“My life was really an endless travel from one recruitment to another,” he says. “I traveled all across the world. I did all of the recruitment of the company well into 2006. The reason I did that was I wanted to make sure that the people joining initially, those were the people I would know really well, the people that I knew would be the future managers and the role models and carrying on the culture and the company values as the company was growing. I think that has been an extremely invaluable investment, and I could see that clearly as the company was growing.”
While a lot of new businesses may focus solely on the business plan and meeting financial targets, Lyseggen instead chose to focus primarily on the people side of his business, which delivers business solutions based on search engine technology, cloud computing and biometrics.
“One of the things I’ve always been thinking about in growing our company is management,” the CEO says. “Growth has been linked closely to our ability to attract, train and develop managers. With management, you also create infrastructure to build an organization.”
In order to successfully grow Meltwater, Lyseggen had to hire, coach and train the right people — and sometimes had to make hard decisions, too.
Hire the right people
Without great people, your business isn’t going to flourish, which is why Lyseggen took such an active role in this process early on.
The first thing he looked for were people who really embraced the world around them.
“That can be very different from you in personality,” he says. “That can be very different from you in terms of skill sets — that is all very valuable. [But] it helps to embrace the world in a somewhat similar fashion — that you have the same perspective on life and the world. Some people can be very negative or positive, to use a very simple differentiator, but if you look at the world in a somewhat similar fashion and you’re striving for somewhat similar objectives in life, then it’s much easier to work together and much easier to create an aligned approach and an overall aligned strategy.”
He also looks for people who care about others.
“If the person has an interest in other people, then that person is caring for that person and interest naturally develops and relationships naturally develop, and you get the manager that builds teams and structures, and … they create a much stronger organization than if you had a manager that only wants to get to the targets and isn’t particularly interested in people,” Lyseggen says.
To get these kinds of people, he had to carefully listen during the interviews.
“If you’re listening to what that person says, how they describe people they interact with both in the interview process but also in that person’s life, how they value what perspectives of people that come into their life, people they’re working with, how they describe friends, family, [then] you quickly get a feel for whether that person has a feel for people or not,” he says.
Ask the right probing questions that will help you get to the heart of these issues in the interview process.
“Encourage people to talk about things that they’re proud of, that they did that was an accomplishment, and who they would share that with and why was that so important and significant for them,” he says. “Another question I really like is what is the biggest challenge of your experience, perhaps a major setback that really shook you, and it was really a, perhaps, fall for yourself. Have that person describe that, and get a sense for how that person described the situation himself or herself and for other people involved is often very insightful.”
Then the last question you have to ask is actually directed toward yourself.
“At the end of the day, is this a person I would like to go out and have a beer with or is this a person I would like to invite home for dinner or stuff like that,” Lyseggen says. “Is there a fundamental personal chemistry? If there is that, then there is a good basis for a good, strong professional relationship, as well. At least it’s much easier if you have that chemistry. All the other things come easier and faster. When I say I ask myself, it’s not only myself but it’s as much the team as well that I use to recruit.”
Coach and train
When Lyseggen went to his children’s school to hear a teacher speak, he was surprised to hear her say that teaching children to read and write was easy because all they need is two things.
“One, they need to feel loved, and two, confidence grows from a sense of accomplishment and mastery,” he says. “I thought that was so profound and universal, and that is one of the things I try to live by in coaching, as well. That applies to people at all levels and all ages. People need to feel safe and loved somehow and have confidence to continually grow as they feel the sense of accomplishment and master of the topic at hand.”
This starts by spending time with people.
“First, I think the most valuable thing you can give anyone is your time,” Lyseggen says. “There is nothing as precious as your own time. Sometimes you don’t need to know what to say to a person; you just need to sit down and listen to that person and give that person attention. That person will know you care and are willing to take up your time. Even if you don’t have anything insightful to say or answers or solutions to the problem they have, it’s the fact that you were there and gave them your time. That actually goes a long way.”
Then you also have to be honest with people.
“One of the most effective ways to really show that you care about people is to be honest and tell them about their weaknesses and their shortcomings when you see those,” he says. “People really take a real liking to that when it’s done in a respectful way and it’s done on a foundation of trust and integrity.
“People get to hear things that perhaps a lot of people are thinking, and it can be down to their personality or the way they do things, things that people in general wouldn’t comment on because it would be awkward. But if you are able to share that with them in a friendly, loving and caring way, I think that really helps people improve and grow and it also shows that you care and that you’re looking after them and looking after their best interest.”
You also have to know when to have that conversation.
“You should be cautious — be very careful and not do it too early,” Lyseggen says. “Only do it when you feel really comfortable that there is a mutual trust established. The situation is you give somebody … honest feedback, and sometimes honest feedback can hurt. Even as glowing and caring as you can be, it can still hurt. The most damaging thing is if it’s not based on a trustful foundation, so you can never do that unless there is a fundamental trust present.”
When you can have that honest conversation, you open up the door for improvement in your people.
“It starts with the person saying, ‘That’s an area that I feel lots of confidence in,’ or, ‘I think that is one of my weaknesses; I think I can perhaps do it, but I don’t have the confidence to do it,’” he says. “The first step is a
dmitting that that is an area that they don’t have confidence in or that is an area that feels wonderful. Admit it, and then you have to embrace it. Once they admit it and are able to talk about it, then you can work on that.”
You have to ask them probing questions to find out how to help them develop that area.
