Category Archives: General

Here you find posts by the Personal Due Diligence advisors that don’t specifically fit any other category on the site

Customers First, Investors Last: What were they thinking?

For years now, my colleagues and I here at BoardBench, have been saying that Wall Street has it backwards. In the boardroom, directors have been fed, with a very large spoon, the mantra that they are beholden to the shareholder, that their purpose is to “maximize shareholder value.” If you asked a large group of directors if this is true, you’d see a lot of bobbleheads in the room. Many believe this is a legal requirement and in line with good business sense and good corporate governance. Unfortunately, the concept of “shareholder primacy” is a relatively recent phenomenon. It is also simplistic (shareholders’ wants are not homogeneous), has no legal basis anywhere (go ahead, try to prove me wrong), and, as many are now pointing out, usually damaging to companies, and the economy as a whole.

What we believe is real, and will eventually be proven again as real to the Street, is that customers, and employees are the two key drivers of corporate success. When I say “again” I’m referring to Peter Drucker’s famous quote from decades ago: “the purpose of a business is to create and keep customers.” So many seem to have forgotten this, or have never even heard of it.

But the basic premise is this: if you take care of your customers, and have great employees who are well supported and appreciated for being curious and excited about what they do such that they will ensure that customers love the products and services that the company offers, the company and shareholders will reap the rewards, too. Of course other things come into play, like managing R&D investments (with the customer in mind), operations, and supporting a corporate culture that has strong values and morals. The basic premise may be slightly oversimplified, but it applies, and should resonate with the board.

It appears that I’m finally not standing alone on this either. In a recent interview, Jack Ma, the world’s newest CEO darling, made two bold public statements. He basically shunned the current thinking of the Street by stating, on national TV, that “our customers come first, our employees second, and our shareholders third.” He continued: “We aim to be larger than Wal-Mart by 2016, or sooner.” If – no, when – Jack succeeds, and executes flawlessly on his statement, that customers and employees take a front seat over shareholders/investors, then he’s got an excellent chance of passing Wal-Mart as the world’s largest retailer. Note, Wal-Mart just slapped some of its employees, who have the most direct relationship with their customers, by cutting their insurance benefits. This was probably done to cut costs, but it will probably also have a long-term impact on their customer relationships, too. But, I digress.

It seems that too many directors, CEOs, and business leaders, have become obsessed with what Wall Street, its analysts, and shareholders think. Many have learned to play these groups exceptionally well, too. Countless analysts and shareholders have been taken in by companies’ projections, quarterly earnings estimates, and highly creative financial management and reporting. Don’t get me wrong, the importance of the exchanges and the markets cannot be downplayed, but a balance is needed. Focusing on Main Street is just as important, if not more so.

If you follow Main Street, you know about big box discount stores. Costco Wholesale Club, founded by Jim Sinegal and Jeffrey Brotman, believe in serving the customer first, and that if employees are treated properly, they will work with, and treat the customer well too. Jim, the public face, is a “hands on guy” who is known for visiting each individual Costco store. Jim is also outspoken about his views on Wall Street. He’s been known to say that he puts his customers and employee needs above “pleasing shareholders.” This philosophy must be working: Costco’s five year return is +116.73%. If you bought the stock earlier, your return would be closer to 354%.

American Express is another company known for taking good care of its customer/members. Personally I’ve been a fan of the company’s customer service representatives over the years, and tell them that every time I’ve called for help. Don’t get me wrong, working at this company must be tough: when I was younger, AmEx employees were nicknamed The Dragons. Perhaps because they were seen as willing to fight for the company and their customers nearly to the end. By the way, if you invested in American Express five years ago, your return on investment would be up 149.46%.

