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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 electronically and delivered 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. =============================================================== Well another quarter is almost over. Time to start thinking about filing taxes, balancing (perhaps even re-balancing) your portfolio, and making sure that you and your company have hit your quarterly projections. And alas, only a few short weeks to the Masters signaling the start of yet another year of trying to reduce my handicap. This month you'll read some great articles ranging from fresh thinking and a unique challenge about your mission statement, a frank discussion of how one company coped with a merger gone bad, and why you should stay on top of your corporate minute books. Be sure to read Quick Stuff this month for information about the Maximum Impact simulcast "Becoming a Person Of Influence" coming Saturday April 27, 2002. Much
success to you. =============================================================== In This Months Issue: (Click on the Article Title To Go To The Full Story.)
=============================================================== Quote Of The Month: Investment Hindsight: ===============================================================
Stephen Covey's Seven Habits of Highly Effective People states: "People can't live with change if there's not a changeless core inside them. The key to the ability to change is a changeless sense of who you are, what you are about, and what you value." A successful organization in today's fast-changing marketplace is one that possesses a changeless core--the DNA that tightly synchronizes its marketing, operations, culture and leadership. Putting business aside for just a moment, let's look at systems. The human body is an intricate array of systems with different functions that make decisions daily. What synchronizes all of these functions so the body knows what to do and when to do it? The DNA. It contains all the necessary information to operate and sustain the body through day-to-day changes, generation after generation. Your business is no different. Whether a small enterprise or a multinational organization, it contains many elements: people, resources, systems, processes, decisions, policies, relationships, technology, cash flow and capital. Each department, like the body's systems, serves different, vital functions. What is the DNA in a business that informs its employees and leadership to keep its operations efficient, effective and productive on a daily basis? Traditionally, businesses have relied on "mission" and "vision" statements for both inspiration and direction. Ironically, these statements have become mere sermons preaching harmony and synchronicity in branding, leadership, operations and corporate culture. Have mission or vision statements really worked in practice? One way to know is to ask whether your employees or suppliers know your mission or vision statement. If so, do they remember it daily? Do they apply it daily, especially when they make decisions that affect the bottom line? The most common answer: No. Why is this so? Individuals within a business who make decisions impacting performance and well-being all have different agendas and philosophies. It's no wonder we have departments competing against one another: silos of people and cultures playing turf wars, with huge divides occurring between management and labor and more importantly, the company and its customers. This discord doesn't create value. It debilitates a business from the inside out. Ultimately everyone loses out: employees, executives, shareholders and customers. Unfortunately, most mission statements don't work, notes mission expert Dr. Christopher Bart, Professor of Business Administration at the Michael G. Degroote School of Business, McMaster University, Hamilton, Ontario, Canada. He claims some even become "grief" statements. In working with numerous clients on marketing and branding their products and services, it has become apparent that missions are inadequate for guiding a business effectively, as they are difficult to apply in day-to-day and long-term planning. Most often, they are long-winded, carbon copied, under-marketed and minimally utilized as an operational mantra. Despite the creation of a "feel-good" notion, a business with a mission and/or vision statement can still be devoid of a single driving purpose that can be sustained and delivered by the business, from employee through to customer. Let's look closely at the following mission statement taken from a major computer retailer's website: "Our mission is to be the most successful computer company in the world at delivering the best customer experience in markets we serve. In doing so, we will meet customer expectations of:
Can we identify the specific company by this mission statement? Could we not attribute this statement to any computer company? How would a customer know that this company takes pride in these standards or even delivers on them? Lets face it, what computer company would not want to claim this mission statement? Would an employee reading this statement really know what is expected of him or her? Hence we have a typical mission statement that becomes hard to implement and one that clearly doesn't differentiate this business from its competitors. A key problem with mission and vision statements is that businesses are commonly not disciplined enough to commit to them, especially because they are difficult to execute in a practical or sustainable way. Furthermore, mission statements seem to go out of fashion at every turn of leadership or change in season. As such, how can they build customer or employee loyalty, not to mention brand equity and sustainable shareholder value? There is a solution, however, to the impracticalities of mission and vision statements. It is the "Unifying Philosophy" statement (UPh™). Like DNA, a UPh™ is precise, pervasive and unchanging. A UPh™ is an explicit statement of a company's raison d'être, expressed in six words or less. It has many advantages over mission and vision statements, rendering them redundant and even obsolete. Al Ries and Jack Trout examined the need for owning a philosophy in the classic, The 22 Immutable Laws of Marketing. This concept is reinforced in the creation of a UPh™, in which the voice of a business and its stakeholders is paramount to that of a marketing agency, external focus group and even the customer. A UPh™ is not built by the customers but rather for them. The accountability, ownership and buy-in ensured by a UPh™ unifies an entire business across all levels, thereby making a company's philosophy operational. Has anyone successfully embodied the idea of a UPh™? Does "The Ultimate Driving Experience™" sound familiar? For over 35 years, BMW Group has consistently demonstrated excellence in applying their philosophy throughout every dimension of the company, its myriad internal systems and products. Its philosophy is indeed vibrant in the makeup of each employee, director, shareholder, supplier and customer. BMW's philosophy is its driving force and it is no surprise that the company continues to sustain superlative corporate performance and well-being. BMW is the highest ranked car manufacturer as rated in the Dow Jones Sustainability Group Index (A.D. Little Survey, Sustainable Value Report, BMW Group, 2001/2002). What are the core differences, then, between a mission statement and a UPh™?
