of the strategy. By contrast, active boards often push to be involved from the start because the strategy is so important to the company’s performance.

The notion of involving the board in strategic planning can make CEOs anxious and defensive. They fear that the board may undermine the planning process due to insufficient knowledge about the business. They also worry that board involvement in strategic planning will be the thin edge of a wedge and lead to board interference in day-to-day management of the company.

The key to navigating this challenge is to keep strategic planning in the hands of management but to invite the board to provide advice and feedback from the beginning. One good way to do this is to involve the board early in deciding on the right, big-picture, strategic direction for the company, without getting into the details. The CEO and her team can develop and present to the board several options to the board, explaining why each has merit. Then the executives can solicit board input on each but not ask for a vote. In this way, the CEO and her team can gain valuable board perspective that will strengthen all the choices that are developed and obtain early board buy-in for both the options and the ultimate strategic plan that’s chosen.

The CEO can then provide periodic updates on the strategic-planning process through letters to the board and board meetings. This allows the board to stay engaged and provide input but keeps the control over the actual process with the executive team, where it belongs.

How to pay the Board for a better Governance

Board Directors Should Be Paid Only in Equity, if we pay directors solely in restricted equity, they’re more likely to do their job.

MALTAWAY BOARD GOVERNANCE AND NON EXECUTIVE DIRECTOR (NED)

Even here in Malta this issue arises with relevant importance and validity , partly because the high number of foreign companies present in Malta, in order to be compliant with international standards for tax purposes (see the case of dummy company and tax inversion) , must have a board of directors with directors and NON EXECUTIVE DIRECTOR , residents in Malta, supporting and providing clear and convincing evidence that the foreign company is effectively managed from Malta.

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

30+ years Board, Governance, Investment’s  experience and practice for YOUR BOARD needs and solutions

maltaway_balattiboardmember_BoardEngagement

HBR article

When a corporate scandal breaks – like the recent one at Wells Fargo or earlier ones at Lehman, Enron, or Qwest – the question is always raised: what was the board of directors doing while the managers in these companies were involved in such unprofessional behavior? The answer is that, like most of us, directors respond to incentives. And my research suggests that those incentives need to change.

Director compensation typically consists of a cash component (retainer), smaller cash amounts paid for attendance at board and committee meetings, and incentive compensation in the form of stock and stock option grants which vest over a period of a few years. During the past decade, the prevalence and importance of stock ownership guidelines has increased significantly for the S&P 500 companies.

But the gradual evolution of director compensation doesn’t go far enough. I propose that compensation of corporate directors should consist only of restricted equity. By “equity” I mean stock and stock options. By “restricted” I  mean that the director cannot sell the shares or exercise the options for one to two years after their last board meeting. I believe corporate directors should not be paid any retainer fees or other cash compensation. Of course, this change wouldn’t prevent every scandal or solve every problem with corporate governance. But it would help channel director attention toward longer-term profitability.

My research supports such a change. In two recent studies, my co-authors and I looked at the relation between director stock ownership and company performance for the largest U.S. companies. In one study, we looked at the performance of the 1,500 largest public U.S. companies during the period 1998-2012. We measured performance using the company’s return on assets, adjusted for the company’s industry and size. And we controlled for the company’s leverage, R&D intensity, board size, and its transparency to analysts. In the second study study, we considered the S&P 500 companies during the years 2003-2007, using the same controls. In both studies we found that companies in which directors owned more stock performed better in future years. We also found that directors who own more stock are more likely to discipline or fire the CEO when the stock price performance of their company has been sub-par in the previous two years.

There are drawbacks to this proposal, but they can be mitigated. If directors are required to hold restricted shares and options, they would most likely be under-diversified, and would be concerned with lack of liquidity. The proposal could also lead to early director departures, as directors seek to convert illiquid shares and options into more liquid assets (after the one- to two-year waiting period). To address these concerns, I recommend that directors be allowed to liquidate 10-15% of their awarded incentive restricted shares and options each year.

