The environment in which officers and directors operate has changed considerably since the stunning collapse of Enron, WorldCom and Tyco. The Sarbanes-Oxley Act, which was signed into law in 2002, expanded the responsibilities as well as the potential liabilities of corporate officers and directors.
In order to protect against claims that can cost millions of dollars to defend, it is important to have directors and officers (D&O) liability insurance in place.
“D&O liability insurance protects the capital base of the corporation from catastrophic loss,” explains Jerry Henderson, area executive vice president for Arthur J. Gallagher & Co. “It also protects the personal wealth of directors and officers, who have unlimited liability for their actions.”
Smart Business spoke with Henderson about what D&O liability insurance policies entail, who should be covered and what factors should be considered when selecting coverage.
How does D&O liability insurance work?
D&O insurance policies usually have three basic insuring agreements.
Insuring Agreement 1, or Insuring Agreement A, depending on the policy form, covers individual directors and officers when indemnification from the company is not available or provided. Insuring Agreement 2, or B, covers the corporation for its indemnification obligation to the directors and officers.
Every company has in its bylaws and Articles of Incorporation a certain provision that says ‘we will indemnify, or be responsible for, taking care of any liabilities that arise against our directors and officers.’
Insuring Agreement 2 is the transfer of risk from the company to the insurance company for that indemnification obligation. Insuring Agreement 3, or C, covers the entity itself.
For public companies, the entity coverage is limited to securities-related claims. For private companies, the entity coverage is for all claims. A D&O policy covers claims brought by third parties alleging that a company’s directors or officers did something to harm them under the provisions of these three insurance agreements.
What risks can be mitigated by having a D&O policy in place?
A claim can be catastrophic to the balance sheet of a company in terms of providing defense costs. The largest and most expensive area of D&O claims for public companies are securities-related claims claims arising out of an offer to purchase or sell securities of a company.
If you have a claim and you don’t have D&O coverage, you could incur millions of dollars worth of defense costs alone not to mention the impact of a multi-million dollar settlement.
Who should be covered by such a policy?
There is a lot of debate about this. It really depends on your risk appetite and how you want to use the coverage. Historically, D&O policies only covered a company’s directors and officers; it didn’t cover the entity and it didn’t cover employees. But now they are also used to cover the corporation, and in some cases the employees, either directly or on a co-defendant basis with the directors and officers.
What considerations should be taken into account when selecting coverage?
Each carrier writes its own forms and, while terms and conditions are similar, every D&O policy is different.
You definitely need to take a close look at the terms and conditions. For example, you have to understand the difference between one type of fraud exclusion and another type of fraud exclusion and understand the severability clause in one policy versus another.
Secondly, you need to look at the quality of the carrier: What’s its longevity? What’s its financial wherewithal? How much of this type of business does it write? Does it outsource or does it have internal claims people? All of these are factors that should be taken into consideration. Finally, you should look at price.
How has the Sarbanes-Oxley Act expanded potential liabilities of corporate officers and directors?
The Sarbanes-Oxley Act has had a lot of different effects in the D&O arena. Claims are trending downward: 2006 was the lowest frequency level of claims since 1995. A lot of people attribute the drop in claims to Sarbanes-Oxley because it has given people a road map for disclosure and how to set up internal controls. On the other hand, it has given more responsibility to the independent directors, specifically the chairman of the audit committee. In the past, these directors may have been only nominal defendants in an action while the CEO and CFO would have really been on the frontline.
JERRY HENDERSON is area executive vice president for Arthur J. Gallagher & Co. Reach him at Jerry_Henderson@ajg.com or (818) 539-1328.
Patrick Soon-Shiong has business down to a science.
A doctor who was once a surgeon at UCLA, Soon-Shiong says he has the perspective of both ascientist and a businessman when it comes to leading Abraxis BioScience Inc.
The chairman and CEO says business and science aren’t mutually exclusive disciplines. In fact,business can be considered a form of science, especially when it comes to developing a criticaleye and never taking any piece of information at face value.
Soon-Shiong expects everyone at Abraxis to approach business with the same critical eye as hedoes, and he fosters a culture of critical thinking by starting with the words that come out of hisown mouth. “Our culture starts with me,” he says. “If I get in a room and nobody is challenging what I say, Iget very upset. Not angry upset, but upset in the sense that I think every statement needs to bechallenged in a very thoughtful way.”
Soon-Shiong says relentless self analysis of your policies and data is the only way you will ultimately drive your business to the top.
It might not be microbiology or astronomy, but to Soon-Shiong, business is, in many ways, justlike a science.
A critical culture
Innovation is the fuel of Abraxis, a biopharmaceutical company that specializes in injectable medicines to treatserious illnesses such as cancer. But at Abraxis, which had nearly $519 million in net sales in 2005, an idea is onlya starting point.
Soon-Shiong says that when it comes to innovation, you must validate the idea and then validate the validation.