In contrast, a UPh™ statement:
Having struggled in the past with a mission statement, AEROFLO Inc. immediately recognized the merits of a UPh™. After 13 years of leadership in the Canadian fan industry, the management of AEROFLO was reinforcing its presence in Canada and developing new business in the U.S. through sister company, CFM Continental Fan. Although the company operations, leadership and culture were shared, this was not visible or prevalent in marketing or communications. AEROFLO was a legacy in the industry and it was determined to secure and enhance this position. In 1999, it set out to develop a new brand. After a series of strategy meetings, a new logo and UPh™ emerged: "Better Airflow by Design.TM" The company's relaxed corporate environment and belief in under-promising but over-delivering lent itself remarkably well to adopting the word "better". Without making bold promises and flashy pitches, AEROFLO was innovative every step of the way yet clear in its vision and had confidence in its engineering excellence and ingenuity. The philosophy of AEROFLO, which embodies a deliberate sensibility to do things better consistently, is now shared by each employee and is pervasive from the plant floor to the reception area. "Better by design" became a mantra and is now a daily reality. This UPh™ has become the foundation for the future success of the AEROFLO brand. Partner Vic Afansiev confirms: "Our new logo and business philosophy have allowed our employees to focus on their mission: to provide superior fan products and service. By creating a powerful image that is constantly reinforced at tradeshows and through advertising, the new logo and UPhTM have also created an easily recognizable focal point for our customers. There is no question as to their expectations from us." Another compelling example of the success of a unifying philosophy is BREADSOURCE, formerly B&A Bakery in Toronto. When work started with B&A Bakery on its corporate strategy and branding in 1997, it was a $4 million dollar business with plans to double earnings in the next five years and to become an $8 million dollar company by 2003. The company wanted to replace the B&A name since it lacked any significance (it had been named after original owners named Bob and Alex) and to receive a new brand identity, as well as expand its product line and territory. Through systematic conversations with management to uncover their core strengths and philosophy, we realized that they were successful primarily because they consistently delivered baked product on time. After much investigation, it became apparent that their original request to replace their name and brand would have been a surefire recipe for disaster. Our team advised that they retain their reputation and goodwill by keeping the original B&A name and that they reposition it into a retail operation and create a new "corporate" brand. With the UPh™ "Freshness on Time™", BREADSOURCE was born. Derived from a second UPh™ for their retail operations, B&A was transformed into Big Value and Appetizing TasteTM. In terms of sheer corporate performance, BREADSOURCE netted $6 million (dollars) in 2001, and projections for 2002 are $7 million. This means they're right on target. BREADSOURCE CFO Arif Sunderji confidently states: "The #1 reason why customers switched to BREADSOURCE was because of our philosophy 'Freshness on Time™'. As basic as it sounds, it is profound because our competitors couldn't and still can't match our company's freshness. Half of our company growth ($1.5 million) is due to our UPh™. We are clearly more expensive than any of our competitors yet we still attribute 70% of our new customers to the fact they buy freshness. "Despite taking one year to operationalize the UPh™ across our company, we can now attest with real proof that our return on investment is nothing short of outstanding. We still don't advertise and yet our philosophy has spread widely, gaining market share rapidly. We are not reactive to price anymore; we are now secure in the future of our company." With four years behind their UPh™, BREADSOURCE prevails as a sustainable leader in its industry. Regardless of management change, its UPh™ will be the mainstay of its strategic orientation. This kind of unity and accountability is good news for Boards of Directors that experience frequent changes in leadership. No shift, no matter how severe, can derail a company from its UPh™. Financial, strategic and operational stability, along with company-wide esprit de corps, are now a reality. Market forces are increasingly ruthless. Mission statements fail to
synchronize a business. This demands an invincible solution. The potency of a
UPh™, your business DNA, is undeniable. Disclaimer: a UPh™ is an
all-or-nothing proposition, solely reserved for those companies serious about
achieving superlative corporate performance and well-being. ===============================================================
