Private equity funding is a transaction that can provide liquidity and growth capital to an owner who doesn’t want to sell the business, but does want to realize some of the benefits of a sale or merger.
“Private equity funding can benefit owners by giving them a significant portion of the value of the business in cash, while maintaining an ownership interest in the recapitalized company going forward,” says Bob McDonald, CPA, CM&AA, a principal with Briggs & Veselka Co.
“The transactions are usually conducted with a private equity group that contributes equity to recapitalize the company.”
Private equity funding can divide a company’s equity into two or more classes, with provisions to serve the objectives of the owners. The owners grow the business, while the financial partner provides assistance on financial, strategic and exit issues. At a later date, usually five to seven years, the company could either be sold to another firm, go public, or undertake another recapitalization.
Smart Business spoke with McDonald about private equity funding and how it can offer benefits to all parties involved.
For whom is private equity funding best suited?
Private equity funding allows owners to achieve personal liquidity without sacrificing the operating control of the company they built. Through a recapitalization, a portion of an owner’s equity is sold to the private equity group (either a minority or a majority interest), while maintaining operating and ownership control. This scenario is an alternative to total sale or regulatory scrutiny of a public offering. The owner is able to gain a financial partner to assist with strategic issues without interference in day-to-day operations. With its access to substantial financial resources, the financial partner supports the company in expansion plans and/or pursuing strategic acquisitions. By selling a portion of the company, the owner can eliminate personal guarantees on company debt, diversify net worth, and continue to run the company, if they choose. This newfound ability to grow increases the value of the owner’s retained equity position. Private equity funding is an excellent option to facilitate the owner’s estate planning and execute a succession plan to either the next generation or management.
What about retaining key employees?
Non Qualified Stock Options (NQSO) are great ways to help retain key employees. Even if a private equity group is not involved, NQSOs should be considered as part of an owner’s exit strategy. The goal of a private equity fund is to build value, therefore the investors expect a high rate of return on their acquisition. While they are very experienced in business, the private equity group does not typically have the operational experience needed to efficiently run the acquired business. For that reason, the investors generally retain the owner and key employees. In contrast, if an owner sold to a competitor, the new buyer may not want to retain these employees.
The company can grant NQSOs only to the employees it chooses. The options are not taxable to the employee until the option is exercised. At the time, the employee recognizes income equal to the fair market value of the vested amount, and the company receives a deduction for the amount. A good tool is to grant NQSO on a vested schedule. If, for example, an employee is to be granted 5 percent of the stock, vesting at 1 percent per year, the employee has an incentive to stay with the company for at least five years.
Why would I want to give ownership to my key employees?
Assuming the company is successful, it is probably in the 35 percent tax bracket. Since the company receives a deduction for the value of the NQSO, it is saving 35 percent of that value in taxes. The remaining 65 percent should be considered as an investment in the company. By giving ownership in the company, the employees will maximize their efforts to help the company grow and become more profitable; the owner’s return on his remaining ownership may far exceed the value of the stock granted. This is a decision that has to be carefully weighed, but can be a very good investment in your own company under the right circumstances. <<
BOB MCDONALD, CPA, CM&AA, is a principal for Briggs & Veselka Co. Reach him at (713) 667-9147 or bmcdonald@BVCCPA.com.
As a young man, George A. Pontikes Jr. was taught that it was best to learn business from the bottom up. So that’s what he did, working every job in the construction industry, from craftsman to superintendent, before founding Satterfield & Pontikes Construction Inc. with Tom Satterfield in 1989. Since that first year, Pontikes has grown the company from $1 million in revenue to an estimated $300 million in 2007. As president and CEO, Pontikes shares his expertise daily with his 500 employees, using his experience from previous jobs to help those in tough situations. He says doing so lets them know that he understands what they are dealing with because he has been in their shoes, and that creates a sense of unity. Smart Business spoke with Pontikes about why you have to put the client first in every situation.
Communicate and listen. Communication is key. Listen to your clients. They’re going to tell you their side, what’s going on and the way they see it. An employee can come and tell you that everything is rosy and everything’s going well, but if you’re not communicating with your client, you’re only hearing one side.
You may find that the client has a completely different understanding of your company than your employee does. I can’t tell you how many times somebody tells me that the client’s happy, and you go talk to the client, and they’ve got a different opinion.
A lot of people go out there and try to tell their clients what they want. You can’t do that. You’ve got to listen to what your clients tell you. If you’re not going to listen to your clients, you’re not going to get work.
If you’re not careful and don’t question, it’s easy for employees and clients to dance around questions. Pay attention to what they have to say and follow up with questions to try and dig deeper and see what you can find out.
It’s easy to dodge a tough question if you don’t want to provide an answer. Dig deeper to find out, and make sure that you’re not missing the true intent of their response.