“What are the situations that you feel more confident?” he says to ask. “What are the ingredients that you’re looking for that will help you feel strong in that area? What situations do we need to expose you to so you can get the training to get the mastery to accomplish this? … Just talk about it. Then you can actually deal with it.”
Once you talk about the problem and the possible solutions, then move forward.
“Basically, you create a plan,” Lyseggen says. “Often what is the case is the person actually actively pursues or seeks situations where their experiences are more exposed. Often, if you have a weakness and you want to hide it and you want to not deal with it, you avoid situations where your weaknesses are exposed, but if you are able to talk about it and get a commitment and decide you want to turn it around, then you’re in a mode where you try to find situations where you are exposed to it.”
He says to follow up on that plan formally each quarter, but you can informally check in with that person on a monthly basis just to see how they’re progressing.
He says, “On paper, it can seem simple, and on paper, it can seem like a good thing, but it needs to be followed up on and executed and scrutinized on to deliver the results you’re looking for.”
Make the tough choices
Even after doing all of these things, Lyseggen has come to realize that not everyone he hires actually works out, and that’s the last piece of building the right team in your organization.
“That is something you should feel very sad about, but I also think that is part of building the company,” Lyseggen says. “If you build the company, there are people who join the company that it’s not the right place for them, so you have those experiences, as well, which is part of being a manager.”
This is especially heartbreaking for him because it often destroys relationships that started out well, but just like the other aspects of finding and coaching talent, there is a right way to go about it.
“Part of it is to really be honest — to be honest and to be sincere,” he says. “There is a difference between criticism of that person as a human being and criticism of that person in terms of what they do.
“There should be a clear distinction between the two. … You can create that love and create very personal strong feelings. As long as you’re able to distinguish between the person and the actual work produced by that person, and you can do that in a loving, caring way and honest, then in my experience things are working out well.”
It’s also critical that you act quickly in making these decisions.
“Do not to wait too long because if you wait too long, things can entangle and it becomes an irritation to both parties, and both parties enter the dialogue irritated with the other person and frustrated, and that irritation and frustration then can color the conversation,” he says. “If irritation and frustration is colored with disappointment, (then) it is, of course, not positive for the outcome. If you let the process go too far, I’ve seen that frustration and irritation can color the conversation and create that hard situation.”
So when’s the right time to let somebody go? It varies based on every person, position and company, but Lyseggen has a general rule of thumb.
“If you start to talk about that person too often, and when you talk about that person, it’s typically not in a positive way, it’s more about problems, if that happens too often, then that’s a good indication that you have to act on it,” he says. “It’s probably good for both parties, as well, because it’s not in that person’s interest to be in that position where their skills and potential aren’t fully appreciated or it’s not a good match with what the company needs, and then it’s better for that person to move on to a different company where they can blossom and really reach their full potential.”
By focusing on recruiting and coaching people as well as making the tough people decisions, Lyseggen has seen his business grow from nothing to 700 people across 50 offices and $100 million in revenue last year.
“That’s all done organically and with home-grown management,” he says. “When I think of what we’ve done, that is something that I’m very proud of and [it] is the most rewarding thing.”
How to reach: Meltwater Group, (415) 829-5900 or www.meltwater.com
Born: St. Louis
Education: MBA from Fontbonne University; B.S. from the University of Missouri, Columbia
What’s your favorite movie and why?
One of my favorite movies would be ‘Remember the Titans,’ which I think is a great leadership lesson on bringing together teams on a common mission.
What’s the best advice you’ve received?
I’ve received a lot of great advice from many good mentors over time, but the best is you have to trust yourself and trust your own judgment. In the role I sit in, you actually have to bring a certain degree of confidence because you’re going to be faced with choices and decisions that you’ve got to make where you won’t have all the facts, so you have to rely on a combination of your experience and the homework that you can do, and you ultimately have to trust yourself and make the best choice.
If you could have dinner with any three people from history, whom would they be and why?
One of my favorite leaders early in my career would have been Green Bay Packers football coach Vince Lombardi, and for me, it would be just the fact that he has such a tremendous history of winning and fielding great teams so early in my career I would have been an avid reader of Vince Lombardi quotes, and the likes of that, so that would be one.
Martin Luther King Jr. would be another. Just his focus on making our society much better, and he did it in a very purposeful, calm fashion, so that would be an absolute pleasure to be able to do that.
Then somebody today that I have a great deal of admiration for is Warren Buffett. He’s arguably one of the best businesspeople on the planet, and he’s understated, plain-spoken and just brilliant in what he’s accomplished as a businessperson.
If you don’t know what you’re paying for and getting from your 401(k) plan, you could be facing a potential employee lawsuit. While plan sponsors aren’t required to choose the lowest cost plans, they are expected to know what they are paying and select ones with reasonable fees, says Mike Rogers, director of pension services at Burr Pilger Mayer.
“It’s not about the lowest fees, it’s about the reasonableness of the fees for the services being provided,” Rogers says. “If you have one payroll, no special enrollment needs, everyone works in the same building and you have a tech-savvy work force, a vendor should charge you X. But if you have six offices, run four different payrolls, have English and Spanish enrollment needs and need someone to be at each of your offices once a quarter, that should cost X-plus. But if both companies are paying identical fees, a case could be made that the first plan is overpaying and you could be open to a lawsuit from participants.”