“The nature of good science is always to challenge,” he says. “It starts with a good idea, you get the good idea,then you validate the validation and you continue the process.”
Forming a culture that casts a constructively critical eye toward new ideas starts at the CEO’s desk, but that culture won’t sustain itself and take on a life of its own without putting the right people in the right places.
You must have people who are motivated by the company’s mission. At Abraxis, Soon-Shiong wants to hire people who are motivated by the belief that their work makes a difference in the world.
Soon-Shiong says if you want to have employees who are motivated to produce and refine great ideas, they mustbe motivated not just by the mission of the company, but in some cases, by the mission of the industry. “I look for two qualities in a team member,” he says. “The first quality I really look for is in people who sincerely believe that the pharmaceutical industry is the industry in which they are here to make a difference in apatient’s life. “The second is, these have to be smart people. That is the real strength of a company, if you can surround yourself with smart, intelligent people who are detail-oriented and have a high work ethic. It doesn’t matter whatindustry you are in, you will succeed because of the intelligence of the people you have hired.”
Attitude and intelligence are only parts of the equation, however. Your employees must also be secure enoughthat they are willing to accept constructive criticism, which comes back to the culture that you have formed,Soon-Shiong says.
For your employees to treat criticism as an opportunity for improvement and not as an adversarial situation,you must start by embracing criticism as something that is positive for the company and communicating that toyour team. “From that point, people know that when they are challenged, it isn’t a personal attack,” he says. “People knowthat it’s really for the good of the organization.”
Soon-Shiong says communicating and sustaining an innovative culture requires the repeated hammering homeof the same messages to your work force. It takes time and the willingness to communicate as much as possiblewith your employees.
Employees thrive on communication from management. It has a large bearing on how they innovate and createnew ideas.
Soon-Shiong says that it is up to the executive team, and ultimately the CEO, to paint a specific picture of thecompany’s direction. In an industry with many possible avenues for new business, that’s especially important.“There are so many avenues right now [in biopharmaceuticals], and I think the challenge is to make sureemployees know which direction we are going in,” he says. “As we are growing so fast, it’s hard for some peopleto keep pace. We use both internal and external communications as ways to communicate where the organization is going.”
In those communications, which include newsletters and e-mail, Soon-Shiong not only disseminates information, he solicits it.
If you ask your employees to be creative, you must make sure they can take their ideas as high as they need towithin the organization, he says. Soon-Shiong is a believer in an open-door policy, and he communicates it to theAbraxis team frequently. “It’s all about openly challenging people and having an open-door policy,” he says. “I want ideas to come all the way tothe top in terms of the head research and development people and all the executive committee members, and ultimately, myself. I am always trying to make sure that important ideas flow upward in the company. To that end, I personallyparticipate in some of our [project] review meetings.”
Soon-Shiong says one of the best ways to make criticism constructive is to approach it through different angles.He believes in bringing different perspectives to the table when reviewing a new idea. He calls the groups a “convergent of multidisciplines,” and says that you should strive to build a work force that has diverse backgrounds,with each person bringing something unique to the larger organization.
“You need smart people with diverse backgrounds,” he says. “For instance, we have regulatory scientists with very extensive clinical trial management backgrounds and regulatory scientists with global experience. Our basic scientists extend between mathematicians, computations scientists and physicists.”
The need for multiple perspectives is something Soon-Shiong has learned through his own professional experiences.
“I have had a 360-degree exposure to my industry,” he says. “I was a surgeon at UCLA and understood the needs ofpatients with life-threatening diseases. I was a basic scientist and started working with nanoparticles and stem cells veryearly on in my career. Then, I’ve also been exposed to the commercial side, where I’ve been involved in building a pharmaceutical company and directly involved with the manufacturing process and all the challenges that go with it.”
He says if you want your organization to have a wide view on innovation that encompasses multiple perspectives andhave leadership that seeks multiple sources of input on creative projects, you need to create an organization that does-n’t have layer upon layer of management hierarchy.
At Abraxis, Soon-Shiong has structured an organization in which he can reach down several levels to address lower-rung employees, and those employees can address him.
It goes back to having accessible management and tirelessly communicating an open-door policy. But it gets more difficult the larger your company gets.
Abraxis has expe rienced rapid growth in recent years. In 1996, the company employed fewer than 50 people. By 1998,that had sprouted to 500, and by 2006 had increased to just over 2,000. “Keeping a flat organization is certainly a challenge as you grow bigger,” he says. “It’s easy when you are 500 people,and it might still be relatively easy when you are at 2,000. But as you start growing to 5,000 or 10,000, it has to beaddressed from the top down on a daily basis.”
As you grow, keeping lines of communication open and your messages consistent becomes more and more important.There is no secret to it, Soon-Shiong says, other than to make sure you and your senior management team remain vigilant about communication and actively seek feedback from all areas of your company.
