Virtually every business and individual borrows money at some point. Although there are many different loan types available, some universal concerns apply to every loan. Borrowers need to understand these issues and know that they may be able to limit their risk through negotiating their loan documents.
“Borrowers don’t always fully appreciate the risks they are taking when borrowing,” says Catherine A. Marriott, a member at Semanoff Ormsby Greenberg & Torchia, LLC. “Often, a default which could have been avoided can result in acceleration of a loan, putting personal and business assets at risk.”
Smart Business spoke with Marriott about what provisions counsel should review, whether or not he or she participates in the negotiations.
What are issues borrowers should consider?
Often, borrowers extend lines of credit via a simple modification document, without reviewing the documents signed when the loan was first obtained. In doing so, they run the risk of violating representations and warranties that were true when the loan was first made, but are not necessarily true when the loan is modified. Further, borrowers may not be aware of operating and financial covenants that apply to their business, and often think that because they have not had any issues in the past, there is no need for concern now. While that may be true, reviewing the initial documents is critical in avoiding defaults going forward, as circumstances and goals may have changed.
For new and existing loans, borrowers must be sure that they understand:
- All business terms, such as the monthly payment obligation, interest rate, amortization term, prepayment penalty, and operating and financial covenants.
- What collateral is pledged for the loan, including security interests in equipment, inventory and accounts receivable, and, most importantly, personal guarantees.
- The remedies that the lender has upon a default, including confession of judgment for money or possession of real property, and what effect enforcement of these remedies could have on business and personal assets.
What should be considered regarding personal guarantees?
Many borrowers form entities to keep business and personal assets and liabilities separate. Notwithstanding this goal, principals of small and midsize businesses are almost always required to personally guarantee business loans, resulting in risk to personal assets. Although these individuals are aware of their personal liability, the extent of their exposure may not truly be appreciated.
How does confession of judgment work to increase borrower risk?
Confession of judgment is a powerful remedy available to commercial lenders in Pennsylvania. It allows a lender to immediately obtain a judgment against a borrower or guarantor (or both) for money or possession of mortgaged property. The money judgment will include the accelerated amount of the balance of the loan, plus interest, late fees, attorney’s fees and costs of collection. A borrower or guarantor will have the opportunity to open the judgment only after it is entered, rather than defend the matter before it becomes a judgment. An attorney can advise of the risks and consequences of confession of judgment.
When should counsel be reviewing the loan documents?
Certain loan provisions are legal in nature, so borrowers should consult with an attorney to understand the legal risks. By doing so at the outset, counsel can advise not only on whether borrowers are receiving market terms, but also can assist with modifying or eliminating provisions that are negotiable. Counsel can make sure that borrowers understand their obligations, and that the loan terms adequately address the borrowers’ needs and business goals. The later counsel gets involved, the more difficult it becomes to improve the loan terms.
Even if a borrower has never had problems with its loans or lender, things can happen. Considering what is at stake, all borrowers should strive to minimize their risk. Spending a little time and money now to protect business and personal assets in the future is invaluable.
Catherine A. Marriott is a member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach her at (215) 887-0200 or email@example.com.
Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC
A data center is the infrastructure a business uses to house its IT assets — space, power, cooling, network connectivity, wiring, etc. Depending on the business’ size, it may be a spare closet, a dedicated building or space leased at a public data center.
“The data center itself is infrastructure and doesn’t generate revenue or create differentiated business value,” says Mike Tighe, executive director, Data Products at Comcast Business. “So, the CFO frequently says, ‘Rather than utilize precious capital to build or expand a data center, there are other options including great public data centers where we can lease space.’”
Smart Business spoke with Tighe about data center best practices, including network and bandwidth considerations.
Why are data centers so important today, and what’s in store for the future?
The function of a data center is to ensure availability of IT applications and data. If employees don’t have access, they can’t be as productive and in some cases, the business can’t run. The trend to place IT assets -—applications, servers and storage — in public data centers is rapidly evolving for businesses of all sizes, either as a main data center or as part of business continuity strategy.
Over the next five years the trend of renting rather than owning IT infrastructure will accelerate as businesses utilize cloud-based infrastructure and applications. This is not just because of better economics, the ‘cloud’ enables rapid deployment and the ability to scale applications that drive better productivity.
When should you look at outsourcing a data center?
When IT becomes an important component of how you run your business, you have to ensure high availability. If, for example, you install specialized applications used for resource planning and creation of content, but the server starts going down because of power or network connectivity loss, it impacts your business’s ability to run.