Smart Business spoke with Rogers about fee transparency, benchmarking, and how a 401(k) specialist can lower your fees and help keep you out of legal trouble.
How important is fee transparency?
Fee transparency is the No. 1 issue. As a plan sponsor, when you select a vendor and your fund lineup, you need to know how much you’re paying each of the parties. The vendor should fully disclose upfront every component of the fees so that you don’t get hit with a lawsuit down the road on something that you didn’t know anything about.
The 401(k) plan lawsuits today aren’t like those against Enron, where someone bought stock at $90 a share and it fell to $2. These lawsuits are about whether you, as the plan sponsor, picked a fund or a vendor that costs too much. It doesn’t matter that the mutual fund was up 40 percent last year; it’s that there are less expensive versions of that fund available. As a plan sponsor, you need to be able to justify why you’re using a fund with a more expensive fee class.
The Bush administration said, ‘We are going to mandate how fees are disclosed both to the plan sponsors and to the participants so they know where their money is going.’ The proposed regulations got tabled but are expected to be finalized this year. What participants and plan sponsors really want to know is how much they’re paying for their plan and the funds. As a fiduciary, the plan sponsor is responsible for monitoring fees, but getting fee transparency is akin to sighting the Loch Ness monster.
How can a 401(k) specialist help reduce fees and share fiduciary duties?
A specialist can match your needs and expectations with those of an appropriate vendor. There are so many vendor options that it is hard for anyone that doesn’t specialize in this area to properly match your needs, expectations and costs with the various providers. The best answer for your company may be a plan that doesn’t pay commissions and uses low-cost mutual funds.
In addition, simply hiring a 401(k) specialist can cause vendors to be more proactive. Once you bring in a specialist, vendors realize that person knows how the game is played, and they may be more open to looking for ways to save you money or renegotiate fees.
As a fiduciary, the plan sponsor is personally liable in the event of a failure to fulfill his or her fiduciary responsibilities. But there’s no reason a plan sponsor should have to go it alone. Because 401(k) specialists focus on this area, they are typically a named fiduciary right alongside that sponsor. The two main differences between brokers and consultants are how they are paid and whether they can cross the line to fiduciary status. Many existing contracts specifically state that the vendor or broker will not be acting as a fiduciary.
What are the benefits of fixed pricing versus asset-based fees?
Historically, this has been an asset-fee business that charged on the size of your assets. If you have $1 million in your 401(k) plan and someone charges 50 basis points, that’s a $5,000 fee. When the plan grows to $2 million in assets, that fee goes to $10,000 regardless of whether your provider did any more work for you. The industry is seeing a switch to more fixed pricing despite the objections of many of the providers.
Fixed pricing allows for cost certainty and cost containment in your plan. If you pay $5,000 today on $1 million, and the plan goes to $2 million and you still pay $5,000, then the fee, as a percentage of assets, is declining as your plan assets continue to grow. Fixed pricing also allows your 401(k) specialist to focus on doing what’s best for your business instead of chasing the highest commissions.
How can benchmarking help you keep tabs on fees?
Benchmarking lets the plan sponsor see what it is paying in fees against comparable companies in its industry and of similar size. You need to distinguish between how much you are being billed and how much the vendor is charging participant accounts. The average plan sponsor, if the vendor doesn’t send a direct bill, may think the plan is free. But it’s not free. Everybody has to get paid, and if you’re not being billed directly, the expenses of the investments are higher and the participants are paying for those fees. Considering company executives typically have the highest balances, reducing asset-based fees is a win-win for everyone. When you start benchmarking, it becomes very apparent that your fees are X and they really should be X-minus.
Mike Rogers is director of pension services at Burr Pilger Mayer. Reach him at (408) 961-6336 or firstname.lastname@example.org.
Since founding Stellar Solutions Inc. in 1995 as an engineering services company for the aerospace industry, Chairman and CEO Celeste Ford has established herself and the company as innovators.
Ford’s company, the 2009 Ernst & Young Entrepreneur Of The Year Award recipient regionally in the services category, works with critical government and commercial satellite programs. Stellar Solutions has four divisions, including QuakeFinder, which was created as a research and development vehicle to advance work in earthquake forecasting.
Stellar Solutions also blazed new paths by building and launching a satellite in a short 18-month window, which in 2004 led to the creation of Stellar Solutions Aerospace, which works primarily with European and other international clients.
Smart Business caught up with Ford to discuss how she employs innovation both for clients and internally for employees to aim for the stars and build a reputation as an industry leader.Q. How do you collaborate to meet goals?
A. Our leadership team does monthly touches with both employees and customers in the sector they lead (defense, civil, commercial, etc). They also do situational awareness visits with key players in the areas they serve. We have monthly convergence meetings where the leads of each sector cross the boundaries and discuss the information relevant to executing both current goals and new requests. The metrics revolving around our success in achieving these goals are reviewed each month.Q. How do you encourage innovation?
A. Innovation for our aerospace engineering services business is defined as new customers and new projects. We have an inclusive strategic planning process where potential new customers are identified, and planning for understanding their critical needs and how best to serve them are strategized by all of our people. All employees are a part of this process and their bonus plans tie to the company’s strategic plan. About 20 percent of our work each year is a result of innovation, which demonstrates the consistency of innovation as part of our culture.Q. Where do you seek new ideas for products and services?
A. We get new ideas from our employees and customers. We suggest and create pilot projects where it makes sense to test new ideas.Q. How do you get employee buy-in?
