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LEVERAGED CAPITAL NEWSLETTER Leveraged Capital, is a free monthly newsletter that presents growth and strategy issues effecting entrepreneurs and owners of small to medium size enterprises (SME's). Leveraged Capital is published and delivered electronically to subscribers. Your privacy is strictly respected and we do not share or sell subscriber email addresses to anyone outside of Graham Financial Corporation. If you enjoy what we present, please forward a copy of Leveraged Capital to clients and associates. They can subscribe to Leveraged Capital, by clicking on this link: http://www.GrahamFinancial.com/newsLetter.htm and filling out the quick form. =============================================================== So what do you think about when
you hear the names Enron, WorldCom, ImClone Systems, Adelphia, Tyco, or Arthur
Anderson? Unless any readers are
(or were) involved directly with management, your answer may depend on when (or
if) you profited from investing in these companies. Any other comments about privatizing Ontario Hydro?
Don’t even get me going again about Bre-X Gold.
The one common thread found in all of these “situations” is the human
condition of greed (both corporate and investor) and the distinct failure of
management or boards to be willingly and openly accountable.
Business, investment, political and legal communities respond with
outrage, shock and in recent cases, attempts at legislated correction and
assigning culpability. Arthur
Anderson was found guilty this weekend – not individuals or direct management,
just the corporation. Not much
changes when it comes to human nature – just look at the Tulip-Mania of the
1600’s. Change 1600’s Tulips for 1990’s NASDAQ dot-com stock
issues and I think you will see my point. Thus,
in this our first anniversary issue, we look at corporate governance,
decision-making and business ethics. Much (long-term)
success to you, DPG. ===============================================================
14 Years of Exceptional Service Contact Nikki Barnett (416) 367 - 1055 =============================================================== In This Months Issue: (Click on the Article Title To Go To The Full Story.)
=============================================================== Quote Of The Month: Investment Hindsight: ===============================================================
Corporate Governance,
or the lack thereof, is once again back in the spot light for public companies.
Last month The Business Roundtable (BRT), a Washington-based association of CEOs
of some of the largest public corporations, released its white paper of
Principles of Corporate Governance. The
paper is intended to assist corporate management of public companies and boards
of directors to implement best practices of corporate governance and to generate
public discussion on evolving governance standards.
As I was reading the paper, I started to ask myself if there was a role
for corporate governance for Small and Medium Sized Enterprises (SMEs). The BRT has detailed
six guiding principles for public corporations with regard to management
integrity within public markets. These
principles have practical applications for privately held SMEs, no matter where your company is along the growth curve.
With due respect and acknowledgment to the BRT,
I have referenced these principles within the context of
SMEs. 1.
The paramount duty of directors of a company is to
oversee managements competent and ethical operation on a day-to-day basis.
For many SMEs, the board of directors are senior management and owners.
The best-managed and competent SMEs that we have been involved with, at
the very least have an advisory team. Although
not a formal board of directors, these advisors bring experience, knowledge,
judgment, and perspective that owners/management of an SME very likely are
lacking, particularly in the early growth stages of a company.
We suggest your advisory team should include financial, legal,
operations, marketing, and another individual that could be outside your
industry but offers a broader business/operating perspective because of
experience. We refer to this person as the “gray-hair”.
Ethical operations on day-to-day operations is a choice that one makes
when entering into business. An advisory team can assist you in decisions that are made
around points of ethics and in matters of ethical errors of omission or
commission. 2.
Management holds the responsibility of operating
the corporation in an effective and ethical manner to produce value for the
shareholders. This involves
owners/managers understanding their respective strengths and weaknesses and
responding accordingly when making decisions and providing goods and services
within the marketplace. Issues
surrounding this principal involve understanding and implementing your strategic
plan, understanding your financial statements and budgetary process,
understanding and adapting to competitive and market forces, and, particularly
in the case of family owned and controlled companies, defining and planning for
management succession. 3.
Management is responsible for producing financial
statements that accurately represent the operations of the corporation and to
make timely disclosures to investors to assess the financial and business risks
of the company. So often we have
seen companies that simply do not report accurate and timely financial
information. Without proper regard
for financial controls and reporting, it is increasingly difficult for SMEs to
raise outside financing to expand through internal growth or external
acquisition. 4.