Put the client first. Frequency of communication is key because things change. Your clients have to have trust and faith in you.
Work hard to do everything you can to let the client know that you’re working in their best interest. When a client loses confidence in you and doesn’t think that you’re putting their best interest in the front, then you’ve got a problem.
It’s hard to get that back. It’s not impossible, but it’s hard. Any time a client loses faith in you, it’s generally because they think you’re putting other interests in front of theirs, and you can’t do that. Try and demonstrate your good will at every opportunity.
Meet frequently with the owner and see what the owner’s feedback is. Meet with your clients; your clients will tell you what’s going on. Stay close to the client; he’ll tell you if he’s satisfied or if he’s not. If you know he’s not satisfied, you have an opportunity to correct the situation.
Don’t hide the truth, but be cautious.
Encourage your team to be open and realistic with clients. You’ve got to have realistic expectations. I encourage my employees to work hard, be tough but fair, and be open and communicate with their clients.
Be cautious of the expectations of your clients. You don’t want to oversell your capabilities, and you don’t want to under-sell. Be realistic with your clients. If a client has a request that’s unreasonable and you don’t diplomatically inform them that it’s not realistic, even if you do perform well, you’re going to have a problem down the line.
Recognize a job well done. Give employees responsibility, hold them accountable and provide strong support. You’ve got to create a positive environment for your employees, and then you’ve got to reward them if they do the right thing and if they meet your expectations. Let them know early on if you think they can do better, and if they continue to succeed, provide them with more and bigger opportunities.
Recognition goes a long way. Compensate them fairly, recognize their efforts publicly within the organization and encourage them to not be afraid to make mistakes.
You’re never going to have all of your employees reading the same sheet of music; you’ll always have a handful who are trying to prove you wrong and not following your direction. Do everything to try and reward the people that are on board, and get rid of the people that aren’t.
Face your mistakes. Don’t be afraid to encounter your vendors or your clients or your suppliers. You don’t want to express an opinion when you don’t know the topic, but don’t be afraid to tell somebody you don’t know the answer.
A lot of times, you’ll see people try and bluff their way through a difficult situation. You’re better off being truly open. Clients are going to have more than one issue, and you answer the ones you know the answer to and go out, research and do whatever you have to do to resolve the other problems. Just don’t try and bluff your way through.
Don’t be afraid to make mistakes. You can fix mistakes. Inaction is the worst thing that you can do. Just jump in there; just go do it.
You’ve got to make your own brand, but you’ve got to work through the process. Don’t be timid, make your move, make your brand, you’ll do fine.
If you’re in a situation where it’s not exactly like another problem you’ve dealt with, or it’s one you’ve never dealt with, research the problem and make the practical recommendations. Use associates, peers, outside consultants, employees in other areas to chase down an answer. Most questions have a practical answer.
HOW TO REACH: Satterfield & Pontikes Construction Inc., (713) 996-1300 or www.satpon.com
Bill Schrom refers to his job as trying to “stay in touch with my insanity.”
“You’ve got to like what you’re doing,” says Schrom, CEO of Geotrace Technologies Inc., a provider of sub-surface imaging solutions. “If you don’t really enjoy it or if you’re not willing to live it and give up sleep for it, you’re probably not going to be successful. I spend a lot of time on the business. It intrudes into my personal life, but I try to keep a balance.”
By tapping into the talents of others and soliciting feedback from customers and vendors, Schrom has found that balance to lead Geotrace through a global expansion, growing 2006 revenue to $41 million, with anticipated 2007 revenue of $54 million.
Smart Business spoke with Schrom about how patience and a love of coffee can be valuable traits in global business success.
Q: What are some keys to successful global expansion?
You have to have people who are willing to travel and adapt to other cultures. There is not a lot of glamour in business travel. I remember having this one young lady towing along behind me on a rainy evening in Oslo, Norway, giving me a death stare. If you’re high-strung and believe the whole world revolves around Texas, you’re probably not going to be able to do it.
You need someone who is willing to learn about how another culture works. What you find is you go into the Middle East, you’re going to go have coffee with somebody 15 times before you’re going to talk business with them. You have to understand if you’re pushy, you’re not going to make it.
Q: How do you assess whether you have people who are able to adapt?
I will go, or one of the other guys who has traveled a lot will go, with somebody the first couple of trips just to see how they do. Sometimes people think it will be fun or a great time, and they find out it’s a lot of work. Your body is jet-lagged and your sleeping habits go all haywire, and they just can’t take it.
You can gauge it and think this person can do it, but until you go on the road for a couple of trips, you really can’t say for sure. That represents a cost to the company, but it’s a good investment. If you’re going to rely on this person, you really have to feel comfortable that they can work in the new area.
We always touch base with clients and find out what they are thinking and what they have to say about the operation. Get a third-party perspective on what the operation is doing and what it looks like.