Another factor is economic. As businesses make IT decisions, they may not have the capital to build or upgrade data centers, so they’ll look at alternatives.
What are some options to consider with public data centers?
By their very nature, there are more capabilities in a public data center because everyone is sharing the cost of the generator, the physical security monitoring, having multiple network providers, etc. However, some things to consider are:
- Physical security procedures.
- Redundancy of critical components.
- The ability to expand as your IT infrastructure requirements increase.
- Network for primary and backup connections. What providers have extended their network into the data center to provide connectivity and ensure access?
- Location. Regional events including loss of power and natural disasters dictate that the backup site be located far enough from the main data center so as not to be affected by a single incident. Hurricane Sandy certainly brought home the point that a redundant data center far enough inland on a separate power grid helps ensure application availability.
How can companies build the right network?
Strong network connectivity becomes more important as IT assets are put into public data centers. Know how much your company’s bandwidth requirements are growing, and your network’s ability to scale for future requirements. On average, over the past decade, a business’s bandwidth requirements have grown around 50 percent per year. Look at network technologies that can cost-effectively scale — from 10 megabytes, an average site requirement, to one gigabyte, for example. Ethernet technology, which local-area networks are built on, is one solution that businesses are leveraging for their networks.
How do data center solutions impact a business’s bottom line?
With the economic downturn, use of company capital became a focus. Executives decided that the data center, while important, doesn’t produce any intrinsic value. And you can lease the space and preserve capital for projects that improve the bottom line. Companies can rent space by the square foot, rather than having to build another data center as IT needs expand.
Mike Tighe is a executive director, Data Products at Comcast Business. Reach him at (215) 286-5276 or firstname.lastname@example.org.
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You are insured and sustained a fire loss. The township has now told you to demolish the damaged and undamaged portions of your building, and when you re-build make sure the building is fully sprinklered. How will you pay for these additional costs?
“The additional costs to comply with an ordinance due to the loss can be substantial, such as the loss of value of an undamaged portion of the building, demolition costs and the additional costs to reconstruct a building to comply with the ordinance,” says Phil Coyne, vice president at ECBM.
Smart Business spoke with Coyne about how building ordinance or law coverage would fill this gap in your standard property insurance policy.
What is ordinance or law coverage?
Standard property ‘cause of loss’ forms have a coverage exclusion for loss or damages that occur as a direct result of enforcement of any law or ordinance regarding construction, use or repair of the property, which includes demolition. Three coverages are available to address this exclusion under the ordinance or law coverage of your property loss form:
- Coverage A — Loss to the undamaged portion of the building. The limit should be included in the building limit.
- Coverage B — Demolition coverage, the cost to demolish and clear the building. The amount of coverage should be determined.
- Coverage C — Increased cost of construction, which covers the additional costs to comply with the ordinance or law. Limits should be determined.
In some cases, Coverage B and C are combined under one limit.
Why is ordinance coverage necessary?
Each state, county, township and municipality chooses to adopt and amend national codes, such as the National Fire Protection Association’s Fire Code, according to their needs and concerns. It can be an ever-changing landscape, and many times older buildings are grandfathered or exempt from these codes until a loss occurs.
The coverage should be on every insured’s wish list. It’s probably most critical for buildings that are older, or have older portions, and may have grandfathered codes or regulations for square footage and density. Many lenders have a requirement for this coverage in mortgage agreements.
What triggers the coverage?
There has to be a covered cause of loss that results in the application of a building ordinance. For instance, in 1990 a city ordinance said every new building in excess of three stories had to be sprinklered. Your building is four stories and built in 1985, so the ordinance doesn’t apply. However, the ordinance also might say if 50 percent of an older building is damaged, the entire building has to be demolished and rebuilt. If, after a large fire, you must demolish the building and put in a sprinkler system, this triggers your ordinance or law coverage.
Where might this coverage not apply?
The ordinance or law coverage will not apply if an insured was required to comply with an ordinance and chose not to. Let’s say, a township requires buildings with four or more apartment units to have hardwired smoke detectors and you decided not to install them. If you chose not to install them and then the building sustains a covered loss, the coverage won’t apply.
The three ordinance coverages all have to do with direct loss to the building or property. There’s no provision for the loss of business income. Standard business income policies exclude coverage for the increased period of restoration due to the enforcement of laws or ordinances. Therefore, you would need to endorse your policy to pick up coverage for this increased time.