A. We include all employees in developing the strategic plan for the company. Each employee is empowered to be a part of planning the future of our company and is rewarded for their contributions.Q. What’s been the most challenging part of the past 18 months?
A. With the change of administrations, many of our government programs experience a change of direction and/or budget (such as the current re-evaluation of NASA’s mission to the moon and Mars). We all work toward a heightened sense of awareness in helping the new leadership achieve their vision and provide continuity in key programs during the transition. The challenge of ensuring business stability during these turbulent times is ensured by following our vision of ensuring we are satisfying our customer’s critical needs while realizing our dream jobs. This alignment is what continues to optimize the positioning of our company for the future.
The Ernst & Young Entrepreneur Of The Year® awards recognize the men and women who put everything on the line to turn ideas into viable enterprises. Now in its 24th year, the awards honor those who build the market-leading companies that make our communities, our country and, indeed, the world a better place.
Being a recipient of this prestigious business award means you’re at the top of your game and puts you in the company of such entrepreneurs as Tom Adams of Rosetta Stone, Michael Dell of Dell Inc. and Pierre Omidyar of eBay Inc.
An Entrepreneur Of The Year® nominee must be an owner/manager of a private or public company with primary responsibility for the recent performance of the company and an active member of top management. The nominee’s company must be at least two years old.
Successful entrepreneurs, whether company founders or current leaders, have a knack for taking businesses to the next level. They employ creative ways to find the capital and resources they need to reach their goals as well as build and grow businesses.
If this sounds like you, consider applying to be a 2010 Ernst & Young Entrepreneur Of The Year®.
Nominations are now being accepted through March 19, 2010, and are available at www.ey.com/us/eoy for downloadable forms or electronic submissions or by calling (800) 755-AWARD.
Recognizing entrepreneurial excellence
Born: Guangzhou, China
Education: Electrical engineering degree from Brown University
As a child, what did you want to be when you grew up?
Frankly when I was a kid ... because life was hard and you didn’t get to see your parents a lot, you say, ‘All right, I really want to go out of here and see the world and see what it’s like outside the communistic state.’
When I got the chance to come to the U.S., I was very excited. Thanks to the American policy, there’s a charity organization that offers scholarships to come to the U.S. to study, so it was a big break, and it was wonderful and it certainly opened up my eyes big time.
It’s important to go see the world. It’s very different. … Every time you go someplace else and live there and learn the culture and the people, you learn something new.
What was your first job as a child?
The first job that I had was actually a delivery boy for a drugstore. I carried those formulas that people ordered and got to slug it around and deliver it to people’s homes. I was 13.
Whom do you admire most and why?
It’s an old ancient Chinese poet Su Zhi. This guy was a Mandarin, and he worked very hard all his life, but then at the end, he wasn’t going too far, but for the rest he enjoyed his life and he made tremendous, tremendous poems, and he usually wrote his best poems when he was half drunk. The kind of scenarios and the pain in his words is just beyond imagination. It was very good.
What’s your favorite movie?
Actually my favorite movie is ‘Forrest Gump.’ It’s the same thing as that poet. This guy, you think he’s kind of half gone and he did wonderful things.
What’s your favorite board game?
My favorite board game is Go. It’s an old, ancient, Chinese board game, which is made very popular in Japan. They make up of two colors black and white. You choose each side. It’s a war game. It’s very simple to learn, but it’s very difficult to master. You basically try to surround the other side. So if you’re the white side, you want to surround the black side, and it’s a checkered board.
Born: Brooklyn, N.Y.
Education: Bachelor’s degree in economics, MBA, and honorary doctorate from the University of Portland; graduate of the Advanced Management Program of the Harvard Graduate School of Business
What was your first job as a child?
Shining shoes in my dad’s barbershop after school
What did you learn from that job that still applies today?
How to deal with people, so I could get bigger tips. You get 25 cents for shining shoes, but if I really smiled and was really nice to these guys, sometimes they’d throw $1 to me as a tip, and that was pretty great.
Whom do you admire most and why?
I do have a hero in life. He’s not with us anymore, but it was Bobby Kennedy. I thought what he did in terms of working with the poor and working with socially responsible issues, like Cesar Chavez with the grapes, and what he tried to do, I thought was [impressive]. I thought he would have made an incredible president, even more so than his brother, but if you read anything about him and read his speeches and the things that he said, I think he was an incredible human being. So he’s kind of been my hero to some extent.
What’s your favorite food?
Of course, Italian. Specifically, if I was going to have a last meal, it would be a roast chicken. A wonderful roast chicken and some really great roasted potatoes and a great big salad, and I have to have great sourdough bread with it, and I would be very, very happy and probably a great glass of wine and a double espresso to finish it off. Now don’t you want to go eat with me?
Amar Panchal doesn’t give employees a blank check to come work at Akraya Inc. But the founder and CEO of the staffing solutions firm will pay for talent.
“A lot of times, entrepreneurs follow job regulations that say, ‘This is a certain pay scale that I have,’” Panchal says. “If somebody is beyond that, they will not consider the person. I feel if you have the right person, having some flexibility on compensation is worthwhile.”
This flexibility became a potential issue when the recession hit.
“It was fairly gut-wrenching for the first two or three months,” Panchal says. “The biggest question was, ‘Are we doing the right thing having increased our expenses to the level we have?’”