Q: What is the CEO’s role in successful growth?
Get out and talk to your people. Listen to them, and if you tell somebody you are going to do something, deliver on it.
Get out and see your clients. At times, you can get locked in being in the forest and forget what your clients think about you and believe about you. Stay in touch with your vendors because your vendors can help you with new ideas and different approaches.
There is a whole group of people looking at your business from a different perspective, and they tend to think outside the box that you have established for yourself.
Q: How do you get yourself out of that box?
It’s really getting out and not hiding in an office. It’s getting out and visiting with people and pushing it down so the people that report to me do the same thing and the people that report to them do the same thing.
I have an open-door policy, so anybody can walk in. It causes interruptions and changes the things I can get accomplished sometimes, but it’s very valuable. I go out and walk around and look over their shoulders and ask what they are doing.
Q: How do you define success?
We can have 500 different metrics to run the beast, but if it’s not making money, we have nothing. (Employees) know that’s what we’re all about. Either through generating revenue or cutting cost or looking at ways to do things more efficiently, the people are pretty well set that we have to be making money.
It works because people want to be part of an organization that is making money. People want to make money. If we’re working in a place where they are not interested in the company making money or in them making money, we’ve got a big problem.
That is the goal. We have to make money. By understanding that, they kind of watch our back. They make sure expenses don’t run over, and they treat it as their money.
HOW TO REACH: Geotrace Technologies Inc., (281) 497-8440 or www.geotrace.com
Jerry Winchester likes his employees to do things on their own. The president and CEO of Boots & Coots International Well Control Inc., an emergency response company that offers prevention, response and restoration capabilities to the gas and oil industries, says that in his work experience, his greatest bosses gave him an assignment and the freedom to accomplish it, something he does today with his 400 employees. Empowered employees help companies reach their goals, Winchester says, and last year, Boots & Coots hit revenue of $97 million. Smart Business spoke with Winchester about how to play to your employees’ strengths and empower those who are willing to be empowered.
Empower those who want to be empowered. It’s important to understand the dynamic of your company. Look at where people’s strengths are. Assign certain tasks, stand back and observe. Those strengths will then surface quickly.
We have employees who thrive on being empowered and those who are scared of it. When you have people who are capable of doing and achieving more, giving them the ability to go do these things, not getting in the way and empowering them to make decisions on behalf of the company can have a positive effect, especially when you are developing people and want to see how they will react in certain situations.
You’re talking about people you can develop and see how comfortable they are going out on a limb. Do they believe in themselves? Do they believe in what they’re saying? Are they confident enough in their abilities to take a risk? That’s one of the things that as a leader you are always looking for people who are aggressively moving ahead so that you’re not constantly trying to prod them into a situation, but you’re out there trying to rein them in some.
It’s like athletics; you can’t coach desire. When you’ve got people who have desire, empowering them is just the fuel to move them forward. When you can get that mix together, you’ve got somebody who can go do some strong things.
Work with those you can’t empower. If you’ve got somebody who’s great at taking direction and doing exactly what they’re told, and they pride themselves on following the rules, then trying to move them out of their comfort zone into this aura of empowerment sometimes is the wrong thing to do.
If you’ve got a person who is an introvert and you’re expecting them to be in a job where they have to be an extrovert, they spend all their time supplying the energy to be extroverted instead of spending their time doing other things. It’s counterproductive. It’s difficult on them because they are not as happy in their position.
If an employee is good at following processes and implementing established rules, then you want him in a job that allows him to do that, that works well both within the way his personality is, the way he makes decisions and the way he is comfortable working. It would be a lot better to try and define his strengths and make sure that his job is aligned with that or allow him to work within the dynamic of a team where his diversity helps the team dynamic rather than hurts it.
Align company and personal goals and objectives. You can’t imagine how much smoother it is when everyone is moving in the same direction, so you’re not constantly dealing with conflict within your organization about the direction in which you are headed or how to resolve something. It’s a whole lot easier to manage and communicate within a company whose goals are aligned from top to bottom.
Clearly communicate what the company’s goals are and empower senior management with the flexibility and right tools to effectively manage employees’ expectations.
For certain employees, even though they think they don’t affect share price or overall financial performance of the company, they absolutely do, so you’ve got to set goals and objectives for them so that they align with the same goals and objectives that you’re working on.
If someone was struggling with either aligning or understanding the goals, sit them down and ask them what the issue seems to be and listen to them. If they’ve got a problem or some preconceived notion of what the problem is, hear that and deal with it rather than just telling them over and over again and trying to make them understand what you’re saying because obviously you’re not connecting.
Reward employees. Set goals and objectives for employees and deal with that monetarily or whatever manner is the best. We look at people who have been successful or have done a good job and want to give them the opportunity for advancement.