ProMedex Inc., which I co-founded in 1996 with Pieter Muntendam, M.D., was a disease-management and health-care informatics company that grew its sales to $11 million by its third year. Pieter served as CEO and president, and I was the head of program development, then of operations and, ultimately, of sales and marketing. We raised $7 million in venture capital in two rounds of funding, then began looking for a third round to take us to an IPO. Our fund-raising efforts led us to InLight Inc., a patient-education company with aspirations to become a dot-com. ProMedex had products, customers and revenues. InLight had a star-studded board of directors-although none had our entrepreneurial experience-and a strategic investor that had committed $32 million to the enterprise. We needed capital, and InLight needed substance. So, in March 2000, the companies merged in a transaction that gave our business a $110-million valuation. We thought we had finally arrived. Little did we know! The combined company couldn't define its core business, and no one was minding the store. By August 2000, InLight was insolvent and out of business. The board and CEO wanted to shut ProMedex down, too, but we believed we could keep it alive while we looked for a buyer. And we were right: In October 2000, ProMedex was sold again, this time to Landacorp, a publicly traded health-care technology company. Throughout the intervening 10 weeks, our management team successfully navigated a financial and organizational crisis that is best described as Byzantine. No Time for Regrets. Selling the company-quickly-was a huge job. We had to find and woo prospective buyers. We had to work with a long parade of due-diligence teams. We had to manage a hostile board of directors and a panic-stricken bank. We had to negotiate complex purchase agreements with multiple parties. In the meantime, we had to continue serving our customers by maintaining operations. We had to micro-manage our finances in order to make payroll in the interim. We had to manage jittery vendors. And, we had to keep it all in sync. Division of Labor Is Critical. Pieter's leadership set a direction for the company and then steered us to the conclusion. He made quick, tough, informed decisions. He showed his confidence in his employees, his management team and himself, inspiring everyone. He worked without ceasing until the crisis was resolved. Senior management divided up the work and then stayed out of each other's way. We had no financial manager-that had been delegated to headquarters after the merger. Fortunately, our vice-president of information technology was a perfectionist about budgeting and had worked as a financial analyst. He and the head of operations teamed up as co-comptrollers (we called them the Co-Cos). Their job was to count the pennies (literally), prioritize expenditures, manage vendor relations and cycle through countless cash-flow projections. They also supplied all the financial information required for due diligence. The head of customer operations kept the rest of the company on course throughout the crisis and insulated the customers from it. The human-resources director, an attorney, immersed herself in bankruptcy law, M&A law and all the nuances of letters of intent, contracts and ownership issues. A shrewd negotiator, she was one of our key strategists as well. I kept one hand in client sales, lest our pipeline dry up, and worked on selling the company with the other. Pieter managed key relationships, led the negotiations and directed traffic. What to Tell Whom. Deciding what to tell customers was more challenging. We said our parent company was closing, but that we were actively negotiating to sell our piece, intact, and that operations were proceeding as usual. Most of them were satisfied with that much information. By contrast, our largest customer played an active role in the sale of the company by serving as a reference for due diligence, working with us to catch up overdue payables so we could make payroll. This customer had a front-row seat, which was appropriate, given its investment in using our services. Vendors were also given frequent updates on what was happening, how we were managing and what timelines we expected. We were overdue on a number of payables by then, and they could have shut us down by withdrawing goods and services, so we stressed our commitment to satisfying our liabilities once the company had been sold. Unfortunately, we had to keep moving the resolution date out. But, our creditors hung in there. They rewarded our forthright approach with remarkable patience and cooperation and played an essential part in our successful sale. Communicating with the media was a delicate matter. We had good relationships with our local media, so they respected our wishes to keep details out of the news until we resolved the sale. On the other hand, InLight's headquarters were in Chicago, and the chairman and the CEO were well known there. A major Chicago newspaper ran several pieces on InLight's problems. Fortunately, our efforts were not harmed by the coverage. Intangibles Matter for Survival. Unity. As a management team, we were 100 percent behind the decision to find a buyer, despite the odds. We agreed on priorities, strategy and roles. We agreed on what and how to communicate with employees, customers, vendors and the media. We put aside differences in order to achieve the common goal, and we showed a united front. Confidence. We kept our heads up and our backs straight. Our display of confidence in our employees and in ourselves was a powerful psychological aid. Confidence breeds optimism, and optimism defeats the insidious effects of pessimism. Humor. We shared a lot of laughter, the "super-glue" for any team. It was an antidote to discouragement, and it helped us keep our perspective. When employees and others saw that we still had a sense of humor, they were reassured that things were going well and relieved that the management team was not succumbing to the pressure. In the final analysis, integrity is the key to effective resolution of a
company crisis. We put ourselves through 10 weeks of hell to save ProMedex.