If we want directors to further the long-term health of the companies they serve rather than falling asleep at the wheel while malfeasance spreads, we need to provide them with the right incentives. If we pay directors solely in restricted equity, they’re more likely to do their job.

https://hbr.org/2017/05/board-directors-should-be-paid-only-in-equity

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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CORPORATE SERVICES by MALTAway

CORPORATE, BOARD, TAX, LEGAL, BUSINESS ADVISORY: PURSUING SUBSTANCE

MALTAway is founded on simple and robust principles: credibility, integrity, transparency and rigour. To be credible, you have to be transparent & rigorous, otherwise you are useless

MALTAway is a Board, Governance & Investments CORPORATE SERVICE & ADVISORY company. We advise our clients to achieve growth through a strategic approach as well as globalization


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

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

maltaway-fighting-corporate-tax-abuse

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)

maltaway_balattiboardmember_BoardEngagement

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

Firms Give More Stock Options When They’re Committing Fraud

Firms Give More Stock Options When They’re Committing Fraud

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

 

Whistleblowers can play in a big role in uncovering financial misconduct. For example, look at Sherron Watkins, formerly of Enron, and Cynthia Cooper, formerly of WorldCom. Both women helped uncover massive frauds inside their organizations that ultimately cost investors billions of dollars.

Research suggests that employees are often in a position to discover and expose wrongdoing in organizations. This may be why the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act encourages employee whistleblowing: Section 922 of the Act promises to protect whistleblowers from retaliation and offers monetary awards for disclosure, which range from 10% to 30% of monetary damages collected from the company. Since this program was established, the Securities and Exchange Commission (SEC) has granted more than $111 million in awards to 34 whistleblowers, with the largest award of $30 million granted in September 2014.

While protection and rewards may encourage more employees to come forward, firms may be able to counter these incentives by making it beneficial for employees to keep quiet. In a study recently published in The Journal of Accounting and Economics, we examined whether firms use financial incentives to discourage whistleblowing. Although there are many kinds of financial incentives, we focused on stock option grants to rank-and-file employees, as this data are more readily available. Further, since the value of stock options is directly tied to the value of the firm’s stock, and because whistleblowing allegations result in an immediate decline in the firm’s stock price, employees stand to lose financially when they blow the whistle. In addition, employee stock options typically have vesting terms that require employees to wait a few years before they can exercise their options, which may act as a disincentive to blowing the whistle before they’re able to exercise their options.

Using a Stanford Law School database, we identified a sample of 663 firms that were alleged to have engaged in financial misreporting and were subject to class action shareholder litigation in U.S. federal court from 1996–2011. We examined the number of stock options granted to rank-and-file employees during the period of alleged misreporting, and we found that these firms granted more stock options during the misreporting period than did a benchmark sample of 663 similar firms that were not being investigated for financial misreporting. Option grants by these misreporting firms varied over time. Specifically, misreporting firms granted 14% more stock options to rank-and-file employees when they were allegedly misreporting their financials, but the number of options they granted decreased by 32% after they appeared to stop misreporting. These findings suggest that these firms granted additional stock options strategically during periods of alleged misreporting.

We also found that these efforts are effective. Misreporting firms that granted more stock options to rank-and-file employees were less likely to be exposed by a whistleblower. Approximately 10% of the firms in our sample were subject to a whistleblowing allegation. Firms that avoided a whistleblower granted 78% more stock options than these firms did not.

Because our sample consists only of misconduct that was discovered, our findings can’t speak to firms that engaged in financial misconduct without getting caught. In addition, our evidence is circumstantial, in that we cannot directly observe the underlying motivation for employers’ stock option grants or employees’ whistleblowing decisions. Nevertheless, while Dodd-Frank encourages employee whistleblowing by offering financial incentives of up to 30% of recovered damages and penalties, our findings suggest that firms may offer their own financial incentives to discourage whistleblowing.