We’re looking for the next group that can step up. Not only can they measure success by saying, ‘I’ve been rewarded well for this,’ or, ‘I got a promotion,’ but, at the same time, they can see that the company has done well, and they’ve left a legacy, and they’ve helped build a program that they can look back and say, ‘I did these things; I accomplished this stuff.’
For the people that are driven to do that, those are the kinds of things they’re looking for. Somebody that’s in the mode of ‘I like a more comfortable job here and don’t have to make any decisions,’ success for them is that they get through the day without getting nicked up or running afoul of the rules.
For other folks, success for them is measured in a different way. It’s looking at the individual and what they think. Some of them want to see the tangible effects of their work, and some are happy just knowing that the ship is still moving along and the company’s still afloat.
HOW TO REACH: Boots & Coots International Well Control Inc., (281) 931-8884 or www.bootsandcoots.com
Education: B.S., University of Houston
History: Employed by David Weekley Homes since September 1990
What is the best business lesson you’ve learned?
People are critical to business success. It’s about leveraging the talents of your people and putting them in the correct jobs to maximize their talents and skill sets.
What traits or skills are essential for a business leader?
You must have integrity, and you must have a strong drive and will to succeed. You must also be a good communicator. You need to take your job seriously, but you also need to keep your ego in check. I think the best thing to do is to take your job seriously, but don’t take yourself too seriously.
What is your definition of success?
It is to live up to the standards I have set for myself. Being true to the values of the company and accomplishing my goals.
Once a year, you’ll find Brenda Harris on the beach somewhere like Cancun or Puerto Vallarta with some of her 270 employees. The getaway is a chance for the president and chief operating officer of Talent Tree to reward employees at one of the 65 branches who have met yearly goals. Offering this type of reward and others, Harris says, motivates employees to work harder to reach their goals and lets them know that their work is appreciated at the full-service staffing and placement services company that estimates its revenue to reach $200 million in 2007. Smart Business spoke with Harris about how getting to know your employees from the bottom up can make a company successful from the top down.
Start with the little things. I send out e-mails daily to recognize individuals or branches or regions. Sometimes it might be small things; sometimes it’s a big deal. It’s just all about letting them know you saw it, and you know about it, and it’s great.
Try it with the small things. It doesn’t have to be very costly. You have to be listening to what’s happening in your business to know where those successes are or where someone has done something that is special or that they should get a hurrah for.
Make sure you’re hearing those things so that you can send that special note or that special e-mail or pick up the phone and call them. You can give rewards, like employee of the month or employee of the quarter, but most of it comes down to that individual attention.
Let others lead. You’re always listening to the problems and the issues, but when you’re listening, ask the people for what their recommendation is to fix those. I don’t feel like you personally have to always come up with the solution most of the time the employee knows the solution if they’re the one having the problem. Try to help them help you resolve the problem, and let them be part of the fix.
Make the time. No matter what their issue or problem is, sit down with them, try to resolve it, listen through it, make the decision, and empower them to go out and resolve it.
If they are part of the solution, they’re going to put it out there, and they’re going to make it happen. People want to be a part of something that they feel like they can be a big piece of and they can be a big contributor to. If you can paint that vision to them, and they’re on board, they want to be part of that success.
Live your culture and vision. A culture is not announced. It is created by a constant focus on values. Do what you say you are going to do.
You can recognize a healthy culture by its employees. Do they embrace and live the values? Are they excited about what they do? A culture is the foundation of the company, and the leaders must embody the values and live it daily. Culture is how you treat one another.
The decisions that you make for the company have to constantly tie back into that vision. If you go out there making random decisions that are not tied to that, you can get off on a different path.
It’s just constant reinforcement of what that vision is. It has to be specific for each individual in the company about what part they play in it. Using flowery words, people don’t really embrace that. Articulate the vision in the language that makes sense to them. Communicate it constantly.
Be involved. If you’re involved and you’re out sitting with employees and being a part of whatever’s going on in your company and not putting yourself above them, employees will understand that they have that openness with you. Sitting in training classes, sitting in meetings, going out and bringing in lunch, and sitting down with employees and talking about issues creates that openness.
Don’t take the easy way out. The hardest part of being a leader is that you have a lot of issues coming at you all at the same time and learning to prioritize those issues of which one will give the company the greatest impact. Sometimes it’s easier to take the ones that are easy to fix first or those that are making the most noise versus looking at them all and going with the one that will make the most impact on everyone if it’s resolved first.
That’s always a juggling act. You have to look at all of them on a regular basis to figure out what that is, make the decision and go after that one first.
Learn to lead. I have worked in all the jobs at Talent Tree, moving up from the field level to here. If someone else has not had that opportunity, they need to go out and learn as much as they can.
Spend some time with employees. You don’t always have to be the one telling everyone how to do and what to do; you can be there as a partner and try to understand what’s going on. Then you can come back and lead the company.