Panchal decided to ride out the storm, and while he instituted a pay freeze, he did not lay off any of his 250 employees.
Despite the end-of-year struggles, Akraya reached $28.2 million in 2008 revenue.
Smart Business spoke with Panchal about how to find and build a valuable team of employees.
Don’t pass the buck. The first step to building an exceptional team is recognizing that it’s your responsibility to build that team, not just giving instructions to a recruiter and saying, ‘Hire these kinds of people for me.’
I’ve succeeded because I’ve taken on that responsibility myself, even if it’s getting down and rolling up my sleeves and sourcing for those people. Exceptional people are not going to be looking for jobs. You have to find them, you have to entice them, and you have to attract them to join your organization.
When I’m looking to fill a critical role, I will spread the word around within my network. I will try to have a fairly wide pool of candidates from which I will make a selection rather than just seeing who is available.
Before I call anybody, I’ve eliminated a lot of people. Just looking at their profile and using some of the social networking tools, it’s fairly easy to understand the profile of a person to a large extent today.
I would have seen who or how I’m connected to this person. If we share a common connection, I would have spoken to the common connection and asked them informal questions about the person and done some level of blind reference checks even before bringing the person in. So there’s a lot of qualifications I do before making the first contact with the candidate.
Find the motivation. My first call with a candidate is not to find out whether or not he is the right fit. My first call is to sell him or her on how great Akraya is and how great the opportunity is. I’d rather be in a position where the candidate wants to join us, but he may or may not be the best fit for this role than the candidate is an extremely good fit for this role but does not want to join us.
I’m really trying to understand what would the motivation be to leave whatever role they are in and work for a company like Akraya?
I put myself in the potential candidate’s shoes and try to think of this from his or her perspective. Understand how he or she perceives this role and how he or she would compare it to what they are currently doing or the other alternatives they may be considering.
Look for active people. If we still decide this looks like something we are both interested in, then we really get into a formal interview process.
I’m trying to find people who have experience in larger companies and who have worked at enterprise-level organizations so that they can bring in the processes and the ability to scale an operation. At the same time, I’m also wary of those people who need an entire team of people in order to do anything.
Would this person roll up his sleeves and lead by example? Or would this be more of a manager who is only going to manage but not do? On the sales side, has this person been successful because he or she worked for a well-known brand that does the selling? Or can he or she represent a relatively unknown company and be confident, positive and enthusiastic about establishing a brand?
I’ll ask the person to describe to me what a typical week looked like for you last week. If a lot of time is spent talking about how well they managed people and how many meetings they attended, those things are certainly important. But I’m also looking for more hands-on activities that they may have done.
Use your resources. Although I am the CEO and I may make the final call, I do value the opinions of the people that I have on the interview panel. It’s not just for formality that I have them in on the interview. I truly value their opinion.
So if somebody does not feel strongly about a candidate, I take that very seriously. The process we typically follow is once the interview process is done and everybody has met with the candidate, we get together and have each person that was part of the interview give his or her opinion.
The emphasis in getting the feedback is not how they felt about the person but to try to be more objective. What were the traits they were looking for? Are they able to substantiate why they thought the person was not the best fit? I typically reserve my opinion for last. If I give an opinion, I don’t want the rest of the team to give me what they think I want to hear rather than what they really thought of the candidate.Don’t rush it. We’ve made the mistake of hiring in a rush. It’s better to not have somebody on board than to hire the wrong person. We would rather not hire than hire somebody we are not 100 percent confident about.
How to reach: Akraya Inc., (408) 907-6400 or www.akraya.com
When Mark Laret stepped in as UCSF Medical Center’s new CEO in April 2000, it was just two weeks after the health care system had ended a bad three-year relationship.
The center had merged with Stanford Health Services to become UCSF Stanford Health Care in 1997, and everything seemed so promising. But three years later, a culture war was still raging within the combined organizations, and recognizing that the merger was a major mistake, the two centers separated.
“There were a couple of years of work to bring the organizations together, but when they decided to split, it happened in a matter of months,” Laret says.
The quick break left the organization reeling.
“It was a fairly grim situation on a number of fronts,” he says. “First, and the most obvious thing, was just how distressed the employees were.”
They had been promised certain benefits that weren’t fulfilled, and they were angry that all of this effort had gone on the past few years and hadn’t benefited anybody in any way. They were also mad that management had focused so much on the merger that quality of care had dropped.
Then there were the financial challenges, as the hospital was losing $1.25 million a week. “We were running out of cash, so there was some urgency to act,” he says.
On top of those two issues, operations were a mess. Many functions, such as payroll, were still housed at Stanford, so UCSF had to ask Stanford to do its first payroll checks after the split. Laret also had consultants in pretty much every major role in the hospital.
“There was no chief operating officer, no chief financial officer, no chief anything, no chief information officer, nobody running ambulatory care, so it was a big set of holes here,” he says.
Seeing all of this, he knew the hospital was on life support, but he also thought it could one day breathe on its own again if he could re-engage the employees, build a management team and control the finances — but it all had to be done simultaneously.
“It wasn’t a pleasant set of circumstances, but on the other hand, I knew that the fundamentals here were strong, and that was what we really built on over the next several years.”Re-engage employees
One of the first three things Laret had to attack was rebuilding confidence with his employees.
“First, and I think most important, was to re-engage the work force here and get them focused on what we could do together to develop a positive attitude about the future, to have confidence in a vision of the future,” Laret says.