The board of directors are responsible to engage an
independent accounting firm to “audit” the financial statements prepared by
management based on Generally Accepted Accounting Principles.
As mentioned previously, you or your family may be your board of
directors making this decision. Most SMEs do not need to go to the expense of audited
financial statements. As a minimum
we establish a review engagement by an outside accounting firm. The reasons for this are four fold: i.) by engaging an independent account firm, you will
establish accounting systems which will provide you a better understanding and
awareness of your operations;
ii.) this independent accounting firm can become a part of your advisory
team in matters of accounting and taxation;
iii.) credibility is established with lenders or investors that you will
approach at some point – better to establish this relationship and systems
before you look for outside capital; and
iv.) when you decide to sell your company, you have not only
historical data to support valuations but also systemic strengths that add value
to your company, that may increase the sale price of your business. 5.
The independent accounting firm is responsible for
ensuring no conflicts of interest exist with the company and shall immediately
raise concerns with the board and management with regard to accounting
treatments, business transactions, and represent fairly the company’s
financial condition. As a privately
held company, you have to create an environment with your accountants (as well
as your other advisors) that fosters unsolicited feedback.
You may not see some of the shortcomings or possible ways to strengthen
your operations that your accountants, lawyers, and other advisory team members
may be aware of. For credibility,
you must maintain a high level of financial representation of your company. 6.
The corporation has a responsibility to deal with
its employees in a fair and equitable manner.
This is paramount to attracting, keeping, and enabling your employees to
grow within your company. Your
company’s future, and ultimately the wealth you will create with your company,
depends on it. When considering these
principles, it is clear that not only is there a role for corporate governance
for SMEs, but our current business environment demands an increasing level of
corporate governance accountability within the public and private domain.
Ultimately, your ability to
generate wealth through ownership of your company will be predicated on the
implementation and adherence of these principles. Paul Graham is President of Graham Financial Corporation.
For many small to medium sized companies, there may be limitations on the
resources of time or key employees needed to develop growth strategies, let
alone the time to execute and measure the success of strategic plans.
Graham Financial Corporation adds value by filling this gap and
helps you meet your goals and objectives.
Paul can be reached at dpgraham@grahamfinancial.com
or visit www.grahamfinancial.com
. ã2002
Graham Financial Corporation, All Rights Reserved. ==============================================================
As president of Ford Motor Co., Robert McNamara once briefly pondered a decision made by one of his executives and then asked him, "What did you decide not to do?" It wasn't that McNamara thought the executive had made a poor decision - but how could he know for sure if he didn't know what options had been rejected? McNamara, as a wise and successful leader, wanted to be satisfied that multiple options had been considered. He didn't settle for the obvious decision, even if it looked good on the surface. He wanted the best decision. Why is it important to consider multiple options during the decision making process? Here are three reasons: 1. With options come possibilities. Not long after moving to the Atlanta area, I realized that the drive from my home to the airport takes 35 minutes - if I leave at 6:30 a.m. If I leave just 15 minutes later, at 6:45 a.m., the same drive takes an hour. And if I wait until 7 a.m., that same drive takes 80 minutes. Driving in Atlanta traffic has
trained me to become a student of the routes and time because they help define
my options. When I arrive somewhere early, sometimes I double back and look for
new ways to make the same trip. I want to know my options. That way, when the
obvious route slows to a crawl, I know my options and I often come up with a
creative solution. If we don't have options or if we don't know our options, we're stuck. We have little choice but to stay in the traffic jam. In decision making, if we do not have options, we only have one decision. And that decision may be the wrong decision, or it may not be the best decision. 2. With options come insights. The more options we have, the more we can see what is not obvious to others. And people who are successful see what is not obvious to others. They don't see what others can't see; they just see what others don't seem to see. Successful people engage that creative part of their minds and ask, "Well, I wonder how else I can look at this problem? I wonder how else I could deal with this decision? I wonder what other possibilities I have there?" 3. With options come options. Options are a result of thinking early, often and differently. And when we think early, often and differently, we begin to create more options within our life. Options come from the disciplines of pursuing options. And very often they take us down roads we never would have traveled, to places we never would have seen, where we find new options we never would have considered. Fred Smith, a businessman in Texas who has been one of my mentors, has a sign on his desk that says, "But on the other hand..." He's an optional thinker, and he's taught me to be an optional thinker, too. So when somebody asks me to make a decision about a situation, I don't offer a solution, I ask a question: What are our options? Give me the good, give me the bad, give me the pretty, give me the ugly, give me the impossible, give me the possible, give me the convenient, give me the inconvenient. Give me the options. All I want are options. And once I have all the options before me, then I comfortably and confidently make my decision. This article is used by