Realize that you don’t have to know everything. When I came into the corporate environment, all of a sudden I was faced with IT, accounting, billing and collections.
I thought I had to learn all of that, but I learned pretty quickly that you don’t have to know about every detail, about every department. Just know enough to know how it affects your internal and external customers, and then you can ask the right questions. Once you know the right questions to ask, you’ve got to make sure you bring in the experts that can mirror your culture and can get the job done. You don’t have to know all of that yourself.
HOW TO REACH: Talent Tree, www.talenttree.com or (713) 789-1818
You’ve built your company from the ground up, business is good and retirement is at least 15 years in the future. There will be plenty of time for investment and estate planning down the road, right? Wrong!
“There are barriers that exist between people with money to invest for the future and a sound investment plan,” says Dick Wiesner, senior business relationship manager with Wells Fargo Bank.
Smart Business asked Wiesner about the best time to plan for the future of your estate and who should help you do it.
What barriers exist that keep people from taking charge of their investments?
There are three reasons why people don’t get around to tackling this task. First, they are very busy running their company. Second, there is the denial of an immediate need for estate or financial planning. Embedded within this rationale is a fear of death. These people refuse to acknowledge their mortality.
Third is a fear of the unknown. Many business owners recognize that to engage in this activity they will have to make critical decisions and the discussions surrounding these decisions may reveal their lack of knowledge in this area. Business owners are most comfortable when they are fully knowledgeable about topics being discussed and when they are ‘in charge’ of events.
So, what are the advantages of being proactive with your estate and investment planning?
One of the biggest initial advantages of engaging an investment planner is that it will assist you in consolidating all your records. Typically, most individuals have a variety of investments already in place. They may have several 401(k) plans from prior employers, plus stock or other investments with brokers they have met over the years. They may own mutual funds or even annuities from different fund families from investment decisions they made many years ago. In short, their financial records are scattered and no unifying plan exists to get them where they will want to be when retirement is at hand.
The second advantage to retaining a qualified financial planner is that it will remove emotions from the investment decision process. Once a plan is formulated and implemented you will be at peace with having tackled this task. You won’t be a victim of poor timing, selling when the stock market goes down and buying when it shoots up like a rocket. This becomes especially important as one gets closer to retirement age. You can make a financial mistake in your 30s, but when you are over 50 years of age you don’t have time to recover from a major financial error.
There are many resources to assist you with this task, including independent financial planners both large and small, traditional brokerage houses and financial institutions, such as Wells Fargo, which is the 12th largest manager of investment funds in the U.S.
How do you decide which one to use?
First, decide exactly what you want to accomplish. Are you simply going with an investment adviser who will make money for you and protect it from extreme fluctuations? Or is your expectation that, in addition to investment advice, you want help with estate planning.
A second factor to consider is the adviser’s investment track record and what fees will be charged. The trick is to understand all the fees you will be paying. Be aware that many fees are hidden. For example, if your adviser purchases bonds for you there is often a large spread between what they buy the bonds for and what you are charged. Also, you should ask if you will be charged additional brokerage fees for any assets purchased. Bottom line on cost is to not be misled. If you are paying what at first glance seems to be a high cost, say 1.25 percent of assets managed, further analysis might reveal this to be very reasonable if other ancillary services are offered, trading fees are waived and the adviser has an above-average track record.
Another key is to conduct personal interviews with potential advisers and bring along your spouse. You must feel a sense of comfort and security from the adviser you choose. Another element to consider is whether the adviser selects investments from an ‘open platform,’ meaning will they choose products from any and all sources to fit your needs.
A strength within the Wells Fargo Wealth Management Group is it operates from an ‘open’ platform, selecting products from any sources that best fit client needs.
A final key point to consider is to know expectations concerning how often you will meet personally with the adviser to update plans and discuss results.
DICK WIESNER is senior business relationship manager with Wells Fargo Bank. Reach him at firstname.lastname@example.org or (713) 209-6703.
“How do you put it all together?”
That is a question many business leaders face. You have the talent, you have the vision, you have the infrastructure, you know where you want to take the business in the coming years, but how do you take everything and allow it to become a self-sustaining machine that will allow your company to grow?
Zeffrey Lucas has been there. As the U.S. operations director of Production Services Network, his job is to take the resources, manpower and vision that exist in his company a 1,000-employee wing of a worldwide oil and gas exploration services provider and harness it, getting every person on the same page and generating the momentum that will carry PSN into the future.
But holding the reins is not easy when you are the head of a company division with locations all over the country.
Since joining PSN in 2002, Lucas says he has learned two valuable lessons about enabling everyone in a company to take charge: It’s all about communication, and that communication must be simply stated, consistent and frequent.