Although we examine stock options grants as the primary mechanism for employers to discourage whistleblowing, there are others tactics firms can use as well. In fact, recent media reports indicate that the SEC is investigating other ways in which firms subvert whistleblowing, including having employees sign confidentiality agreements and creating severance contracts that prevent employees from contacting regulators or benefiting from government investigations. As legislators evaluate the efficacy of whistleblowing regulations, they should remember that the firms they are trying to regulate are not silent bystanders — companies can take action to discourage employees from speaking up.

https://hbr.org/2017/01/research-firms-give-more-stock-options-when-theyre-committing-fraud

Tips from headhunters to Board Members

Tips from three leading headhunters

Directors must ask the right questions and support — and challenge — chief executives

MALTAWAY BOARD GOVERNANCE AND NON EXECUTIVE DIRECTOR (NED)

Even here in Malta this issue arises with relevant importance and validity , partly because the high number of foreign companies present in Malta, in order to be compliant with international standards for tax purposes (see the case of dummy company and tax inversion) , must have a board of directors with directors and NON EXECUTIVE DIRECTOR , residents in Malta, supporting and providing clear and convincing evidence that the foreign company is effectively managed from Malta.

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

30+ years Board, Governance, Investment’s  experience and practice for YOUR BOARD needs and solutions

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Virginia Bottomley
Chairman, Odgers Berndtson’s Board & Chief Executive Practice

The former Conservative cabinet minister turned City headhunter joined Odgers in 2000 and has battled to change attitudes towards women in senior roles. Key appointments by her team have included Carolyn Fairbairn as the first female director-general of business lobby group the CBI, Susan Kilsby as chair of pharmaceutical company Shire and Inga Beale as chief executive of Lloyd’s of London, the insurance market.

Ms Bottomley was born in Scotland and educated at the University of Essex and the London School of Economics.

What is your best advice for someone seeking a board position?
Excel in a particular area, whether that is leadership, finance, managing large profit and loss accounts or international exposure.

What makes a successful chief executive or board member?
Courage, tenacity and values. Listening is also an essential and underrated quality. Being in the right stage of one’s career in the right place and at the right time means that luck inevitably plays a role. But truly talented individuals with distinct experience and perspectives will always be singled out.

Excel in a particular area, whether leadership, finance, managing a large P&L or international exposure

Virginia Bottomley

Why has progress in increasing diversity on boards been so slow?
Only five years ago, barely 10 per cent of FTSE 100 board directors were female, so, while it may feel slow, there has been progress. But more work is needed. It is increasingly important to identify those less obvious aspects of diversity, such as diversity of thought, perspective and experience.

There is growing concern about executive pay. Are you concerned that chief executives are paid too much?
Some executives are paid too much relative to performance and the value they end up delivering. Equally, chief executives who create long-term, sustainable shareholder value are worth every penny. We are encouraged to see shareholder initiatives that keep the spotlight on this critical issue, such as the report by the Investment Association earlier this year, which noted growing investor and company concern about the level and complexity of executive pay.

To what extent are headhunters responsible for creating a market struggling to keep a lid on executive pay and to create more diversity?
We put forward the best possible candidates for each and every role based on a large number of considerations, of which remuneration should be only one.

Ultimately, pay is for boards to decide. We act as an independent third party, so play a part in encouraging boards to consider the widest pool of talent.

Raj Tulsiani
Chief Executive, Green Park Interim & Executive Search

Raj Tulsiani has pressed for greater ethnic diversity on City boards, most recently contributing to a review by Sir John Parker, chairman of mining company Anglo American, which recommends that boards appoint at least one non-white director to every FTSE 100 company by 2021.

An adviser to the Metropolitan Police and the Prime Minister’s Implementation Office on diversity, Mr Tulsiani also won the mandate to refresh the board at Transport for London. Before co-founding Green Park, Mr Tulsiani, who is of Indian and French descent, was a manager at Michael Page, the staffing agency.

What is your best advice for someone seeking a board position?
You have to have some of the skills and background, which you can often gain by joining voluntary or third-sector boards and learning the language. People can become pigeonholed as a good hospital non-executive director or school governor, but the difference with company boards is not as big as you think.

Also, understand the rationale behind each appointment. People might think the process of appointing non-executive directors is a meritocracy and that they can turn up and be the best candidate. But there are a lot of opaque and unwritten rules. Ask questions, test the waters and bring something authentic to the table.