Also, anything excluded from the policy would not be covered, such as flood loss. Every building ordinance and business income policy excludes any costs regarding pollution or mold and fungi.
What should you consider when buying this coverage?
Look at the current value on your building(s) and what coverage you get under your policy form because each insurance company adapts it differently. Have a thorough discussion with your broker regarding what coverage you think you need and what you can actually get. The insurance company may limit the amount of coverage, based on your premium and portfolio size.
Phil Coyne is a vice president at ECBM. Reach him at (610) 668-7100 or email@example.com.
For more information about risk management, visit ECBM's blog.
Insights Risk Management is brought to you by ECBM
Ronald Reagan was well known for not only his confidence but also his positive outlook and sense of humor. He had a way of never taking himself seriously and always found a way to find humor even during the direst times.
In fact, following the assassination attempt, he told his wife, “Honey, I forgot to duck.”
His constant positive outlook made him appealing to voters and is one of the reasons he continues to score high in polls ranking presidents.
Do we approach life and leadership the same way that Reagan did? Do we always take a positive outlook into the start of each day?
Some CEOs act as if being in charge makes them a victim and complain of the burden. Leadership is a privilege that all of us should learn to enjoy. We have to train ourselves to enjoy the process, not just the end result.
Let’s take some time to reflect on the victories, no matter how small, and celebrate them. Learn to reflect on the great clients we have and the great people who work for us instead of focusing on the one unhappy customer or an employee with a bad attitude. But most importantly, we shouldn’t take ourselves too seriously.
Each day that passes is a day that we do not get back. We have to look at each day as a series of moments and find the happy things that put joy in our life.
These can be simple things — a funny comment from your child, something silly you heard on the radio or a bright, sunny day. When we start focusing on these small joys in life and start stringing them together, we’ll find that an entire day has become joyous. Enjoy the time you are in now and don’t spend so much time fretting about tomorrow. Be intentional: Start by writing down four little things a day at work that bring you joy on a daily basis and build from there. This can even be a conversation around the watercooler that makes you laugh. String together a few days like this, and we are well on our way to a more joyous life.
By developing this habit, we will be more inclined to treat people better, and they, in turn, will treat others better, which will increase the overall positive culture of our workforce. The work environment is a bigger factor in why employees leave than money is, so focusing on providing a more joyful environment will also help your business in the end.
Whether in business or in life, it all comes down to being joyful. Happiness is fleeting based on circumstances, but joy becomes permanent once we have cultivated it. Start by focusing on the little joys and build from there. Remember, people won’t remember what you said, but they will remember how you treated them.
Fred Koury is president and CEO of Smart Business Network Inc. Reach him with your comments at (800) 988-4726 or firstname.lastname@example.org.
The more there is available of something, the less it costs. Conversely, when there’s a limited quantity of that same something, the more it’s coveted and the more expensive it is. This is a rudimentary concept, but few companies know how to effectively manage the process to ensure they balance supply with demand in order to maintain or improve the profitability of a product or service. Of course, before you can maximize profitability, you must have something customers want, sometimes even before they know they need it.
Think about precious metals, fine diamonds and even stocks. The beauty and a portion of the intrinsic value of these things are effectively in the eyes of the beholder. In reality, much of their value or price is determined by the ease or difficulty of obtaining them.
As for equities, as soon as everyone who can own a given stock has bought it, then, in many cases, the only direction that stock can take is down because there are simply more sellers than buyers. On the flip side, when few people own a stock but everybody decides they want it, for whatever the reason, that stock may take a precipitous upward trajectory.
A case in point is Apple. At one time, when its per-share price was more than $400, $500 and even $600, everyone thought the sky was the limit and the majority of institutional funds and many home gamers, aka small individual investors, jumped on the bandwagon. The stock reached $705 a share in the fall of 2012, and just when all of the market prognosticators were screaming, “Buy, buy, buy,” there were too few buyers left (because everyone already owned it) and the stock fell out of bed. In many respects, Apple was still the same great company with world-class products, but there were simply more sellers than buyers and — poof — the share price evaporated, sending this once high-flying growth stock to the woodshed for a real thrashing.
The question for your business is how can you manage the availability of your goods or services to maximize profit margins? The oversimplified answer is once you have something of value, make sure that you create the appropriate amount of tension, be it requiring a waiting list to obtain the product or service or underproducing the item to create a backlog. However, this is a delicate balancing act, because if it’s too hard to get, then customers will quickly find an alternative, and your product will become yesterday’s news.