Soon-Shiong says as a CEO, you aren’t just a businessman, or a scientist, or a number-cruncher. You are also a teacher.Employees become passionate about their work by learning about their jobs and how their jobs affect others. You cangive them charts and graphs to show them how their work fits into the big picture mathematically. You can show themhow their work fits into the next big product your company is going to produce. All of that works on some level.
But one of the best ways you can give your employees a sense that their work is producing real results is to relay tothem the stories of the people they are helping. In some industries, it might be your company’s product helping peoplein another company thousands of miles away to get their jobs done. At Abraxis, motivation comes in the form of cancersurvivors and others who are winning the battle with life-threatening diseases. “You need to believe in your conviction, that what you are doing is really affecting and changing lives,” he says. “Youneed to find the people whose lives are actually changed by your innovations and share their stories with your team.“At Abraxis, we are very fortunate and blessed that the patients actually call in and share with us experiences thatchanged their lives. Some patients had breast cancer and were told that they only had a few months to live, and some ofthem had full [treatment] responses. These are the things that really motivate us.”
Showing Abraxis team members how their ideas become life-changing treatments is the most powerful motivator Soon-Shiong says he has.
He says you have to create a feeling among your employees that there is a real need for what you are doing as a company, something that creates a purpose beyond the profit-loss ledger. “I think there needs to be a recognition that there is an urgent, unmet need for what it is you do,” he says. “That ishow you guard against complacency.”
Soon-Shiong says that monetary rewards are a significant part of the equation when it comes to motivating employees, and employees do respond to financial gain. But as the CEO, you should dig deeper to find what beyond moneycan motivate your team. “We offer both stock options and a competitive salary as compensation,” he says. “But that’s not what drives somepeople, certainly not a lot of our people. For some, the satisfaction of making a difference is the great motivator.”
HOW TO REACH: Abraxis BioScience Inc., www.abraxisbio.com
Maintain consistency. When walls build and the communication breaks down, you lose the consistency in your product.
Consistency is everything. Consistency is your brand, so you don’t deliver on your promise, because that’s what your brand is at the end of the day, a promise to your market. From a human aspect, when walls start building, there are morale situations, so you lose control of your product and you’re not keeping your promise to your guests.
On your employee side, when these walls start to build you don’t have to be a psychologist to know that when people start having pent-up problems, they grow and they become larger than what they should.
Listen. Communication is also listening. Listening to your constituencies is very important. It’s better to be interested than interesting. Consistency and execution are very important in our business, and that’s a big challenge. You have to communicate, and you have to keep the communication lines open and available to your employees. It requires an open line of communication both ways, outbound and inbound.
People have to feel free and comfortable about asking questions or having input. If something’s not working on our vessels, we need to hear about it regardless of how great an idea we thought it was or how much we researched it. We have to constantly be communicating with our staff on board, and that requires not only me but our department heads getting out to the ships.
We have formal meetings where management here from corporate spends time with management on the ships we call them voyage meetings and that’s our idea on maintaining consistency on what is essentially a worldwide operation.
Lead by example and share positive feedback. When you’re communicating with the guests and you’re showing your employees you’re listening to the guests, it emphasizes how important the guest is. We’re in the luxury service business, and setting that kind of example really emphasizes to the entire organization how important our guests are.
You lead by example, so you have to have a passion for your product and a passion for what you do, and if you show that and you exemplify that, that goes a long way in communicating the goals to the company.
You have to set an environment of excellence and make sure that everyone is working toward the same goal. Again, it’s communication and reinforcing your goals. What happens is you let people share in the positive feedback.
Share the good things. In our case, we’ve been very fortunate to have been voted the world’s best cruise line several years in a row, and that motivates people. If you provide a great product or a great service and you get great feedback from the marketplace or from your guests, you share that with your employees.
I can’t tell you how motivated and how happy our employees are when there’s positive feedback, whether it’s in a formal survey, or whether it’s from our guests. Sharing the letters that come in from our guests in communications to our employees is very important, so it’s this communication line and letting them know how great of a job they’re doing. That goes an enormous distance.
You have to have all the basics. You have to compensate your people and you have to provide incentives for them from a monetary standpoint, but what really makes this thing work is the sharing of the positive feedback and letting them know just how great they are.
Avoid complacency. We feel we’re an innovative product, and that may seem questionable because we’re a cruise line and we have a basic platform, which is the ship. But it’s our service, it’s our choices and it’s our quality and the activities that we offer our guests on board the ships that we are constantly looking at.
Whether it’s bringing in new partners, whether it’s coming up with new ideas, it’s constant innovation and it’s communicating and having everyone on the same line.
Notwithstanding externalities beyond your control, the most likely thing to lead a company to fail is complacency or becoming over-confident. You always have to stay on the edge.
You always have to be trying to come up with new products and new services, and even if you come up with things that don’t work, maybe you come up with something that never even gets to the customer, if you become complacent, it leads to failure. It can be a slow failure, but it certainly leads to long-term failure.