“The key to it is trying to communicate what we are, what we’re doing, where we’re going,” Lucas says. “That’s one of the biggest challenges. You have to maintain a link to employees to make sure they’re aware of what is going on. That’s my own personal philosophy. I want to know why we’re doing things. I perform better if I know why I’m doing something.”
Lucas says just about everyone performs better if they know why they are being asked to perform a task, and that’s what makes communication so important.
If your business is to flourish, your job as a leader is to work tirelessly to communicate with your employees in many different forms.
Communicating core values
At PSN, creating a sense of belonging for employees is about more than just including them in the communication pipeline. Once employees feel involved, Lucas says he wants to take it to another level, where they feel like they’re actually helping to steer the company.
In other words, Lucas wants employees to feel like they each own a small part of PSN. Ownership could involve something concrete, like stock options, but Lucas believes it goes deeper than that.
“If you feel like you belong to something, you put a better effort toward it,” he says. “It doesn’t have to be financial ownership in the company, but it’s more about if you share common goals.”
Lucas has helped to author and install a series of core values at PSN, aimed at giving employees a template to follow. With the core values in place, PSN’s work force knows in what direction the company wants to move and will get a better idea of how each can do his or her part to help the company get there.
PSN’s core values include an emphasis on health and safety, building and maintaining relationships with clients and employees, integrity on both a personal and corporate level, localization of projects, and financial responsibility.
Your core values can become the philosophical pillars upon which your company is built, but that won’t happen unless upper management sets the example for everyone else in the company. Lucas says it’s extremely important for a company’s leaders to “live it” when it comes to the guiding principles of the business.
“These core values that we are trying to cascade throughout the organization are lived by senior management,” Lucas says. “Many companies have core values, but we do it in such a way that we talk about it a lot. Even our company emblem represents our core values.”
Lucas and his senior management take just about every daily, weekly and monthly communication opportunity as a chance to reinforce the core values. It’s a challenge with a business spread across many different areas, but Lucas says that if you want your communications culture to be a success, you are going to have to get creative and be willing to concede that you aren’t going to be able to do as much in-person communicating as you’d probably like.
“I do not prefer e-mail, and that’s coming from someone who e-mails a lot,” he says. “It’s always better to call someone. With our busy schedules, we have a tendency to write very quickly to a request or response to someone. But because of the speed at which we e-mail what we have written, people may interpret it the wrong way. Without voice inflection or listening to how people respond, you might not pick up on whether they have an issue with something.”
To compensate for any inconsistencies in face-to-face communication, Lucas periodically holds companywide Web broadcasts with question-and-answer sessions. He says any type of voice contact with your managers and work force is a positive when compared to simply dashing off an e-mail.
Staying vigilant with regard to communicating your core values might seem like a lot of work with little immediate reward. But while you could be spending that time landing a major account or inventing the product that will put your business on the map, Lucas says if you don’t pay attention to the basics, your company will begin to fall victim to an ambiguous sense of direction, and your growth could stall.
“(Core values) are essential in that it’s been described as the DNA of a company,” he says. “It’s what makes us who we are. Every decision we make can be linked back to these core values. It’s obvious in our review meetings, every Monday, when I meet with our senior management.
“We cascade it down so that everybody in our organization is familiar with them. It’s important because these particular values are important for the success of any person in the company, and it’s the case in any organization. You have to continue to not just talk about the core values, but live them. They establish not only who you are, but who others perceive you to be.”
Another key part of enabling employees to take charge is to give their ideas merit. Once they have internalized your core values, your work force will be able to innovate in line with your company’s goals.
Lucas says that’s where a business leader’s ability to listen becomes crucial.
Your ability to listen to what your team members are telling you is as important as and in some cases, more important than your ability to reach them with your messages.
But their ideas will never see the light of day if you and your senior managers aren’t available to hear them. That’s why Lucas sees to it that every person in the company is comfortable enough with him to have a conversation. He does it by repeatedly encouraging his employees to seek him out, then following his words with consistent actions.
“I’m an open person, and whoever you are in the organization, I’ll have a conversation with you,” Lucas says. “If you have any problems whatsoever, you should not hesitate to call me or e-mail me, and I’ll respond to it.
“I think people respect it when they see I’m honest about the fact that it doesn’t matter who you are in the organization, I’m here to work for them. That means if I can help them in certain issues, I’ll do that. That word gets around, and if people remember that it’s OK to talk to so-and-so, it’s a whole lot better.”
Lucas says properly trained and enabled employees can be a wellspring of new ideas, which is an important ingredient in preventing a business from stagnating and stalling. Even if you have no plans to change your business model or alter your products and services, there is almost always room for improvement.
Lucas says the business that stops trying to get better is the business that has stopped trying, period. And the responsibility belongs to everyone on the payroll.