Some very high-end fashion houses, such as Chanel, have it down to a science. It can be very difficult to walk into a marquis retailer today and obtain one of its satchels without being made to jump through waiting-game hoops, just for the privilege of giving the store your money in exchange for the fancy schmancy bag. That stimulates demand and keeps the price up because customers tend to want something they can’t seem to get.
Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. Reach him with comments at email@example.com.
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A “preference action” is a lawsuit by or on behalf of a debtor seeking to recover certain payments made by the debtor prior to filing for bankruptcy. Preference actions are unfamiliar to many business owners and often seem illogical and unfair.
“Clients often receive a letter demanding the return of a payment that the debtor made to them before filing for bankruptcy. They call and say, ‘What does this mean? Do I have to return this money? We sold them products and they paid us, are they entitled to get their money back?’” says Stephen C. Goldblum, member at Semanoff Ormsby Greenberg & Torchia, LLC. “The answer is yes, you may have to return the money — unless the payment falls within one of the statutory defenses.”
Smart Business spoke with Goldblum about how preferences work.
What should you know about preferences?
Typically, a preference action is often preceded by a ‘demand letter’ from the debtor demanding the return of payments made in the 90 days prior to the debtor filing for bankruptcy. This seems patently unfair to the recipient of the payment. The business provided products or services and was paid for them, and it seems unjust to have to return the money, often many months after the payment was received. The policy behind the bankruptcy code, however, takes a broader view. The policy is to prevent debtors from treating creditors unequally and paying preferred creditors before filing bankruptcy, and to prevent aggressive collection activities that could actually force a debtor into bankruptcy. Such policies have been determined to be of greater importance than the rights of an individual creditor.
There are four elements needed to prove a preferential payment; if the payment was:
- For an antecedent (previously incurred) debt.
- Made while the debtor was insolvent.
- Made to a non-insider creditor in the 90 days prior to the bankruptcy filing.
- Allows the creditor to receive more than it would have if the payment had not been made and the claim paid through the bankruptcy proceeding.
Where do many businesses make mistakes regarding preferences?
A business’ biggest mistake is to ignore a demand letter received by or on behalf of a debtor. Often the debtor is willing to settle the preference claim for a significantly reduced amount before a lawsuit is filed. A business that ignores a demand letter or fails to timely retain counsel familiar with bankruptcy law often misses its best opportunity for a favorable resolution.
Do you receive the repayment back?
Usually not. The preferential payments recovered by the debtor are added to the bankruptcy estate. To the extent there are funds available, secured, priority and certain other creditors are paid first. To the extent there are funds remaining, they are distributed to the unsecured creditors, which often results in little or no payment.
What are the defenses when a payment is alleged to be preferential?
The three primary defenses to an alleged preferential payment are the following:
- New value defense, which provides an offset against the preferential payment if the creditor subsequently gives new value to the debtor after the alleged preferential transfer.
- Ordinary course of business defense, which protects transfers consistent with the debtor and creditor’s prior business history.
- Contemporaneous exchange defense, which includes certain concurrent transactions such as a cash-on-delivery.
How are insider creditors treated differently?
With insiders — corporate officers or directors, relatives and related entities — a debtor may recover payments for up to 12 months prior to the bankruptcy.
How can you protect your company?
It’s difficult for a company to pre-emptively protect itself from a payment later being deemed preferential. When you receive a letter demanding return of an alleged preferential payment, contact an attorney experienced with creditors’ rights. He or she will analyze the potential defenses and prepare a response to the letter. Often, a timely, well-reasoned response to a demand for the return of a preferential payment leads to a prompt and cost-effective resolution.
Stephen C. Goldblum is a member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (215) 887-5961 or firstname.lastname@example.org.
Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC
Many times landlords and tenants don’t realize that their commercial lease is unclear, contradictory or out of date until it comes time to resolve a claim, whether it’s a case of liability or property damage.
The payout is then delayed as the insurance companies review the entire lease to try and determine responsibility, liability and how the policy should respond.
“The real world is this — when the landlord and tenants go to renew an option, they just want to renew it. They don’t want to look at anything else because they don’t want to open up opportunities for negotiation that could be detrimental to either party,” says Phil Coyne, vice president at ECBM.
