Less sheep you have, more peripheral the leaders are.
This is the best biologically performing models in nature, corporations and human organizations.
Learn from reality, not from manipulated human world
www.maltaway.com the great Governance
This is the best biologically performing models in nature, corporations and human organizations.
Learn from reality, not from manipulated human world
www.maltaway.com the great Governance
Apart Compliance, Advisory matters!
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.
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.
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).
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.
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.
Nothing empowers a skilled worker like the option to walk out and take a better offer
The obsolescence I have in mind was anticipated by Silicon Valley’s favourite economist, Ronald Coase. Back in 1937, a young Coase wrote “The Nature of the Firm”, calling attention to something strange:
They were hierarchies. If you work for a company, you don’t allocate your time to the highest bidder. You do what your boss tells you; she does what her boss tells her. A few companies dabble with internal marketplaces, but mostly they are islands of command-and-control surrounded by a sea of market transactions.
Coase pointed out that the border between hierarchy and market is a choice. Corporations could extend their hierarchy by merging with a supplier. Or they could rely more on markets, spinning off subsidiaries or outsourcing functions from cleaning and catering to IT and human resources. Different companies make different choices and the ones that choose efficiently will survive.
But the choice between hierarchy and market also depends on the technology deployed to co-ordinate activity. Different technologies favour different ways of doing things.
GigBot will talk to your alarm clock; $10 or $10,000, just name the price that would tempt you from your lie-in.
Nothing empowers a worker like the ability to walk out and take a better offer; in principle the gig economy offers exactly that. Indeed both scenarios may come true simultaneously, with one type of gig for the lucky ones, and another for ordinary folk.
If we are to take the best advantage of a true gig economy, we need to prepare for more radical change
by: Tim Harford – thanks for the relevance of this content
Are we misunderstanding the endgame of the annoyingly named “gig economy”? At the behest of the UK government, Matthew Taylor’s review of modern working practices was published this week. The title could easily have graced a report from the 1930s, and the review is in many ways a conservative document, seeking to be “up to date” while preserving “enduring principles of fairness”. Mr Taylor, chief executive of the RSA and a former policy adviser to the Blair government, wants to tweak the system. One proposal is to sharpen up the status of people who are neither employees nor freelancers, calling them “dependent contractors” and giving them some employment rights. In the US, economists such as Alan Krueger — formerly the chairman of Barack Obama’s Council of Economic Advisers — proposed similar reforms. There is nothing wrong with this; incremental reform is often wise. Quaint ideas such as the employer-employee relationship are not yet obsolete. Yet they might yet become so, at least in some industries. If they do, I am not sure we will be ready. The obsolescence I have in mind was anticipated by Silicon Valley’s favourite economist, Ronald Coase. Back in 1937, a young Coase wrote “The Nature of the Firm”, calling attention to something strange: while corporations competed within a competitive marketplace, corporations themselves were not markets. They were hierarchies. If you work for a company, you don’t allocate your time to the highest bidder. You do what your boss tells you; she does what her boss tells her. A few companies dabble with internal marketplaces, but mostly they are islands of command-and-control surrounded by a sea of market transactions. Coase pointed out that the border between hierarchy and market is a choice. Corporations could extend their hierarchy by merging with a supplier. Or they could rely more on markets, spinning off subsidiaries or outsourcing functions from cleaning and catering to IT and human resources. Different companies make different choices and the ones that choose efficiently will survive. So what is the efficient choice? That depends on the nature of the job to be done. A carmaker may well want to have the engine manufacturer in-house, but will happily buy bulbs for the headlights from the cheapest bidder. Related article UK tries to tackle ‘gig economy’ conundrum New report assesses how to protect workers without stifling technological change But the choice between hierarchy and market also depends on the technology deployed to co-ordinate activity. Different technologies favour different ways of doing things. The bar code made life easier for big-box retailers. While eBay favoured the little guy, connecting buyers and sellers of niche products. Smartphones have allowed companies such as Uber and Deliveroo to take critical middle-management functions — motivating staff, evaluating and rewarding performance, scheduling and co-ordination — and replace them with an algorithm. But gig workers could install their own software, telling it where they like to work, what they like to do, when they’re available, unavailable, or open to persuasion. My app — call it GigBot — could talk to the Lyft app and the TaskRabbit app and the Deliveroo app, and interrupt me only when an offer deserves attention. Not every job can be broken down into microtasks that can be rented out by the minute, but we might be surprised at how many can. Remember that old line from supermodel Linda Evangelista, “We don’t wake up for less than $10,000 a day”? GigBot will talk to your alarm clock; $10 or $10,000, just name the price that would tempt you from your lie-in. It is easy to imagine a dystopian scenario in which a few companies hook us in like slot-machine addicts, grind us in circles like cogs, and pimp us around for pennies. But it is not too hard to imagine a world in which skilled workers wrest back control using open-source software agents, join electronic guilds or unions and enjoy a serious income alongside unprecedented autonomy. Where now for the UK’s gig economy? Play video Nothing empowers a worker like the ability to walk out and take a better offer; in principle the gig economy offers exactly that. Indeed both scenarios may come true simultaneously, with one type of gig for the lucky ones, and another for ordinary folk. If we are to take the best advantage of a true gig economy, we need to prepare for more radical change. Governments have been content to use corporations as delivery mechanisms for benefits that include pensions, parental leave, sick leave, holidays and sometimes healthcare — not to mention the minimum wage. This isn’t unreasonable; even a well-paid freelancer may be unable to buy decent private insurance or healthcare. Many of us struggle to save for a pension. But if freelancers really do start to dominate economic activity — if — the idea of providing benefits mostly through employers will break down. We will need governments to provide essential benefits, perhaps minimalist, perhaps generous, to all citizens. Above that safety net, we need portable benefits — mentioned warmly but briefly by Mr Taylor — so that even a 10-minute gig helps to fill a pension pot or earn time towards a holiday. Traditional corporate jobs have been socially useful, but if you push any model too far from reality, it will snap.
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
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.
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
“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.”
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.
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.
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.
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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Comparison of Ideas and Actions for the Corporation and its Board , the Entrepreneur and his Company
Here are LinkedIn’s top seven picks:
Median base salary: $62,000
Job openings: 1,700+
Top skills: Financial analysis, financial reporting, accounting, Microsoft Excel, financial modeling
Median base salary: $102,000
Job openings: 100+
Top skills: Underwriting, general insurance, commercial insurance, property and casual insurance, liability
Median base salary: $105,000
Job openings: 200+
Top skills: Quantitative finance, derivatives, visual basic for applications, quantitative analytics, Matlab
Median base salary: $100,000
Job openings: 500+
Top skills: Scrum, Agile methodologies, Agile project management, software development, requirements analysis
Median base salary: $63,000
Job openings: 1,000+
Top skills: SQL, SAS, statistics, databases, Microsoft Excel, data mining
Median base salary: $99,000
Job openings: 500+
Top skills: Product management, product marketing, product development, competitive analysis, product launch
Median base salary: $52,500
Job openings: 400+
Top skills: Financial analysis, credit risk, credit, banking, loans
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