“Innovation leads to better ways of doing things,” Lucas says. “Better might mean safer, it might mean cheaper, it might mean more efficient. In our case, by distinguishing our company as one that has a core value of innovation, it separates us from competitors that might just want to do it the same way they’ve always done it. From that standpoint, it encourages people to think outside the box and look for different ways to do something.”
He says coaching people to become innovators is coaching them to become leaders. The employees at PSN who take the initiative to lead the company in a new direction are the people who are developing important managerial skills.
“I think you always look for people who naturally want to innovate,” Lucas says. “But I think it’s more along the lines of encouraging the people you have to become innovators. That goes back to promoting innovation through our core values and talking to them about it. It takes a couple of people to get it started, but then it becomes contagious in every area they go to.”
Accentuate the positive
After you’ve filled the heads of your employees with your core values and given them the tools to help lead the company into the future, your job isn’t done. If you don’t reinforce their behavior through encouragement, you can’t expect it to continue.
It’s really no different than when you were in grade school and your parents took you out for ice cream for getting straight A’s. Lucas says people respond to encouragement, and as the head of the company, your job isn’t just to notice when there is a problem or instances of underperformance. It’s to notice when people are doing things right, and then reward them for it.
“There have been various studies that talk about what motivates people,” Lucas says. “One of the top motivators is people wanting to feel appreciated. It’s not necessarily the money, it’s the recognition you give them.
“Whether it’s a pat on the back, shaking their hand, giving them a call out of the blue, a gift certificate, it doesn’t have to be big. But the appreciation you show lasts a lot longer than any particular piece of money they may get.”
Lucas makes public recognition of high performers a regular occurrence at PSN. And it’s not just about workers who come up with great ideas or are superlative performers. Sometimes, it includes people who put the welfare of their co-workers ahead of the bottom line.
Several years ago at a PSN plant in California, a gas leak caused a potentially dangerous situation. In a move that cost the company money but may have preserved the safety of PSN employees, the manager decided to shut down the plant so the leak could be repaired.
PSN’s leaders recognized the bold step the manager took in risking revenue to protect his workers, and they recognized him through the company newsletter and other forms of communication.
Lucas says it goes back to walking the talk. Employees have to see your words in action if they are to believe them.
“This is one of the age-old problems we have in oil and gas operation, that safety has to be your first concern,” he says. “For that person to take the step to shut the plant down, which created an obvious loss of revenue, it was the right thing to do. So we rewarded him not only with a gift certificate, but we made a big deal of it. We told everyone that this person did exactly what we wanted him to do.
“It’s not so much about punishing people when they do something wrong, but rewarding them for the things they do right.”
HOW TO REACH: Production Services Network, www.psnworld.com
Many times, as business men and women in the community, we are offered opportunities to serve on executive boards for our local churches and nonprofit organizations. These are excellent opportunities to participate in community outreach and offer a chance to give back to the community.
“Before accepting a position on these boards, a person should be aware of the possibility of lawsuits against these organizations and how these legal proceedings can impact the individual board members,” says Dale Zellmer, regional director Gallagher Religious & Non-Profit Practices Group at Arthur J. Gallagher Risk Management Services Inc. “Determine your exposure and how best to mitigate any potential liability.”
Smart Business talked with Zellmer for more insight into things you should consider as you prepare to serve on nonprofit boards.
Are nonprofit board members individually responsible for board actions?
They can be, especially if an employee or stakeholder feels that the actions of any or all of the individual board members harmed them.
Are lawsuits against nonprofits a common occurrence?
One of the myths associated with nonprofit organizations is that there are few sources of claims since nonprofits don't have shareholders. While it is true that the vast majority of lawsuits filed against nonprofit boards are filed by current or former employees alleging wrongful employment practices, nonprofits serve large and varied constituencies to which their boards owe specific fiduciary duties similar to duties owed by corporate boards. These constituencies are potential plaintiffs in legal actions brought against nonprofit boards.
Who are the potential claimants?
1) Current Employees a current employee or former staff member of a nonprofit may bring actions alleging a host of wrongful acts, including wrongful termination, discrimination, sexual harassment and Americans with Disabilities Act violations. 2) Outsiders Third parties that have a relationship with the nonprofit may allege harm caused by the nonprofit and/or its directors, officers or employees. Outside sources can be vendors, funders or another nonprofit. 3) Clients/church members The people you are trying to help your service recipients may bring claims against directors and officers alleging wrongdoing. 4) Donors A nonprofit's contributors may sue directors and officers alleging misuse of a restricted gift.
What can be done to protect the individual board members?
Many state laws protect us from suits against directors and officers of charitable organizations. However, these laws provide limited immunity for certain volunteers, not nonprofits, under certain circumstances. The federal Volunteer Protection Act (VPA) preempts state laws except when they specifically provide greater protection. The VPA and its state-based counterparts do not prohibit suits. Even if one of these laws allows your volunteers to escape liability, substantial funds are required to defend even a frivolous claim. The best option for most nonprofits and their individual board members is to carry directors’ and officers’ (D&O) insurance.