Smart Business spoke with Coyne about how knowing what’s in your lease and fixing problems now will save you a headache later.
What is one of the biggest risk exposures involved with a commercial lease?
You can avoid significant risk by making sure the lease language doesn’t expand, broaden or increase the liability and exposure to the point where your insurance coverage either doesn’t apply or would be limited. Therefore, each party — tenant and landlord — needs to have an understanding of the intent of the lease and its language.
Also remember that it’s not only the insurance provisions that have an effect on the outcome of a claim, but also definitions, maintenance, landlord/tenant obligations, use of premise and indemnity provisions. The insurance section alone only outlines limits and coverage; it’s the other sections of the lease that outline responsibility and ownership.
If two insurance companies review the same lease, and there are questions, it delays the claim process. For example, who is responsible for or owns the improvements and betterments to the space? Is that the responsibility of the tenant or the landlord?
How can tenants and landlords best mitigate risk when drafting and negotiating commercial lease provisions?
By understanding the intent of the lease and its language, the tenant and landlord can mitigate a potential problem prior to a loss and have an understanding of how their policies will respond.
Therefore, both insurance brokers should have an opportunity to review the entire lease during negotiations. He or she can explain what each party is accepting and not accepting, and how your policy will respond in the event there is a claim.
Some important areas for discussion are:
- Who is responsible for what, such as common area, tenant space, maintenance and repairs.
- Who is responsible to insure these items?
The commonly discussed issues in the insurance section are limits, coverage, indemnity provisions and specific wording, but policies respond to the entire lease and its language in sections other than the insurance section.
How should a lease be updated when up for renewal?
Many times lease options are renewed without re-examining the entire lease’s language. There could be simple items such as a name change or an increase in the square footage, other times it can be a change in use and occupancy and therefore changes in various other sections need to be amended and addressed.
Although the landlord and tenant likely just want to sign a quick renewal, it is important that all parts of the lease are carefully reviewed and understood. This will ensure each side is in agreement on the terms prior to a loss instead of after a loss, as the latter could lead to delays or restrictions in coverage.
Phil Coyne is a vice president at ECBM. Reach him at (610) 668-7100 or email@example.com.
BLOG: For more information about risk management,visit ECBM's blog.
Insights Risk Management is brought to you by ECBM
Not all executives have a financial or legal background. However, most would acknowledge a need to have a basic understanding of those areas to facilitate better communication with the company’s finance and law departments. Yet when it comes to information technology, executives often would rather leave all decisions to the “techies.”
“IT is a newer field that started as a separate entity — a black box that we didn’t understand,” says Sassan S. Hejazi, Ph.D., director of Kreischer Miller’s Technology Solutions Group.
He says executives have been comfortable delegating IT responsibilities to specialists, but there is a growing population who have taken the initiative to become more tech-savvy.
Smart Business spoke with Hejazi about the separation between executives and IT departments and the technology fundamentals all business leaders need to know.
Why do executives tend to take a hands-off approach when it comes to technology issues?
They understand the concepts, but think technology people should handle technology issues. They want to delegate these business improvements rather than get very involved themselves because they might not be familiar with the technology or are intimidated by the jargon.
What fundamentals do executives need to understand regarding technology?
Executives need a basic understanding of the:
- Right IT systems for the business; the wrong ones will not enable the company to achieve its business goals.
- Latest changes in technology. For example, IT systems are moving toward the cloud. Executives need to know what is happening with cloud technology and how it addresses the overall needs of their business.
- Impact of social media. They need to know how social media changes the ways customers interact with companies.
- Quality of data. If the right data is not being captured, decisions are not made properly. Executives need to be adamant about ensuring a high level of data quality in the system and that they’re capturing the right analytics.
Executives need to understand technology projects in order to take ownership of them and leverage specialized IT resources for those projects. If they want to gain a competitive advantage from IT investments they have to think of those projects as business improvements or business transformation initiatives rather than just technology initiatives.
When you have an IT professional in charge of an IT project, the tendency is to think of it as just a technology project. Implementing a new accounting system, client/customer management system, management dashboards or social media marketing program are very technology-intensive, but at the core they’re business projects.
How might leaving decisions to IT managers put the focus on technology instead of cost or business needs?
Even if they have an appreciation of business results, IT personnel are not impacted directly and are not involved in pricing and delivery of the company’s products and services. As a result, their decisions are focused on technological efficiencies rather than business realities. That’s why it’s important to have non-IT managers champion projects and be held accountable for their success from a business standpoint. Make sure they’re working closely with their IT counterparts, but leverage IT personnel as a resource rather than having them lead projects.