He started by writing weekly e-mails to the whole staff, telling stories about patients and the great things done at the hospital.
“The first thing I needed to do was remind them of what kind of organization we are,” he says. “We had gone through a trauma, but fundamentally, we were still one of the great medical centers in this country. We needed to get back and focus on those issues related to what we’re really about as an academic medical center and spend less time talking about the trauma.”
He also spent between one-third and one-half of his time talking with employees at brown-bag lunch sessions and departmental meetings and listening to their complaints and problems.
“As much as anything, giving them a sense that management was listening to them probably did more to re-establish confidence,” he says. “ … That is a key ingredient. People need to feel that management is there and is accessible and is respectful.”
He heard many problems, such as the hospital didn’t have linens and that the gases used to power their lasers were no longer being delivered.
“We needed to go back through and sort out where we were on our accounts payable — how do we manage this?” Laret says. “It was dealing with issues one at a time, from the bottom up, but with the idea that you ultimately get there.”
He also had to prioritize these problems, so he first dealt with anything related to patient care.
“That’s more important than the budget and more important than any of the other things we need to deal with,” he says. “That actually provided some clarity to the organization — ‘OK, we’ll take care of patients first and foremost.’”
After patient care, anything that could cripple the business if not solved got precedence, so he cleaned up some audit and other issues. Everything else could wait.
Next, he revisited the hospitals mission and values.
“Historically, they had these statements, but they were in a book, and nobody knew what they were,” he says. “They weren’t really guidelines for daily decision-making or strategic planning or anything else.”
So Laret started rethinking these things. He asked his management team to talk about concepts for a mission. Then he talked to different leaders and department chairs. Out of that came something short and easy to remember — caring, healing, teaching, discovering.
Through that process, he also developed values to lead people in their daily activity — professionalism, respect, integrity, diversity and excellence, or PRIDE. To get people embracing these values, he started by communicating them in every new employee session. He asked employees to give examples of behavior that both exemplified and didn’t exemplify each value. He put it on internal materials to hammer it home and would ask employees about them during luncheons, round-table meetings and any other opportunity he got.
“They all knew I was going to ask about this, so everybody kind of learned it,” he says.
He also started giving out five PRIDE awards a month to employees nominated by their peers as best exemplifying the values. Emphasizing UCSF’s new mission and values helped heal the employees.
“You need to turn all those employees into advocates, allies, supporters, believers, if you will, in the new vision,” Laret says. “ … Get them on board with it, and if you can do that, then I think all these other things, it’s easier to solve them. If you have an employee work force that is not on board with management, it’s going to be very tough.”Build your management team
While employee re-engagement was going on, Laret also had to work to build a team of senior managers to replace the consultants that UCSF had in those jobs. But given the state of the hospital, it wasn’t easy.
“I had a lot of selling to do because people knew this was a place that was in bad circumstances after the de-merger — after the divorce,” he says.
He told candidates that UCSF was going to be great and the potential was fantastic, but he was also honest and said it wasn’t a place for the faint of heart.
“This is not a place where you’re going to be able to phone it in,” he says. “You’re really going to have to be energized by this challenge.”
He also needed people with good values.
“When I looked for all my lead people, I was looking for people who had a track record of success in demonstrating those good values in other organizations,” Laret says. “I needed the right people reporting to me, and then I charged them with making sure they had the right people reporting to them.”
He used search firms to hel p him and says he interviewed scads of people.
“I wish I had some great questions, but as much as anything, I asked people to talk to me about what their greatest accomplishments were and obviously about their failures and circumstances they felt didn’t go well,” Laret says.
He listened about what they had contributed and what they felt to be fundamentals of success or, on the other end, fundamentals that led to setbacks. He also asked about what they learned from those circumstances. This entire process took him close to a year to accomplish.
“I wasn’t interested in people coming in and telling me how great they were and all the fabulous things they had done, and when I asked about problems, it was they worked too hard,” he says. “I was looking for people who had another level of insight into themselves and had a level of confidence in themselves about how to lead in these kinds of circumstances. That would be what I’m still looking for today.”Control finances
While Laret was starting to heal the emotional pains and filling vacancies, he also had to work on healing the financial pains.
“As we started to calm the place down, to move people off the trauma and into the present and thinking about the future, we knew our future was going to depend on getting stronger financially,” he says. “You can’t achieve much if you’re losing money.”
It starts with figuring out where the money was being spent.
“The first thing is, you want to find out who has the checkbook and who has access to your bank account,” Laret says.
In the university setting, departments often submitted recharges against each other, so he implemented actions to control who could submit recharges and in what circumstances they could do so.
He also increased efforts to make sure that the hospital was billing and collecting everything that it was owed to increase the money coming in.
Growth needed to be top of mind, so he started by doing an analysis of where the organization was losing money, where it was making money and what service lines contributed to both of those.
“In a place like this, there are probably 100 different service lines, and you need to look at each one of them and see what’s contributing and what’s not,” Laret says. “Which ones can you grow without too much difficulty? Which ones can you shrink without too much difficulty?”
For example, one of the big problems was the amount of patients coming in on Medicare and Medicaid. Many staffers didn’t realize that the hospital loses a little money on every Medicare patient, a lot of money on every Medicaid patient, and it depends on the commercially insured to make up for those losses.