You have to give people a chance to be involved in this innovation, and you have to keep the communication line open both ways. If you’re showing what you’re passions are and you’re excited and enthusiastic, and you allow people to be successful and participate in that process, you’re going to have motivated people.
HOW TO REACH: Crystal Cruises, www.crystalcruises.com
Like the wrinkles that furrow one’s brow, varicose veins, for many, are an inescapable part of aging. Varicose veins are veins that become swollen and large, usually due to defective valves in the vein. The enlarged veins, often with a dark purple or blue coloration, protrude from the surface of the skin and frequently have a worm-like appearance. Although females are more likely to develop varicose veins, both sexes are susceptible to developing symptoms.
“Varicose veins are very common,” says Dr. Cheryl Hoffman, director of interventional radiology at the UCLA-Santa Monica Medical Center. “Greater than 20 percent of women and 7 percent of men suffer from venous disease in the United States.”
While varicose veins don’t signify a life-threatening condition, they can cause discomfort. Common symptoms of varicose veins include aching pain, swelling and itching in the legs. In the past, the removal of varicose veins required invasive surgery. New minimally invasive procedures, however, have provided a breakthrough in how venous diseases are treated.
Smart Business spoke with Hoffman about when a doctor should be consulted about varicose veins, how varicose veins are treated and what types of minimally invasive therapies are now available.
What causes varicose veins?
There is usually an incompetency to the valves of the veins that causes reflux. Gravitational forces then overcome the veins and blood pools, causing a distension to the vein. This can lead to a dilation of the vein, worsening valve function and retrograde, or reversal of flow, within that vein all of which can lead to venous stasis, varicose veins and ulceration.
How can people reduce their chances of getting varicose veins?
Usually it is genetic. However, wearing compression stockings, especially when engaging in standing activities, can help to decrease the effects of gravitational forces on superficial venous valves. Typically, though, it is something that just develops over time. In addition to advanced age, other factors that increase a person’s chance of developing varicose veins include having family members with vein problems, obesity, pregnancy and hormonal changes, which can be spurred by taking birth control or other medicines containing estrogen.
Can varicose veins lead to serious medical problems?
There is no life-threatening danger; unlike the deep veins, which can have blood clots that eventually go to the lungs. But there is severe pain and disability that can result from varicose venous disease, what we call superficial venous abnormality. Patients can have serious disability from superficial valvular incompetence and varicose veins.
When should a doctor be consulted about varicose veins?
When a patient has phlebitis, an inflammation of one of the superficial veins, typically he or she goes to a physician because there is pain associated with this condition.
Also, when edema, skin changes and ulceration occur, patients are directed toward medical care. However, prior to that point, before these changes become severe, it is a good idea to seek medical attention because now we have minimally invasive therapies that can prevent the serious complications of varicose veins. Therefore, I would advocate for a patient to seek evaluation once a dominant varicose vein is identified.
How are varicose veins treated?
Currently, our technologies allow us to close these veins using very small stab-like entry points. No longer are large incisions needed. Therefore, the cosmetic results are outstanding.
Endovenous laser therapy and radio frequency ablation therapy are two forms of therapy that are used to close varicose veins. Basically, when we go up through the veins we can use either a laser or a radio frequency probe to close the veins. Old fashioned surgery with large incisions is no longer needed to successfully treat chronic venous superficial vein disease. Minimally invasive therapies can now be used through very small 2- to 3-millimeter incisions.
Can varicose veins return even after treatment?
Yes, because it is a long-term chronic disease. Veins that are not a problem when the first veins are treated can become a problem over time. However, by getting therapy to some of the large dominant outflow veins, the chances of having further problems to other veins, which are currently not a problem, are minimized.
DR. CHERYL HOFFMAN is director of interventional radiology at the UCLA-Santa Monica Medical Center. Reach her at firstname.lastname@example.org or (310) 319-4033.
Every business owner knows that he or she will eventually exit the business. However, they often fail to properly plan their exit strategy, and that can have major repercussions.
One specific issue that should be addressed as part of any exit plan is how business income should be taxed upon the owner’s departure. After all, the form of tax entity that is chosen will have a major impact on future outlays to Uncle Sam.
“The structure of the ultimate sale of the business will determine to a great extent how much tax you pay,” points out Carl Pon, co-managing partner of Vicenti, Lloyd & Stutzman LLP. “Failing to plan could actually double the amount of income taxes that you pay upon the sale of your business.”
Smart Business spoke with Pon about the importance of exit planning, what factors to consider when choosing a tax entity and the consequences of operating under the wrong tax entity.
From an income tax perspective, why is it so important for business owners to plan for their eventual departure?
We see many clients who spend their adult lives building a business and building wealth inside that business. Then, when it is time to sell that business, they are surprised to see how much the tax burden reduces what is left to invest to provide for their financial security and that of their families. With proper planning, you can reduce the share of the take that goes to the taxing authorities.