IT departments are viewed as a means to execute plans instead of participants in the planning process, and it’s often assumed that they don’t understand the business. If executive management makes decisions in collaboration with proper IT resources, it sets the tone for the organization and ensures IT managers are integrated within overall management decision-making. As non-IT managers become more tech-savvy, IT managers need to be more business-savvy. IT employees are also there to achieve business goals and involving them in the process makes them more engaged and productive team members.
Sassan S. Hejazi, Ph.D., is a director at Kreischer Miller. Reach him at (215) 734-0803 or firstname.lastname@example.org.
Book: Get Sassan’s new book, “Tech-Savvy Manager: Harnessing the Power of Information Technologies for Organizational Performance” at Amazon.
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How Michael Barry made the tough calls that helped Quaker Chemical rebound quickly from the recessionWritten by Erik Cassano
Five dollars a share.
That was the new reality when Michael Barry became chairman, president and CEO of Quaker Chemical Corp. in 2008. The manufacturer of specialty industrial chemicals, which trades on the New York Stock Exchange, had a stock worth $30 a share just several months before.
Then the economy’s bubble burst, and almost as quickly as a lightning strike can fell a tree, Barry was left staring at the shattered remnants of his company’s once-healthy stock.
Five dollars a share. And the end of the free fall was nowhere in sight.
“We went from making money to losing money, almost immediately,” Barry says. “And nobody knew how bad this would get. Nobody had perfect visibility about how long this was going to last.”
With less than a year on the job, Barry was immediately thrust into the crisis of a career.
“We had to take some really dramatic action,” he says. “We pulled together our senior management team, trying to get everyone involved at the senior-management level, helping us to make some of the important decisions we would need to make.”
Barry and his leadership team made the decisions that many leaders made in that time frame: They slashed the global workforce of Quaker Chemical, eliminating between 10 and 20 percent, depending on the region.
They cut the company’s 401(k) program, eliminated all bonuses and tried to spread an even coating of adversity throughout the entire organization.
Along the way, Barry acted as a guiding hand for his reeling team, keeping them as informed as possible, every step of the way.
“We communicated all the steps we had to take and did it continuously,” he says. “Maybe people weren’t happy with the news, but they felt we treated them fairly. They felt we did a good job of keeping them informed.”
Don’t clam up
In a time of crisis, your instinctual reaction might be to perform damage control on your company’s reputation. While you should take steps to salvage your company’s good name, if your methods of reinforcing your company’s reputation extend to sugarcoating, half-truths and other opaque messages, you’ll end up creating more harm than good —particularly if that’s your communication strategy with your own employees.
It’s difficult to swallow your pride and tell your people that you don’t have all the answers, to admit that the future is uncertain, but it’s a necessary step in maintaining long-term trust with your people.
Barry realized that early on and made it a point to maintain a frank, honest and ongoing dialogue with his team. It’s something that has continued throughout Barry’s tenure.
“Making communication a dialogue is, admittedly, something we have struggled with,” Barry says. “What we have done is, during our meetings, myself or my direct reports are talking, and we try to get people engaged and involved with the conversations. We turn it into a town-hall type of meeting. That concept evolved, and then we started bringing together smaller groups of people, including the people who report to my direct reports — so a couple of layers down in the organization.”
The people on that level then bring the messages from those meetings to their own teams, and facilitate dialogue within their area of the company.
“In a smaller group with their manager, your people might feel more comfortable asking questions,” he says. “So we try to give all those managers talking points and answers to frequently asked questions.
“With those kinds of sessions happening all around the globe, we’ll gather the questions people have been asking to see if there are any underlying themes — something everybody is asking, but we’re not doing a good enough job of telling them. But you need to keep that dialogue going, make those meetings a two-way street.”
When enduring hardship, particularly on a global level, culture becomes an increasingly important topic to address as the storm clouds gather. When your business is in survival mode, you might find yourself focused on the financial steps you need to take in order to guarantee your company is still operating at the end of the month or end of the year.
But neglecting to focus on your core values, mission and vision for the future — even if that vision is years away from realization — can have damaging effects to morale, employee confidence and, by extension, your company’s ability to keep its talent pool intact.