People asked us why we bothered-after all, our equity had become worthless. We
did it because we wanted to keep our employees employed and our customers
served. These people had put their faith in us. Giving up without a fight would
have betrayed that trust. I am proud to say that we all got to the finish line
together. Reprinted with permission from The Ewing Marion Kauffaman
Foundation. Visit http://entreworld.org/ ===============================================================
This article is to remind all business owners, directors, officers, managers and advisors of the importance of maintaining accurate and up-to-date corporate records. Jean Chretien would be the first to advise of the importance of maintaining accurate and up-to-date corporate records. Back in 1999, controversy erupted when Mr. Chretien was listed as a corporate shareholder of the golf club at Grand-Mere between the years of 1996 and 1998, a period in which the prime minister had admitted lobbying the Federal Business Development Bank for a loan to the Auberge Grand-Mere, the hotel next to the golf club. The Opposition screamed conflict of interest; Mr. Chretien claimed he sold his shares in the golf course a full four years before he made the controversial call to the bank. Unfortunately, the minute books and share register of the company did not show the transfer of shares. Consider the wasted time and resources that were directed to contain the damage that resulted. THE
LESSON?
Maintaining
accurate and up-to-date records avoids problems, costs, aggravation and
embarrassment. The Importance of Accurate
Minute Books. Although corporate minute books serve as official corporate records, keeping them up-to-date is sometimes a low priority. There are a number of reasons why minute books should be kept current including: 1. The minute book is the official source of documents that demonstrate share ownership of the corporation. The minute book should reflect exactly when and to whom shares of stock have been transferred. It should also contain the original stock certificates or share register of the owners. 2. A proper minute book shows the chain of decision makers (and those responsible at law for certain types of transactions) of the corporation, i.e. directors, officers and members of management committees. Equally, it records when these individuals ceased their functions. 3.
The
minute book leaves a trail of the decisions and transactions of a corporation.
The minute book is an important audit backup. With it one can determine
effective dates for tax purposes and establish justification for the accrual of
expenses and fixed obligations. 4.
As
corporate records grant corporate directors and officers the authority to act,
up-to-date records can help avoid challenges to the corporation's authority to
take certain actions. These
challenges might come from a number of sources including: minority shareholders,
directors, employees or even Canadian Customs and Revenue Agency (C.C.R.A.). 5.
The
minute book details the official standing of the corporation and
establishes the background record needed to facilitate corporate transactions
including the issuance of shares and sale of the actual corporation. Having an
inaccurate minute book can make even the simplest of corporate transactions into
a lengthy, costly and hassle-filled experience for everybody involved. 6.
The
minute book is the official recording of the compensation and dividends that
the corporation is required to pay. The minute book record is also effective at
creating a paper trail in order to demonstrate to C.C.R.A. or the other various
government authorities many of the payments the corporation has made. It should be kept in mind that the failure to
maintain an up-to-date minute book may be subsequently more serious (and costly)
in the event parties become unwilling or unable to execute documents requiring
their signature. The Importance of
Completing Annual Resolutions. Annual meetings of the shareholders of a
corporation is another important source of corporate record keeping that should
not be overlooked. Shareholder meetings may be required in various situations
(such as matters requiring a special resolution of the shareholders, or upon
requisition by the court, etc.), however, annual shareholder meetings are
prescribed by law. According to Ontario law, directors are required to
call an annual meeting of shareholders not later than 18 months after the
corporation comes into existence and subsequently not later than 15 months after
the holding of the last preceding annual meeting. As
prescribed by law, the requirements of an Annual Shareholders Meeting include: 1.