What factors should be considered when choosing a tax entity?
Some of the factors that should be considered include: Who will own the business will it be individuals, trusts or other corporations? Will there be any non-United States taxpayers? How important is it to have the current benefit of lower tax brackets? What kind of fringe benefit plans will be offered to owner-employees?
What are the consequences of operating under the wrong tax entity?
The most obvious one would be paying too much in income taxes. But another consequence is that you will have to wait longer to accumulate the wealth that you need to achieve your personal goals. In fact, it is conceivable that operating under the wrong tax entity could double the amount of time that it would take to achieve these goals.
How do the tax structures of C Corporations and S Corporations differ?
A C Corporation is a taxpayer all unto itself and it has its own set of tax brackets, some of which are lower than personal income tax brackets. An S Corporation doesn’t pay any income tax itself; rather, its shareholders pay taxes on their personal tax returns on the S Corporation income.
The biggest tax advantage with an S Corporation is that you avoid taxes at the corporate level, depending on when you made the election to become an S Corporation.
What type of entity is most effective when transferring a business to family members or key employees?
They are all just about the same except the S Corporation, which is a little more difficult to use. This is because an S Corporation is not allowed to have more than a single class of stock or ownership interest.
Several of the techniques for transferring wealth most tax efficiently involve creating two types of ownership interests for the same business. You can do that with C Corporations or LLCs, but it is much more difficult to achieve the same effect with S Corporations.
How far in advance of an anticipated departure should exit planning occur?
I would say five years to get the largest benefit from the planning process and to implement what the plan identifies as the things you want to accomplish. If you’re looking at a conversion from a C Corporation to an S Corporation, then 10 years is the best timeline to work with.
What should be discussed with advisers when planning for an exit?
Early in the process, you should focus on setting your personal goals and identifying strategy changes to increase the value of your business. Also, you should develop a contingency plan for the business and assemble a team of advisers. The team should include an attorney, CPA, exit planning specialist and financial planner.
CARL PON is co-managing partner of Vicenti, Lloyd & Stutzman LLP. Reach him at CPon@VLSLLP.com.
Listen to your people. One of the most frustrating things is not getting feedback for one reason or another.
I like to think, most of the time, I adopt an approachable style that allows people to talk to me readily. That allows me to understand them and to understand the situation.
I like to lead on the basis of fact, not supposition. I deal with the reality of the situation, which can sometimes be tough because reality can often not be easy.
Be yourself. When you get a person who is very effective and they’ve been promoted, they got a better job. Suddenly that person, who’s had an incredibly effective style up to that point, starts throwing their weight around in a way that’s not them. They can become incredibly ineffective.
You’ve got the CEO who stands up and says, ‘I’ve got an open door policy. Just come and talk to me whenever you want.’ If, in reality, his office door is closed all the time or [he] is very difficult to talk to, then it doesn’t ring true. You’ve got to watch your behavior every second to get a particular leadership style across to people.
Every little action you make, every little thing you say or don’t say can get picked up, and people take their views from that rather than what you say.
Don’t change your approach. Power corrupts. I’ve seen people where they get in that ultimate leadership position and they do not follow the principles they followed to get there in the first place.
They become arrogant. That’s always a shame, when you see somebody who should be able to do a brilliant job and they let it go to their head and they’ve lost track of all the reasons why they got there in the first place.
Be honest. We did some layoffs. ... My approach is, make a lot of the [positive business] results, address the issue of the layoffs absolutely square on and be very clear life is going to change. We’re going to have to adapt and move on all the time if we’re going to keep our results how they are.
You sacrifice the feel-good factor, but you gain more in the long term. The feel-good factor only lasts until they hear something to the contrary.
Get all the information. You shouldn’t make fundamental decisions on the back of an envelope. You do have to analyze things properly. A lot of basic business views can be developed on the back of quite a small bit of information.
Certainly you can get it to the stage of yes or no. You can’t necessarily get it to the stage of actual investment.
I’m not talking about making the final decision too quickly. I’m talking about a process whereby you can get things to a relatively advanced stage without too much analysis-paralysis. When you’re at the point where you’re actually making the decision, or a choice between two things, at that point you’ve got to do the analysis carefully.
Most important you’ve got to have the right people doing the analysis. The analysis is no good unless it’s hitting the right issue. Make your decision and have regard for the downside.
Keep everybody informed. We hold two companywide conferences every year. I also supplement that with meetings for all the staff and talk about what’s happening and so on, every six weeks. I send our HR department around before that meeting to canvas views on what people want to hear about so you’re communicating what people want, not just what you want.
I always finish off with a Q&A. A good way to get the Q&A going ... is [to] directly answer some of the questions you know people would ask.
Lead by example. If you are a CEO, you are a leader. The most effective leaders are quite understated.