If you’ve worked with the general retail public, as I did during my college years, then you know just how tough this can be. Sadly, not everyone who enters a store, calls a helpline, or dines in a restaurant is a kind and thoughtful customer. Amazon deals with all sorts of customers from nearly every continent in the world, and I’m sure they have some interesting stories to share. However, the company is noted for being one of the best customer service organizations in the world. Amazon has more than one customer base, as many do: retail members, and consumers. Jeff Bezos clearly divided the customer’s connection to Amazon into two categories: the experience and the service. At this level, he notes that customer service is part of the full customer experience. If it’s unpleasant, it’s a negative customer experience. He supports the idea that a positive customer experience creates greater loyalty with Amazon. If you’ve ever dealt with an Amazon Customer Service rep, you know that they work quickly to resolve your issue, they get the job done for you, and you are nearly always satisfied and left feeling good about your relationship with Amazon. And, if you invested in Amazon five year ago, your return on investment is now up 236.64%.

While it’s much more pleasant to focus on the “good guys,” there are dark clouds. Some companies are noted for their poor customer service. Some survive because there are few alternatives: think of phone companies and cable providers, and some you can name on your own (take a look at their five-year ROIs). However, when it comes to poor customer experience these days, I think sadly of that American icon Sears. Whenever I bring them up these days, all I hear is: “Oh my gosh, I could tell you about the time when…” Sears is a sad story about the decline of a once great and loved retail giant. Many years ago, the Sears catalog used to be called a “wish book.” Families would anxiously wait for it to arrive in the mail. It was nearly 5 inches thick. Moms, dads, sisters, and brothers would argue over whose turn it was to browse through and select from among the items they wanted for birthdays, holidays, special occasions and more. Some people even bought their homes out of the Sears catalog. But, it has lost its way, and it’s touch with its customers and has already begun its drop down that magical slide once pictured in its own catalog. The entire company and its hopes for the future look pretty dismal: sell off of units and real estate, store closings, etc. Sadly, if you invested in Sear’s five years ago, your return on investment would be -58.50% and it’s still falling today.

To sum up and put things into even sharper perspective, I recently spoke with the General Counsel of one of the largest, most recognized corporations in the world. He told me, succinctly, that the biggest problem with their board is that not one director had any understanding of who their customers were and are or what they want. I can also assume that they don’t understand their employees either. So I will watch how this company slides in the next few years (Note: their record has been negative for some time), and report back with an update, unless, that is, they somehow figure it out and turn it around.

Do you need to focus on board improvement: composition, strategy, direction, execution, oversight? Boards are our specialty. Give us a call.

Nancy May

Retailing higher education — yours

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Raphael’s painting of the School of Athens captures the essence of what some people would like to think university still is: scholars deeply engrossed in thought, debate and dialogue.

Raphael: The School of Athens. “Sanzio 01” by Raphael – Stitched together from vatican.va. Licensed under Public domain via Wikimedia Commons

Most people tend to think of it the way the U.S. Department of Labor and Wikipedia see it…

Is it any wonder that parents insist on spending money on higher education at any cost? Why wouldn’t they? But there’s a fly in the ointment. Actually, it’s more like sand in the crankcase and sugar in the gas tank: the charts apply only to people who have jobs.

Here are two stories. Both are true.

Story 1

The instructor walked to the front of the room, a small lecture theatre, really. The floor swept gently upward from the podium. Instead of individual seats, each of the 4 tiers featured 2 very long desks separated by an aisle with 6 seats per desk. The 20 of us who made up this particular sales class would spend the next 6 weeks together.

The lecture theatre was one of 2 on the ground floor of a 3-storey building in Princeton, New Jersey. IBM rented the ground floor and the subfloor where the demonstration and presentation rooms were located. Parents and children who rode the elevator up to “3” were there to see the dentist whose building this was.

The class consisted of 17 Americans and 3 Canadians. One of the Americans was Rob M., a former U.S. NAVY fighter pilot from Texas, and he looked the part. That included the naval aviator sunglasses: government issue and very macho. You couldn’t buy them anywhere. We learned the expression “cool your jets” from him. Three of the others and I were newly minted university grads. The rest had fulltime working credentials.

Al E. was the instructor. Football player type. He was wearing a dark blue, 3-piece suit, starched white shirt, “sincere” tie and wing tip shoes otherwise known as brogues or sodbusters. It was clear from the way the rest of us were dressed that we were with Al.

Al led off with a question: “How many of you would rather not be called salesmen?”