What should we know about D&O insurance?
There are a wide variety of policies available. Each organization and board needs to evaluate both the organization’s and the individual’s needs. Desirable characteristics include: broad definition of insured, advancement of defense costs and broad coverage for employment practices liability.
For nonprofits, a broad definition of insured includes ‘any natural person who was, is or becomes a director, trustee, officer, employee, committee member or volunteer,’ as well as the nonprofit itself.
Obviously, a policy that advances defense costs is very beneficial. Funds needed for the nonprofit’s mission won’t be tied up if there is legal action that requires defense. Reimbursement language in a policy may require the nonprofit to pay all costs and attorney fees out of pocket and wait for repayment by the insurer. This could seriously stretch the nonprofits resources as D&O cases are often expensive and lengthy.
On employment practices liability, make sure what is and isn’t covered is clear and meets your needs.
DALE ZELLMER is regional director Gallagher Religious & Non-Profit Practices Group at Arthur J. Gallagher Risk Management Services Inc. Reach him at (281) 655-6720 or at email@example.com.
It seems that for as long as there have been businesses in the United States, there have been expense accounts.
Employees would have to make sure they kept receipts that accounted for every penny that they spent while away on business if they wanted to be reimbursed.
Today, that process has become a lot simpler because of something called the purchasing card.
“It’s a total expense management solution,” says Paula S. Lee, principal relationship manager for Wells Fargo Bank in Houston. “Users use it to pay for everyday expenses as well as travel, supplies and any other type of ongoing regular expenses.”
Smart Business talked to Lee about how the purchasing card has revolutionized company spending.
How does a purchasing card work?
Employees use it for any number of company, preselected services. Basically, the card eliminates the need for processing invoices, petty cash, purchase orders and numerous other requests. When a purchase is made with the card, the sale can be allocated to and actually interface with clients’ accounts payable systems. The charges are downloaded each month into the designated general ledger reports without someone having to go in and take the invoice, write the check and put it into the accounts payable system it’s been allotted to.
The program is great for companies that have employees who travel a lot, use a P.O. system or have numerous petty cash accounts because not only can they use the cards for their airline, hotel and car rental but also for out-of-pocket expenses, such as mileage, gas money or meals. And instead of having to fill out a manual employee expense report, the employee or contactor can just log into the system. The transactions then need to be submitted for approval by the employee electronically. If there are out-of-pocket expenses, upon approval, the money is deposited directly into the employee’s account of choice.
Do the cards have a preapproved limit?
As far as how much we approve each card for, the cards go through our normal credit approval process. Each card is designated with a specific limit and you can actually drill down to say a $1,000 limit, which can only be used for specific purposes.
For example, a card could be given to a driver with the specification that it can only be used at the pump meaning that person couldn’t go inside and spend it on snacks or other items in the store. Thus, the purchasing card allows you to keep more control over employee spending and a better eye on employees’ spending activities.
Would it be difficult for the holder to abuse the card?
Yes, because you can restrict use for business-related purposes; whether that be an office supply store or wherever you go to buy gas. A company can set up their own unique parameters for their program. These controls can be changed, by an authorized agent within the company, at a moment’s notice. In addition, should a card be denied, the company can go directly into the system and review where that cardholder has tried to use their card, even take away all spending capabilities, again at a moment’s notice. In addition, and subject to certain terms and conditions imposed by Visa, Visa provides a Liability Waiver Program which provides coverage against employee misuse up to $100,000 per cardholder.
How long have purchasing cards been available?
Purchasing cards have been around since the early ’90s. Initially, they were only used for MRO (maintenance, repair and operating) expenses. Today, purchasing cards encompass traditional MRO, as well as T&E (travel and entertainment), repetitive payments, such as cell phones, pagers, utility payments, even advertising. Initially, large Fortune 500 companies, as well as the federal government, were the only users of purchasing cards. Today, more small- to mid-size businesses are realizing the benefits of the purchasing card program. Clearly, companies are re-engineering the way that they are managing their payables and the purchasing card is an excellent tool for companies to use.
Does it cost the vendor anything to participate?
The vendor would get charged on the card side, similar to merchant card fees. On the flip side, vendors get their money quicker, usually within one to two business days, because the purchase isn’t made on a net 30-day purchase order. In turn, their account receivables move quicker as well, without the exposure or risk.
The company using the purchasing card, on the other hand, can pay for the product right away and their books are up to date, in addition to the knowledge of what exactly was purchased, a huge benefit for any company that is wanting to control costs.
PAULA S. LEE is principal relationship manager for Wells Fargo Bank in Houston. Reach her at (281) 476-4527 or Paula.S.Lee@wellsfargo.com.