permission from Dr. John C. Maxwell's free monthly e-newsletter 'Leadership
Wired' available at www.MaximumImpact.com. Dr. John Maxwell, founder of Georgia based Injoy
Group and has cultivated an
extensive following amount the most highly respected business leaders around the
globe. He reaches more than 350,000
people a year through speaking engagements, and over a million more through his
resources such as Maximum Impact. John
is committed to developing leaders of excellence and integrity through his
philosophy that “everything rises
and falls on leadership”. Author
of more than 30 books, Maxwell’s titles include these best sellers:
The 21 Irrefutable Laws of Leadership, Failing Forward, and The 17
Indisputable Laws of Teamwork. ===============================================================
Business
ethics in the workplace is about prioritizing moral values for the workplace and
ensuring behaviors are aligned with those values -- it's values management. Yet,
myths abound about business ethics. Some of these myths arise from general
confusion about the notion of ethics. Other myths arise from narrow or
simplistic views of ethical dilemmas. 1.
Myth:
Business ethics is more a matter of religion than management. Diane
Kirrane, in "Managing Values: A Systematic Approach to Business
Ethics," (Training and Development Journal, November 1990),
asserts that "altering people's values or souls isn't the aim of an
organizational ethics program -- managing values and conflict among them is
..." 2.
Myth:
Our employees are ethical so we don't need attention to business ethics. Most of the ethical dilemmas faced by managers in the
workplace are highly complex. Wallace explains that one knows when they have a
significant ethical conflict when there is presence of a) significant value
conflicts among differing interests, b) real alternatives that are equality
justifiable, and c) significant consequences on "stakeholders" in the
situation. Kirrane mentions that when the topic of business ethics comes up,
people are quick to speak of the Golden Rule, honesty and courtesy. But when
presented with complex ethical dilemmas, most people realize there's a wide
"gray area" when trying to apply ethical principles. 3.
Myth:
Business ethics is a discipline best led by philosophers, academics and
theologians. Lack
of involvement of leaders and managers in business ethics literature and
discussions has led many to believe that business ethics is a fad or movement,
having little to do with the day-to-day realities of running an organization.
They believe business ethics is primarily a complex philosophical debate or a
religion. However, business ethics is a management discipline with a
programmatic approach that includes several practical tools. Ethics management
programs have practical applications in other areas of management areas, as
well. (These applications are listed later on in this document.) 4.
Myth:
Business ethics is superfluous -- it only asserts the obvious: "do
good!" Many
people react that codes of ethics, or lists of ethical values to which the
organization aspires, are rather superfluous because they represent values to
which everyone should naturally aspire. However, the value of a codes of ethics
to an organization is its priority and focus regarding certain ethical values in
that workplace. For example, it’s obvious that all people should be honest.
However, if an organization is struggling around continuing occasions of deceit
in the workplace, a priority on honesty is very timely -- and honesty should be
listed in that organization’s code of ethics. Note that a code of ethics is an
organic instrument that changes with the needs of society and the organization. 5.
Myth:
Business ethics is a matter of the good guys preaching to the bad guys. Some
writers do seem to claim a moral high ground while lamenting the poor condition
of business and its leaders. However, those people well versed in managing
organizations realize that good people can take bad actions, particularly when
stressed or confused. (Stress or confusion are not excuses for unethical actions
-- they are reasons.) Managing ethics in the workplace includes all of us
working together to help each other remain ethical and to work through confusing
and stressful ethical dilemmas. 6.
Myth:
Business ethics in the new policeperson on the block. Many
believe business ethics is a recent phenomenon because of increased attention to
the topic in popular and management literature. However, business ethics was
written about even 2,000 years ago -- at least since Cicero wrote about the
topic in his On Duties. Business ethics has gotten more attention
recently because of the social responsibility movement that started in the
1960s. 7.