My hand and several others went up. Our reasons for raising them were very similar: sales people were smooth-talking glad-handers with loud ties, expense accounts, slacks and houndstooth sports jackets. At IBM, selling was and still is a profession, consultative selling to be precise. At the end of our 6 weeks, we all understood why. No gimmicks, no glad-handing, no back slapping, no smooth talking. Just hard work with emphasis on understanding what the customer needed, lots of emphasis. And on being able to communicate how we were going to use IBM products to address them.

Contrary to popular belief, IBM sales reps did sweat. More than most as it turns out. No more raised hands.

The predicament in which many of the graduates with one or more degrees and no work to show for it find themselves is very reminiscent of the lessons that came out of that IBM sales school. Our business cards were like university diplomas. We were proud to carry them and we were proud to present them. But there were other people out there with business cards and they were good. It’s just that customers expected something extra and better from the ladies and the gentlemen in dark blue suits.

There’s a name for that: value added. It’s what differentiated IBM from the competition.

Universities don’t offer courses in professional, consultative selling. Maybe they should for a modest fee before parents and students commit to 4 or more years. But that’s not going to happen because universities are businesses. First they sell the seats. Then they sell the education wholesale. Graduates have always had to find ways to sell it retail. What makes the job that much more challenging is that, in the eyes of customers, all degrees from the same university are the same and they stay that way until the graduate demonstrates otherwise.

Story 2

I recently attended at a meeting in which an employee with 25 years service with a consumer packaged goods manufacturer was released because the local function the employee headed up was being outsourced and off-shored. The employer explained that they were late moving in this direction vis-à-vis their competitors.

We recalled how Canada Post had been one of the first major corporations in the country to jettison its IT function in the 1990s. In Canada, Data Crown and CSG were laying the groundwork for that decision and others like it. The rationale was that the corporation wasn’t in the computer business: it was in the business of moving mail.

This is the part where the consequences of not understanding the needs of the customer kick in. You’ll see it in these CBC stories: Canadian job skills mismatch: truth or science fiction? Unemployment dips to 7%, most new jobs are part time. Where Canada’s job vacancies are—and aren’t. Loonie tumbles amid huge miss in jobs data, expectations, geopolitical worries. Then there’s Frazier Fathers with his undergraduate degree, two master’s degrees and unemployed in Windsor, Ontario.

Employment and Social Development Canada’s Canadian Occupational Projection System (COPS) predicts that growth in industrial GDP [will] improve in the primary and manufacturing sectors between now and 2020, driven mainly by foreign demand. This should come as welcome news for anyone who plans to graduate with a postsecondary education before the end of the decade.

The free trade agreements into which Canada is entering—including the Canada EU Trade Agreement (CETA), details of which will be released shortly—will change customer behaviour. How will they change employment prospects? What is it going to take to win?

In my 7 years with IBM, I saw “THINK” and “There’s never enough time to do the job right, but there’s always enough time to do the job over” in close proximity to each other more than once. It’s not so easy to do the job over when your first degree involves stocking up on education nobody wants to buy.

If the education system were more about education and less about politics, it would be providing up-to-the-minute information on which to base decisions about advanced schooling. The media are much better at it. So is the price they charge.

Rob Kelly defines gap analysis as “a strategic planning tool to help you understand where you are, where you want to be and how you’re going to get there.” High school graduates must understand that where they and their parents might want them to be and where they may have to be could be two very different places.

The day newly minted graduates receive their diploma is the day they become unemployment statistics—unless they have a job to step into. We have enough statistics. Most of them have dollar signs in front of them: $1.2 trillion owing in student loans in the U.S.; $25 billion to $50 billion in Canada. At least 7 million U.S. students have defaulted on their loan payments at least once.

We need as many gainfully employed graduates as we can produce. For their sake and for the sake of the country.