You can identify sometimes the most high-profile leaders, the ones who seek all the glory and the credit for themselves, but the best leaders are the ones actually who lead fundamentally by example, are really all about what you’re getting done rather than what you’re saying you’re getting done. People respond to that.
‘Is he doing what he says he is going to do. Do I believe him? Will he listen to me? Is he hearing what I’m saying?’ All those things are fundamental leadership skills.
Be persistent. If you push hard enough, things will go the way you want them usually. The important thing is not to give up at the first hurdle.
Life can get pretty tough. People can be pretty tough with you at times. You can think that your options are diminishing by the minute, but if you keep pushing forward, you usually find the right route through it.
It’s when you throw your hands up in the air and go, ‘I can’t control this, it’s all the other people’s fault.’ That’s when it all goes wrong.
HOW TO REACH: Virgin Entertainment Group International, www.virgin.com/us/entertainment
Effective strategic communication is a critical component for the success of any business. A clearly defined message serves as the backbone of a company’s identity and articulates its future vision.
Edward Clift, assistant professor of communication at Woodbury University, believes it is a mistake to consider communication as a separate entity that exists apart from the fabric of a company.
“Strategic communication seeks to align an organization’s goals with its communication practices,” he says. “It is about creating a coherent mindset that values differences, handles conflict constructively, operates according to larger ethical principles of community and minimizes the destructive effects of bias and stereotyping.”
Smart Business spoke to Clift about using strategic communication to motivate employees, the importance of having a clearly defined strategy and the dangers of poor communication.
What are some effective methods of communication that can be integrated into a company by the CEO?
Communication, even when it’s not the subject of a CEO’s self-reflection, saturates all organizations. It is what defines corporate identity. Once the CEO starts to self-reflect about communication practices, then corporate communications can become subject to modification and improvement.
I recommend that CEOs start at the top by learning how to listen before they lead. Concentrating only on the effectiveness of communication, however, will limit the growth of the company. One should focus instead on maximizing the full potential of all interactions so that the company can find ways to direct its own change.
How can effective strategic communication help motivate employees and aid retention?
The idea behind strategic communication is to align corporate interests with the full range of messages distributed to the public, employees, the media and others. Employees want to understand how their labor contributes to the success of a company, and this alone will motivate them and increase retention.
Because of flatter of management in the corporate world, employees are increasingly responsible for their own oversight. The employees that survive in such a world are those who grasp the strategic mission of the business and make it their own. An effective strategic communication policy will help employees identify and understand the vision of the company.
How can a CEO or business owner be sure that employees are satisfied with the company’s communication program?
People are satisfied when they feel like they’ve contributed to the environment that they work in. You want to build an organization that is open to the input of all the employees. This can be designed into the corporate communication policy, but it has to begin by recognizing that people are sometimes scared of their own ability to influence the world.
You not only need to create the avenues but also find ways to encourage participation in those communication practices. Concrete ways to measure how satisfied employees are would include feedback forums, participant observation, anonymous surveys and quality control indicators.
Why is it important for senior management to have a clearly defined communication strategy?
No company can compete in the Information Age unless it reflects upon its own communication practices. If you develop a well-defined communication strategy, you can link your corporate goals to your way of knowing and interacting with the world as a business.
The relative success of one business over another is in large part attributable to the communication strategies it chooses to implement. This is why many investment professionals choose to buy the management team of a company rather than the product; they want to know that the communication strategy internal to the corporation is aligned with their business goals.
What are the dangers of poor communication in business?
The goal of a CEO is to create a coherent vision of a company that articulates a mission that matches what it is doing. Otherwise, you say one thing while doing another, and people don’t trust you.
This is one reason why many corporate reorganizations and mergers fail. You can’t just make a structural change and expect the communication practices to also change.
The dangers of poor communication do not end at the door of the company. Huge external risks face all organizations, but especially those operating on a global stage. These include natural disasters, forced changes in ownership or management, powerful stakeholders, ideological challenges and direct attack.
Strategic communication dictates that any business become conscious of these potential perturbations to its viability. It should then use its observations to strategically design a robust set of internal and external communication practices.
EDWARD CLIFT is an assistant professor of communication at Woodbury University. Reach him at (818) 252-5197 or through the university’s Web site, www.woodbury.edu.
When Jonathan Carson and Eric Kurtzman founded Kurtzman Carson Consultants LLC in 2001, the former restructuring attorneys welcomed the opportunity to leave what Carson calls the “suits-and-ties world” of corporate law.
“Let’s just say we’re not business casual,” Carson says of the Los Angeles-based restructuring consultancy firm.
Though the office attire at KCC reflects a laid-back mindset, the company’s performance does not. Employing a “work hard, play hard” philosophy, the firm posted 2005 revenue of $17.4 million, a three-year growth rate of more than 1,300 percent.
Smart Business spoke with Carson, president of KCC, about the importance of collaboration and the benefits of planning ahead.
Q: How would you describe your culture?