Laret likens the experience to being Robin Hood in Sherwood Forest, “Because we’re trying to get enough rich people coming through the forest to cover the cost of the poor here, a lot of our leaders didn’t fully understand those economic issues,” he says.
Laret also looked at available benchmarks to see what other hospitals were doing.
“If Stanford Hospital or Cleveland Clinic or New York Presbyterian can provide this service at this cost with these goods and services, why aren’t we doing that?” he says. “ … Benchmarking is obviously important, but customize it to your specific circumstances.”
UCSF is mostly a referral hospital, so it ramped up marketing efforts to increase its referrals by sending staff to educate doctors across the region about its strengths in organ transplants and how it is the leading brain tumor center in the region. He also worked with health plans to make sure that when doctors did refer patients to UCSF, the patient would be covered.
It’s one thing to get more people coming through the doors, but he saw another problem that would affect growth — service.
“You tend to treat people in a fairly consistent way,” Laret says. “And if you tend to treat them in a sloppy way, with mediocre customer service, you’re going to do that for everybody. Maybe you’ll improve for someone really important coming through, but in general, you kind of do things in a consistent way.”
He implemented a patient concierge program to help make the experience more pleasant.
“What has happened, over time, is as we start to treat more and more patients like they’re special, that has become the norm in more areas,” Laret says. “We’re not No. 1 in patient satisfaction in the country, but we’ve come a long way from the bottom quartile to almost the top quartile in patient satisfaction, and that’s really this effort of really focusing on service.”
On top of increases in patient satisfaction, as a result of his efforts, business has grown, as well, and what started as an approximately $60 million loss the year Laret joined became a $70 million gain within five years. Today, the organization is not only breathing on its own, but it’s also running, jumping and enjoying its health as a profitable operation with nearly $1.5 billion in total operating revenue. It’s now also consistently recognized as one of the nation’s top 10 hospitals by U.S. News & World Report — and all of this success is the result of lots of little things adding up to a large change.
“Lo and behold, those things, after awhile, they really start to work,” he says. “Our business in volume has grown over 30 percent in the last nine years. I think it’s fundamentally a result of those kinds of initiatives.”
How to reach: UCSF Medical Center, (415) 476-1000 or www.ucsfhealth.org
Although the urban legends surrounding the Sarbanes-Oxley Act of 2002 paint it as something to be feared, Clark Keeler says that it actually presents an opportunity for business leaders to improve and protect their companies.
For many years preceding SOX, CEOs and CFOs signed certifications in their public financial statements asserting that they maintained effective systems of internal controls. However, those assertions were never audited, so there was no verification of their reliability. Then came the downfall of Enron and WorldCom and the enactment of the Sarbanes-Oxley Act.
“The thing that business leaders primarily objected to about SOX was one section of the legislation, Section 404(b). That section required their auditors to ‘attest to, and report on, the assessment made by management,’” says Keeler, a director at Burr Pilger Mayer. “The act came into effect in July 2002 and required the biggest public companies to be compliant and be audited by the end of 2004. The act also incorporated penalties that effectively said, ‘If you fail, your officers can be fined personally or even go to jail.’”
Smart Business spoke with Keeler about how Sarbanes-Oxley has impacted business and why management should look at the act as a blessing, not a curse.
How should business leaders approach Sarbanes-Oxley?
Sarbanes-Oxley focuses on managing the risks around financial reporting. Instead of embracing the requirements as a means of improving internal communication and credibility with external stakeholders, management, as a whole, resisted the act, treating it as a forced-compliance law of little or no value. They too often abdicated responsibility to their auditors and consultants and said, ‘Get us compliant and keep us out of trouble.’ That often led to lack of focus and attention on details rather than the analysis of significant areas of risk. Management could have avoided much of the frustration the act created by approaching compliance as they would have in any other major project: by focusing on and addressing the significant risks and areas of weakness where their businesses could benefit, but not ‘sweating the small stuff.’
How can having strong internal controls help a business leader?
Strong internal controls are good business basics. Their purpose, in relationship to Sarbanes-Oxley, is to prevent or detect the risks of misreporting important financial information. Good internal controls help ensure reliable information on the areas that matter to the readers of the financial statements.
When management can prevent or detect problems before they mushroom into a crisis, the working environment inevitably becomes calmer. Having good information allows them to run their businesses without worrying about the things they haven’t thought of or checked on and it also reduces surprises. Once you have the information you need, on the things that matter, you can focus on the business model issues that really lead to success.
Sarbanes-Oxley requires management to figure out where the risk areas are that could cause them to make material errors in their financial statements. It then requires them to put the controls in place that would prevent the errors from happening or allow them to be detected and corrected in a timely manner. Reliable financial reporting supports management decision-making and provides credibility to investors and other stakeholders. These are good things.
How do you identify your risks?
All business risk assessment starts with determining what can go wrong in significant business processes and what can be done to prevent or detect the effect of those risks. Evaluating financial reporting risk is a basic process that looks at who has a stake in the company, who reads the financial statements, and determines the areas they care most about. Once management identifies the significant items that their stakeholders evaluate, they need to take steps to ensure that the information relating to those items is materially correct. Obviously, you want your stakeholders to know they can rely on the accuracy of what they are reading.
Evaluating what your key business processes are, what impacts them and how you ensure that the processes operate effectively is actually pretty straightforward once you have identified the areas of sensitivity. If it is something you can prevent from ever happening, you take those actions. If you cannot prevent it, you put monitoring controls in place so you know if it happens and give yourself time to react to it. Once you have the controls in place, you simply have to test them periodically to make sure they are still protecting you.