Approval
of financial statements 2.
Election/appointment
of directors 3.
Appointment
of the corporation’s auditor/Dispensing of the appointment (unanimous
shareholder consent required) With appropriate documentation, the law provides
that shareholders may merely sign written resolutions to see to the above-noted
tasks rather than attending actual meetings. In either case, it is strongly
recommended that these shareholder’ duties be duly attended to. Problems Associated
With Failing to Keep Accurate and Up-To-Date Corporate Records. It is important to comply with the law and hold
annual shareholders’ meetings as it will avoid a variety of problems,
including both practical implications and legally imposed penalties. Practical
Implications. 1.
Many
corporate maneuvers will not be able to be accomplished as legal opinions
regarding the corporation will not be able to be drafted until all of the
corporate documents have been duly executed. This may cause costly delays or the
even the cancellation of valuable corporate opportunities. 2.
Without
proper documentation, decisions made by the officers/directors of the
corporation will be barren of legal substance and therefore be vulnerable to
scrutiny from disgruntled stakeholders, C.C.R.A., and the courts. 3.
To
properly take advantage of the benefits of incorporation (limited liability and
tax benefits), the courts may, in certain circumstances, require evidence of a
duly operating corporation (i.e. with accurate and up-to-date records), rather
than a corporation in form only. Legal
Penalties. According to law, a corporation that, without reasonable cause, fails to comply with the requirements to keep records is guilty of an offence and may be liable to a fine not exceeding $25,000. Further, every director or officer who, without reasonable cause, authorized, permitted or acquiesced in such offence may also be guilty of an offence and on conviction may be liable to a fine of not more than $2,000 or to imprisonment for a term of not more than one year, or to both. Reasonable cause is not defined in the law however, it seems each situation will be judged according to the specific surrounding circumstances. Conclusion. Other than the troubles suffered by Mr. Chretien,
there are numerous beneficial reasons why corporate minute books and annual
resolutions should be vigorously maintained. When it comes to maintaining
corporate records, an ounce of prevention is undoubtedly worth a pound of cure. James
G. McPherson is a business lawyer
dealing with closely held companies in communications, marketing,
media and logistics both in Canada and
internationally. James can be contacted at jmcpherson@aylaw.com or (416)
777-0101 Aylesworth Thompson Phelan O'Brien LLP "since l861" provides business advice with a fresh perspective to service industries, manufacturers, franchisors and financial institutions from its offices at 200 Bay Street Toronto and through Lawyer's Associated Worldwide, a net- work of similar firms located in 40 countries. Visit their website at www.aylesworth.com . ===============================================================
Best Selling Author John Maxwell presents the Maximum Impact™ Simulcast
“Becoming a Person of Influence” April 27th, 2002. More than 100,000 business leaders in 700 locations in North
America will be joining this live seminar.
The purpose of Maximum Impact ™ is to bring
cutting-edge business development to all business people.
The seminar is open to anyone desiring to grow personally or
professionally, specifically in the areas of influence. The
seminar will be presented by three dynamic world class speakers: §
Best-selling author John
C. Maxwell
(New York Times Best Seller “21 Immutable Laws of Leadership”) has mentored
thousands of leaders around the world. §
Coach
Lou Holtz,
who is the head coach South Carolina Gamecocks and in 1988 lead Notre Dame to a
national championship and has been voted the nations top motivational speaker
for the past two years. §
Denis
Waitley,
one of the world’s most sought after keynote speakers, has in the past 20
years spoken to over 1 million
business and government leaders in 26 countries and is the author and narrator
of the best selling “The Psychology of Winning”. Tickets are CDN $99.00 and
include: §
Your Simulcast Admission §
Audio Cassette by John Maxwell “Keep Growing To Keep Going” §
Online “Failing Forward” assessment at www.injoy.com/failingforward/ffmain2.asp §
Leadership Wired online newsletter – www.injoy.com/leadershipwired/ §
“Becoming a Person of Influence” resource notebook. §
Opportunity for Free Leadership Training (contact the host site) In
the Toronto area, the Maximum Impact Simulcast will be held in Brampton at Bramalea
Alliance Church 905 Central Park Drive, Brampton ON (905) 791-1510 For more information about Maximum Impact visit
www.maximumimpact.com
. For information about the Brampton simulcast
contact D. Paul Graham at Graham Financial Corporation (416) 368-0088 or email
at dpgraham@grahamfinancial.com =============================================================== 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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