We have created a collaborative environment that allows people to create opportunities, and it’s been a very telling piece of our growth and our success in the last few years. We created a young culture that was focused on togetherness and collaboration, and we really didn’t allow for any hints of competition to enter the realm.
We work very much in team environments, and also we have a very flat management structure. We obviously have a few people who lead the efforts in various high-level departments, but in terms of how the machine works on a daily basis, it’s flat, and people respect that, and it’s done a good job of minimizing competition and corporate politics.
If you foster a system of competition or true straight-up-and-down hierarchy, you tend to lose the team concept. We believe those groups are teams that work together carrying forward the mission of KCC, not their individual agendas.
Q: How do you plan for growth?
You have to expect the growth. You have to believe in what you’re doing and know that if you really do believe in it, you’re going to grow as a business, and you have to stay ahead of that from every perspective.
We hired a COO before we needed a COO. It was a great talent fit for what we did and we brought him in at a very senior level and he grew into that position. We’re moving into 42,000 square feet but we’re really only going to be able to utilize maybe 30,000 of that, but we know as six or nine months go on, that will quickly eclipse.
If you expect it, you can execute it more effectively.
Q: How can you benefit from past experiences?
You learn from every experience as you go through every process of life, whether you’re going through school or you’re running the company or you’re on the board of directors of a nonprofit.
Every experience you live through, you learn something, take it with you to the next level and repeat.
As you get further down the road you look back and say, ‘Wow, I’ve picked up a lot of cool things along the way.’ You have this larger arsenal of ammunition that you can pull from to attack whatever issues that you’re facing in your business or your personal world.
It’s crucial that when you learn something that’s part of your business, when you learn something in one of your core competencies, everyone learns that same thing.
You want them to live it with you rather than just hear about it after the fact. As a management team, as you make mistakes and gain new insight, you have to make sure everyone understands the implications of that.
Q: How do you motivate your employees to work toward your vision?
You have to make them really invest in the vision. We did a rebranding campaign earlier this year where we were a 4-year-old company with a Web site that looked 4 years old. We brought a whole resource in, people as well as tools, and we now have a phenomenal-looking corporate identity.
When we did that, we brought everybody into the process. People got to look at logos and help choose them and see what they thought looked best. They got mugs with logos on them and bags and notepads, and you make them invest into it and they understand the reasons behind what you’re doing, and they really become cheerleaders, and that’s one of the best things you can have.
I can count on one hand the number of full-timers we’ve lost in the last five years. It’s a very small number because you treat people well, you provide for them and you let them know you respect them, and that comes back 10 times over.
HOW TO REACH: Kurtzman Carson Consultants LLC, www.kccllc.com
If desktop computers serve as an organization’s brain, then a business-critical server functions as its backbone.
Acting as a lifeline to a trove of data, servers play a crucial role in today’s technologically driven society.
There are two key components to business-critical servers, says Hormazd Dalal, president of Castellan Inc. “The most critical component is the hard drive, because that is where your data is stored,” he says. “The next most vulnerable is the power supply, because those tend to fail.”
Should either key component fail, having server redundancy is an astute investment. This safeguard allows for continual operations in the event that a hard drive or power supply goes on the blink.
Smart Business spoke with Dalal about server redundancy, how often new servers should be purchased and the importance of warranties.
What is server redundancy?
Redundancy is making sure that if a key component in the server fails, a redundant piece of hardware ensures it will keep running. In the case that a drive fails, your data is still intact because the server will continue running on one drive. In the case of power supplies, if one power supply fails, the server continues to run and your network stays up.
Why is it so important to have server redundancy in place?
Your mission-critical server will typically affect several people if it goes down, so a server needs redundancy, while a desktop computer doesn’t. If a desktop component fails, then one user will be out of business. If a server component fails, then access to data is lost in its entirety, which will affect the entire company. For example, if an e-mail server does not have redundancy and one of those components fails, then the entire company is without e-mail.
What aspects of a server are most important when creating redundancy?
You should mirror your drive. This can be done either RAID 1, which is two drives mirrored, or RAID 5, which is three drives mirrored. This way, if one drive fails, the server continues to run and your data is still intact. The big manufacturers all offer dual power supplies, so that if the power to one supply fails, the server continues running. In most cases, the server will give you a warning saying that the component has failed, but will continue to run, which gives you enough time to call the manufacturer and arrange for a replacement part.
How does a business know when it’s time to buy a new server?
Typically, the life of a server is three years. Most manufacturers only sell a three-year warranty, which is an indication of when they think the items will start failing. After that, if you try and extend the warranty, it’s extremely expensive. It’s much like a car warranty: they don’t offer it after 50,000 miles because around that time, the components start to fail. The time frame for buying a new server depends on the critical nature of the server. If it’s a server that isn’t doing a mission-critical application, like e-mail, for example, it’s not as important. The servers that a business relies on should be changed every three to four years.