How can having strong internal controls and knowing the details of financial statements benefit not only public companies but private ones?
Having good internal controls is ultimately about controlling the information around your critical business processes. If you have the information to prevent or detect risks to your business, you can manage proactively. You will have reduced the ‘surprises’ in your operating environment and will have gained a measure of control of your business. For a small company looking to sell, reducing information risk to the buyer is critical. If every time your buyer asks a question you have to say, ‘I’ll get back to you in a couple of days,’ their confidence in how much you know about your business and how much they are willing to pay is reduced. Conversely, if every time they ask a question you can answer confidently, their comfort and interest is reinforced.
More importantly, however, internal controls support your day-to-day efforts to create the most value for your company. They keep you focused on the things that matter and provide the reliable information you need to make your best business decisions every day.
Clark Keeler is a director at Burr Pilger Mayer. Reach him at (415) 288-6280 or email@example.com.
Mike Marcon didn’t want to fail when he launched Equity Risk Partners Inc. over a pizza with his wife back in October 2000. But he wasn’t afraid of disappointment either.
“I said, ‘I’m about to bet the house that I’m going to be able to build this company, and if it doesn’t work, we’re going to lose the house,’” Marcon says. “My wife looked at me and said, ‘That’s not why I married you. I didn’t marry you for the house. If we lose the house, we’ll go live in an apartment, and you’ll go do it all over again. So go do this and don’t worry about it.’ Ever since then, it’s given me the freedom to swing for the fences.”
That freedom gave the founder and CEO the positive energy he needed to make the financial services firm a success. Now with 45 employees, Marcon’s biggest challenge is making sure his people are ready to keep growing.
Smart Business spoke with Marcon about how to help your people keep pace with you and what to do when they no longer can.
Be upfront with people. Being able to continue to grow and develop the firm and attract the talent you need to continue to thrive without abdicating the responsibility you have to the people who were there with you on day one and still making them feel part of the overall success of the enterprise, that’s a significant challenge.
As we grow the firm, we might add a division or add a new practice group, and as those people come into the firm, they are used to being senior leaders where they came from. Are they going to displace the existing senior leader? How do you get them to work together? Obviously, in this type of environment, you need all the oars pulling in the same direction.
One of the things I pulled out of one of Jack Welch’s books was brutal honesty. Be upfront with them, be direct, and that solves a lot of problems. I’ve learned to not tap dance around these issues.
I sit down with my colleagues and I say, ‘Here’s the issue, here’s what we’re dealing with, and here’s why I want to bring this other person in. They’re not better than you or superior to you, but they are bringing this skill set and this business acumen, and we need to find a place for them. In order to do that, this is what I need you to do.’
Explain your plan. In our business in particular, insurance brokerage and insurance agencies, there tends to be a lot of firms that start up only to be sold a short time later and get merged into a larger business when the principals cash out.
It’s hard to get people vested emotionally and intellectually into a long-term business plan if they think the owner is going to cash out in three to five years. One of the things I repeat constantly is, ‘We are eight years into a 100-year history.’ I make it loud and clear to everybody that the firm isn’t going anywhere.
Think before you hire. One of the things I’ve learned is I don’t make decisions right away with personnel. I have an initial meeting and then I have them filter through the senior management team as well as some people below them.
It’s in the follow-up interviews that I do two things. One is I start to focus on potential areas of disconnect. I also really start to hammer on the uniqueness of our business model and how it’s different from where they worked before.
You can’t prevent someone from lying to your face, but I challenge them as best I can. I tell most of the people, ‘It doesn’t matter what you tell me now; everybody has their own alone time when it’s just them with their thoughts. Sometimes it’s when you’re working out. Sometimes it’s when you’re washing the dishes, whatever. When you have your alone time, I want you to think about the environment I just painted for you and whether you truly fit in this environment. I don’t want you to mistake not fitting with being an inferior person. There is just a right fit and a wrong fit for certain individuals. It’s better that we find it out now than we find out six months from now.’
That’s worked pretty well.
Do what you can to help. Sometimes you get the people that see the box above them on the organizational chart and they want it just because it’s above them. It doesn’t matter that they are not going to be happy there. It doesn’t matter that they are not going to perform well there. There are certain people that want the bigger title because that’s next.
In situations like that, it’s very easy for me to go to that person and say, ‘I want to put you over here, and I think this is the best spot for you.’
Those people, I can say, ‘I’m doing this because I’m putting you in a position to succeed. If you take this other opportunity, you are not going to succeed. It’s my responsibility to know the difference. That’s what I get paid to do.’
The other side of the coin is those people who just don’t belong in the organization anymore. The organization has passed them by. With those types of people, the key is to act right away. It’s a tough thing to do, and you don’t want to do it, especially if they have been loyal.
But very early on I got a good piece of advice from one of our board members: Deal with it right away because it’s not a surprise to the other person either. They know most of the time that the organization has moved passed them. They know they don’t fit in like they used to anymore.
Most people are not ignorant of that. So when you have the conversation with them, their usual response is, ‘Yeah, I know.’ Depending on how they have performed in the past, you make their landing as soft as you possibly can. You just deal with it.
How to reach: Equity Risk Partners Inc., (415) 874-7100 or www.equityriskpartners.com