What makes a successful chief executive or board member?
Realistic optimism, a strong way of communicating risk, being able to increase organisational trust and being able to see order in anarchy.

Understand the rationale behind each appointment. There are a lot of opaque and unwritten rules

Raj Tulsiani

Why has progress in increasing diversity on boards been slow?
People do not want greater diversity on boards. They quite often want people who are the same but “different” — they want skin-deep diversity. For example, you include women but they all come from upper middle-class backgrounds.

Also, progress has been slow because the headhunters who execute the majority of board appointments have very little credibility with diverse communities, partially because they have no experience of them and they do not understand the differences between mindsets and cultures.

Most search firms have been trying to boost their diversity credentials through marketing and so forth in the past few years. But you do not build insight, resonance and trust through expensive coffee mornings or posts on a website.

What role do headhunters play in increasing diversity and to what extent are they responsible for the lack of it?
Headhunters often decrease diversity, so they are as responsible as the clients. Executive search is also an institutionally prejudiced industry sector, which gives bad or “safe” advice based on “expert testimony” without data or real insight.

It is impossible to have more diverse boards without more diverse supply chains. Look at what percentage of ethnic minorities on the boards of the UK’s biggest listed companies are British passport holders or how many women on boards went to the same six elite universities.

Are chief executives and board members paid too much?
No, they deserve the money they earn and more — but only if they drive performance and inclusive cultures.

Jan Hall
Chairman and chief executive of Heidrick & Struggles/JCA’s UK Chief Executive & Board Practice

Jan Hall sold JCA, the headhunting business she co-founded in 2005, to Chicago-based Heidrick & Struggles in August. Heidrick promptly added JCA to its name, underscoring her power within the City.

Ms Hall’s placements include Marc Bolland, whose tumultuous time as chief executive of Marks and Spencer came to an end in April, and Carolyn McCall, chief executive at easyJet. Before founding JCA, she was a senior partner at Spencer Stuart, another executive search firm.

Try to understand the business in the round — the entire company. And make sure people know you are there

Jan Hall

What is your key tip for securing a board-level appointment?
Understand the business in the round — get to grips with the entire company. Make sure people know you are there.

What makes a successful chief executive or board member?
The ability to ask really good questions in a constructive manner. To challenge executives in difficult times and to support them at others.

What role do headhunters play in increasing diversity and to what extent are they responsible for the lack of it?
The argument has been won that diversity is a good thing. The real issue is getting diversity coming up through businesses. We need the skill sets in the candidate pool to be there. But if boards are focused on looking for diversity, they are more likely to find it.

Are chief executives and board members paid too much?
In a global marketplace there is a real problem with levels of remuneration. In the US people are paid much better so we have to compete with them.

Thx to FT, see the article here 

The Real Cost of an MBA and US ranking

The Real Cost of an MBA

To figure out the true price of a business degree, you have to factor in the opportunity cost.

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After working for eight years in accounting and finance, most of it at PwC, Tully Brown knew it was time to deepen his business skills. So he did what a lot of young professionals in his shoes do: He went for an MBA.

For Brown, who enrolled at Emory University’s Goizueta Business School in 2015, the biggest cost wasn’t tuition, fees, and housing. It was the six-figure job he gave up to attend school full-time. “Being a numbers guy, I actually modeled it out,” he says. “I looked at what would happen, because there was the possibility I’d end up leaving and making the same that I did before going in. I decided it was worth the risk.”

The typical incoming MBA student at Emory earns $67,000 the year prior to enrollment. Multiply that by the length of a two-year MBA program, then add to it Emory’s cost of attendance, and you get $296,536. Using the forgone salaries reported by thousands of recent graduates as part of Bloomberg Businessweek’s annual ranking of the top full-time MBA programs, we were able to create a similar “real” cost figure for several of the schools on our list. Stanford Graduate School of Business had the highest full-freight cost, more than $434,000, because those in its MBA program earned more when they enrolled.

Each year, we rank business schools by polling students on topics such as academics, career services, and campus climate. We also ask employers about the skills they seek in MBA hires and which schools best prepare their graduates. Starting in 2015, we began surveying alumni, asking them how well their degrees had delivered on the promise of a fulfilling and profitable career.