How important is it to have a warranty in place for servers?
It is essential to have a three-year warranty for parts and labor. When you purchase a parts-and-labor warranty for your server, you can have the manufacturer ship a part out or have a tech bring a part out within four hours or the next business day, depending on what you purchased.
We recommend a four-hour response time for mission-critical servers. The redundancy is useful, but the warranty is the icing on the cake because it allows you to replace a part in a timely manner.
What are some additional considerations for purchasing a server?
It depends on what you need. Today’s applications are all memory-intensive, memory being random access memory (RAM), not storage. We recommend at least four gigabytes of RAM and more if it’s a database server or if it’s running multiple applications.
The speed of the processor is important, although today’s processors are fast enough to run many server-based applications. SCSI hard drives are faster than SATA RAID hard drives. Your fastest SATA RAID drive today is 7,200 rpm. SCSI hard drives are 10,000 rpm to 15,000 rpm. This means that the ability to retrieve and write information back to the server is much faster.
HORMAZD DALAL is president of Castellan Inc. Reach him at (818) 789-0088, ext. 202, or email@example.com.
In a business environment that operates at full throttle, it can be easy to overlook long-term strategies in favor of short-term objectives. This pursuit of doggedly chasing quarterly numbers often involves a reduced headcount where fewer employees are given larger workloads. As a result, employees can become resentful, believing they are nothing more than a cog in a machine.
The concept of slow leadership, says Andre van Niekerk, dean of the School of Business at Woodbury University, strives to bring humanity back into the workplace. “Slow leadership is about returning work to its role as a forum for expressing yourself and finding pleasure as well as a financial reward in your employment,” he explains.
Smart Business spoke with van Niekerk about slow leadership.
What is slow leadership?
Slow leadership is a movement to remind the world that work has purposes and meaning in our lives beyond the purely economic and financial ones; and that time and space must be allowed in the working week for people to express their creativity, the pleasure they take in using their abilities to the full, their desire to learn, and their needs for social interaction.
What factors in the contemporary workplace have led to the advent of slow leadership?
Too many people today are facing work pressures that go far beyond a level that still lets them retain enough time and energy for enjoying the nonwork aspects of their lives. A rigid insistence on achieving their employer’s continually escalating financial objectives first often at the expense of nearly everything else robs work of much of its meaning. Employees are reduced to economic functionaries: ‘human resources’ to be optimized and exploited as ruthlessly and obsessively in pursuit of greater profits as any inanimate corporate resource.
How can the principles of slow leadership develop a company’s long-term foundation?
Conventional leadership what I term ‘hamburger management’ because it relies on a very limited menu, high speed, and the cheapest possible ingredients looks only to short-term objectives. Indeed, research has shown that the vast majority of managers today are willing to compromise the long-term strategies and needs of their business in order to fulfill quarterly quotas. As a result, businesses are mortgaging their futures to meet unreasonable demands for short-term results.
Slow leadership offers ways to retain high levels of productivity without putting the short-term cart before the long-term horse. People can’t exist on hamburgers alone. They don’t provide a balanced, healthy diet, let alone one that is a basis for a fully enjoyable life.
How does slow leadership benefit employees?
Work is an important source of satisfaction in learning, exercising your skills, earning the regard of your colleagues and developing a balanced sense of self-esteem. All of this is undermined when people find themselves driven to cut corners and rely on quick fixes, because the organization has reduced headcounts so much that there is no time to do any better.
People want to produce quality work. But if they are driven to focus on meeting numerical targets by any means possible, they will lose pride in what they do and a sense that anyone cares about their lives. The result is alienation, frustration and lack of interest in anything other than the pay check.
What are the first steps that management should take when implementing slow leadership?
Stop basing decisions on often spurious numerical summaries of organizational activity. Look to the long-term need to increase value and provide a stable basis for genuine growth. Then make it clear to everyone that creativity, insight and fresh thinking are to be the basis for future increases in productivity, not driving everyone to do more and more in less and less time with current methods.
The deep well of creative ideas in any work force is usually ignored. If you encourage people to help you grow the business and treat them as civilized human beings, they will surprise you with what they can offer.
Once a change has been made, how can a business owner determine its effectiveness?
Slow leadership is about finding ways to be successful and still retain a civilized workplace. What you should see are more effective and productive people, a higher quality of output and service, a happier team of employees and much lower turnover. Cutting jobs and forcing those who remain to work longer hours only provides a short-term boost to profitability. Taken too far, it begins to eat into the firm’s capacity for long-term survival.
Slow leadership takes the view that the only sustainable basis for building higher productivity is the creative thinking of everyone involved. And that needs time and space to operate the very things that thoughtless, ‘hamburger managers’ keep removing in a frantic search for greater and greater short-term profits.
ANDRE VAN NIEKERK is dean of the School of Business at Woodbury University. Reach him at (818) 252-5284 or firstname.lastname@example.org.