“We have spent a lot of time on culture,” Barry says. “We communicate it frequently because it is such a critical aspect of how we operate, how we feel, how we collaborate. You have to consistently reinforce what you are as a company, and we’re a very collaborative company. It’s a key to our business model.
“So during that time period when we were going through the worst of the recession, we talked about it a lot. We even put it on our computer screensavers, highlighting messages that reinforced the core values of the company.”
But messaging on your values and culture is like a booster shot. The real dosage of medicine comes from your actions.
“If you don’t live the culture, people will figure that out pretty quickly,” Barry says. “If you have people in the organization who don’t live the culture and you don’t take steps to correct that, it becomes a problem. A large piece of this is the ability of you and your leadership team to walk the talk.”
Add to the momentum
Though some of them were unpleasant to endure, the initial steps that Barry and his leadership team took in late 2008 and early 2009 helped Quaker Chemical to not only weather the worst of the recession but to quickly emerge from its down cycle in an aggressive growth mode.
Within six months, the company had started to grow again. After employing a workforce of about 1,300 in mid-2008 and dropping below 1,200 after the rounds of cutbacks, Quaker Chemical now employs about 1,600. Net sales for 2011 topped $683 million, an increase of more than $139 million from 2010.
Whether your recovery takes six months or six years, you need to show your people the progress that the company is making. Victories and milestones, however small, can help increase employee confidence. During the recession, you played not to lose. The victories your company gets on the rebound can change that mentality. You want to play to win.
“I think people saw our progress mainly through our performance,” Barry says. “We’re a public company, so they saw right away that we went from losing money to breaking even and that we did it in the span of a quarter.
“Then after breaking even, we started making money, and in each subsequent quarter, we started making more money. That was the biggest encouragement we could have given them, because it gave everyone in the company evidence that we were doing the right things and taking the right steps. People started to feel more secure in their positions.”
As you begin to see daylight, you can use opportunity to take stock of where your company is and what your growth strategy should be as you move forward. Throughout 2010, as Quaker Chemical began to add momentum to its rebound, Barry and his team continually analyzed the company’s strategic position and where it needed to be in order to continue to prosper in the future.
“We used it as a period of time to step back and look at our whole business strategically,” Barry says. “We did a very large strategic planning exercise. We evaluated the markets we are in, as well as adjacent markets we should think about entering, all with an eye toward taking our business to a different level.
“It was a process that involved a number of our associates, certainly on our senior management team but also a good number of people from our middle management. It allowed them to have an impact on how we were going to move the company forward.”
It comes back to the atmosphere of collaboration that Barry tries to perpetuate. Collaboration is a major component of engagement, which is a major component in companywide momentum and long-term success. It’s also an effective way to spread best practices throughout your company’s footprint.
“That is a key aspect of our company that we used to help us as we moved forward,” Barry says. “We have people all over the world, in every industrialized country, and we are working very collaboratively to help each other out. That is critical for your success.
“If we have a person in China who is having an issue with one of our steel customers, that person can rely on others within the company. They can tell another person through various company avenues that they’ve been having an issue with a customer.
“You want to develop a nonpolitical culture, where you are focused on doing the right thing and doing the ethical thing, where you’re not consumed with who gets the credit and who gets the blame.”
How to reach: Quaker Chemical Corp.,
(610) 832-4000 or www.quakerchem.com
The Barry File
Name: Michael Barry
Title: Chairman, president and CEO
Company: Quaker Chemical Corp.
Education: B.S. in chemical engineering, Drexel University; M.B.A., Wharton School of the University of Pennsylvania
What is the best business lesson you’ve learned?
You need to get buy-in whenever you are making a significant change in a company — whether in strategy, direction or anything else. You need to get buy-in from senior management and any other key people who are influential in the organization. There are two reasons for that. One, you need to get your best thinkers involved in any major change. Two, you need to get buy-in from the people who will make the change happen and instill the change in the organization.
What traits or skills are essential for a leader?
You need to be able to listen. You need to be able to make a decision and stick with it. You need to create a vision and a strategic direction for the organization. Part of that is establishing appropriate goals and holding people accountable to that, and creating the right culture for what you’re trying to achieve. You also need to be able to get the right people in the right places, and let them do their jobs, because it’s not about you, it’s about the people in the organization.
What is your definition of success?
It’s achieving your goals, be they business or life goals. Establishing a goal, and then achieving it, is success to me.
Communicate during a crisis.
Create a dialogue with employees.
Use your wins to generate momentum.