For the second year in a row, Harvard Business School came out on top—and this time by a wider margin. HBS was rated No. 1 by the more than 1,000 corporate recruiters we surveyed and No. 3 among alumni. Competition for the No. 2 spot overall was particularly close this year, with Stanford edging out Duke University’s Fuqua School of Business by less than one index point.

Unlike undergraduate students who are often giving up low-paying jobs to return to school, MBA students are typically in their late 20s or early 30s and leaving well-paid positions. That makes calculating the opportunity cost even more significant for MBA seekers. Because Bloomberg Businessweek surveys B-school alumni on the salaries they drew before enrolling in a full-time MBA program, we were able to calculate the true cost of the degree. Our formula isn’t perfect. It includes the loss of two years’ worth of wages, even though some students don’t go a full 24 months without working, and some have well-paid internships during the summer break. In addition, we weren’t able to factor in financial aid or scholarships.

Schools’ cost-of-attendance breakdowns don’t reflect the income students give up during their time in school. B-school officials say MBA applicants should definitely add that cost to tuition and other expenses when calculating a projected return on their investment. It’s “a large number, there is no doubt about it,” says Douglas Skinner, interim dean of the University of Chicago Booth School of Business, noting that some students may need to take out loans to also cover the lost wages. Still, Skinner stressed that prospective students need to understand that the knowledge obtained through the degree will help boost their earning power not just immediately after graduation but throughout their careers.

That’s why Brown says he didn’t mind leaving a well-paying job at a community bank in Atlanta to enroll at Emory. “It’s hard to know in 10 years whether I get something I want because I have an MBA,” says the 33-year-old who took out $53,000 in student loans, partly so he wouldn’t have to miss out on student networking opportunities like international trips. “But I decided I wouldn’t want to wonder in 10 years if not having the MBA was holding me back—because then it might be too late to do it.”

Although Brown chose the one-year, or fast-track, MBA at Emory, he still went without income for about 15 months. As he’d hoped, he landed a job at an investment bank, where he’s earning more than he did before.

Data from our surveys show that the typical graduate at the schools we ranked earned a positive return on her investment. Alums of the 87 schools ranked this year earned a median $50,000 prior to starting an MBA program and saw that salary rise 80 percent upon graduation. And six to eight years on, the median salary hovered around $145,000.

Students who enroll in MBA programs are usually further along in their lives and therefore more likely to be married. That can make the degree even more pricey. Spouses who quit their jobs and move to such places as Hanover, N.H. (home of Dartmouth College) or New Haven (Yale) to accompany an MBA student may face poor employment prospects.

That was the case for James Mansour, a recent graduate of Texas A&M University’s Mays Business School, and his wife. They relocated from the Washington, D.C., area, where he worked as a consultant and she as a dental hygienist, pulling in a combined $160,000 a year. After the move the couple learned that they were expecting a child and that she’d have to get relicensed to work in Texas. Fortunately, the couple was able to get by on savings by cutting out vacations, dining out, and shopping. Mansour, who graduated in December, now works at Delta Air Lines in Atlanta, and has a higher salary than he did before he went for his degree.

The typical 2016 MBA graduate from Dartmouth College’s Tuck School of Business earned $80,000 before enrollment. So if a student were to forgo that income for two years and pay the full cost of attendance, his or her real cost would amount to $360,100. Matthew Slaughter, dean of Tuck, says that while most graduates receive a large earnings boost after graduating, that isn’t always the case in the short term. “For a lot of programs like ours, there are a lot of people career-switching,” he says. “So that might entail giving up industry- or company-specific capital to really build capital in a totally different area that’s more satisfying.”

Katherine Earle graduated from Stanford’s MBA program this spring. She walked away from a well-paying position in the technology sector to go back to school. Still, she says she’s confident she made the right choice. “I’m already making more now,” says Earle, “and that increase will hopefully continue to compound itself, partly because of the inherent value of the degree but more likely because I had the opportunity to study my personal strengths and weaknesses and career interests at school.”

http://www.bloomberg.com/news/articles/2016-11-16/real-cost-of-an-mba