Myth:
Ethics can't be managed. Actually,
ethics is always "managed" -- but, too often, indirectly. For example,
the behavior of the organization's founder or current leader is a strong moral
influence, or directive if you will, on behavior or employees in the workplace.
Strategic priorities (profit maximization, expanding marketshare, cutting costs,
etc.) can be very strong influences on morality. Laws, regulations and rules
directly influence behaviors to be more ethical, usually in a manner that
improves the general good and/or minimizes harm to the community. Some are still
skeptical about business ethics, believing you can't manage values in an
organization. Donaldson and Davis (Management Decision, V28, N6) note
that management, after all, is a value system. Skeptics might consider the
tremendous influence of several "codes of ethics," such as the
"10 Commandments" in Christian religions or the U.S. Constitution.
Codes can be very powerful in smaller "organizations" as well. 8.
Myth:
Business ethics and social responsibility are the same thing. The social responsibility movement is one aspect of the
overall discipline of business ethics. Madsen and Shafritz refine the definition
of business ethics to be: 1) an application of ethics to the corporate
community, 2) a way to determine responsibility in business dealings, 3) the
identification of important business and social issues, and 4) a critique of
business. Items 3 and 4 are often matters of social responsibility. (There has
been a great deal of public discussion and writing about items 3 and 4. However,
there needs to be more written about items 1 and 2, about how business ethics
can be managed.) Writings about social responsibility often do not address
practical matters of managing ethics in the workplace, e.g., developing codes,
updating polices and procedures, approaches to resolving ethical dilemmas, etc. 9.
Myth:
Our organization is not in trouble with the law, so we're ethical. One
can often be unethical, yet operate within the limits of the law, e.g., withhold
information from superiors, fudge on budgets, constantly complain about others,
etc. However, breaking the law often starts with unethical behavior that has
gone unnoticed. The "boil the frog" phenomena is a useful parable
here: If you put a frog in hot water, it immediately jumps out. If you put a
frog in cool water and slowly heat up the water, you can eventually boil the
frog. The frog doesn't seem to notice the adverse change in its environment. 10.
Myth:
Managing ethics in the workplace has little practical relevance. Managing
ethics in the workplace involves identifying and prioritizing values to guide
behaviors in the organization, and establishing associated policies and
procedures to ensure those behaviors are conducted. One might call this
"values management." Values management is also highly important in
other management practices, e.g., managing diversity, Total Quality Management
and strategic planning. Excerpt used with permission of the author.
To view the complete Guide To Ethics:
A Tool Kit for Managers click on the following link: http://www.mapnp.org/library/ethics/ethxgde.htm#anchor35028
. Carter McNamara, MBA, PhD, is the co-founder of Minneapolis based
Authenticity Consulting, LLC that provides real-world experience in management
with strong expertise in organizational change and development. He is also a
nationally recognized expert in using group-coaching (Action Learning) methods
to facilitate learning and organizational change. Carter also teaches the
seminar "Organization Development and Change" for the Center for
Nonprofit Management at the University of St. Thomas in Minneapolis, Minnesota.
He can be reached at by email at carter@authenticityconsulting.com
or visit www.authenticityconsulting.com
. ===============================================================
I have enjoyed not only publishing Leveraged
Capital each month for the past year, but have thoroughly enjoyed the feedback
and contributions made many of you. Thank you all for your subscription and interest.
I intend on working even harder this coming year to expand our
subscription base and to provide you with more depth and breadth of issues that
effect your company and ultimately your long-term wealth through corporate
ownership. Cheers, DPG. =============================================================== To Advertise in Leveraged Capital: If you are interested in advertising in Leveraged Capital, email us at: ads@GrahamFinancial.com and we will contact you. Feel free to forward a copy of Leveraged Capital to clients and associates. It is free to subscribe by clicking on this link: Click Here For Your Free Subscription To Leveraged Capital. =============================================================== To Unsubscribe from Leveraged Capital: If you wish to removed from our mailing list, send an email to us at: ezine@GrahamFinancial.com with the word "Unsubscribe" in the subject field. © 2002 Graham Financial Corporation, All Rights Reserved. |
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