Diversity in the Boardroom: Resistance is Futile

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If you’re reading this, chances are you sit on at least one board. If that board happens to be one that understands the value of diversity (and here I’m speaking of gender diversity) or has moved aggressively to get the board there, I applaud you. Your board will benefit, the company will benefit, and other boards will benefit (I’ll explain more later). If you align with board members who are still unconvinced – please consider that diversification sooner rather than later is in your best interest, the best interest of your fellow directors, and all boards. Let me present to you both the carrot and the stick:

The Carrot: Studies indicate diverse boards tend to be better
boards and lead to more stable companies.

There are studies with hard data from Pepperdine University, Catalyst, McKinsey and others that overwhelmingly suggest that companies with more women at the top are better off. More studies like these continue to come out and point to virtually the same things.

Recently, Credit Suisse Research Institute looked at the performance of selected companies with at least one female director over the last six years. While it noted little or no correlation with company performance between 2005 – 2007 when the economy was robust, between 2008 and 2012, the stock prices of companies with at least one woman on board yielded a 26% higher return than those with none. The assessment was that a more diverse board means less “volatility and more balance” during tough economic cycles.

A recent Thompson Reuters study, Mining the Metrics of Board Diversity, revealed how the increase in female participation on boards affects organizational performance. The study drew upon information on 4,300 global companies and over 750 data points that covered every aspect of sustainability reporting. According to the study, on average, companies with mixed boards show marginally better or similar performance measured against a benchmark index. Companies with no female board members underperformed relative to organizations with women on their boards, and had slightly higher tracking errors, indicating potentially more volatility. The study went on to suggest that the performance of companies with mixed boards matched or outperformed companies with male-only boards, stronger evidence that gender equality in the workplace makes good investment and business sense.

The value of board diversity, from directors themselves:

Michael Critelli, board member of Eaton Inc. and former Chairman and CEO of Pitney Bowes, built a strong reputation for advocating using diversity to make his company and board even better. On having one of the most diverse boards during his tenure as Chairman/CEO he said: “Boards are most likely to do their job effectively when they have diversity of life experience and insight. Groupthink on a board is very dangerous. The advantages of diversity are only realized when a board is inclusive in its membership and when it invites and values diverse thinking relative to board responsibilities.”

Linda Rabbitt, Chairman and CEO of Rand Construction Corporation, Lead Director of Towers Watson, and Chairman of the Federal Reserve Bank of Richmond notes: “As a woman I have had to overcome many obstacles as an entrepreneur and in the corporate environment. As a result of these experiences I see the world and business through a different lens. Having large obstacles to navigate around teaches you how to solve problems, identify opportunities and associated risks, and bring up new talent in a way different than the men who built the road before you. These skills bring a new value to the boardroom that has not been there before.”

Maggie Wilderotter, Chairman and CEO of Frontier Communications said: “Company leaders and directors, male and female, must do more to advance women in their ranks, and it is incumbent upon women to be responsible for their advancement as well. After all, doors successfully open and close when we push.” Mrs. Wilderotter added: “A recent Catalyst report shows a continuing shortage of women in America’s C-suites, Boards of Directors and as top earners. Studies show that companies with three or more women on their boards perform better financially than those with fewer members. Diversity in the board room and in the C-suite is a competitive advantage.”

The Stick: The rise of the ““Sheconomy.”

Even for those with a minimal grasp of the obvious, some things are plain. We have moved into a new economy, one overwhelmingly influenced by women. Consider these points raised in research by MassMutual, Fleishman-Hillard, the Spectrem Group, and other noteworthies:

Senior women over 50 control net worth of $19 trillion and own more than three-fourths of the nation’s financial wealth.
High net-worth women account for 39% of the country’s top wealth earners; 2.5 million of them have combined assets of $4.2 trillion.
Over the next decade, women will control two thirds of consumer wealth in the United States and be the beneficiaries of the largest transference of wealth in our country’s history. Estimates range from $12 to $40 trillion.
Wealthy women investors in the U.S. are growing at a faster rate than that of men: over a two-year period, the ranks of wealthy women in the U.S. grew 68%. The number for men was 36%.
Women account for 85% of all consumer purchases, including everything from autos to health care.

It’s hard to believe that many women could not apply for a credit card in their own name until 1974, when the Equal Credit Act was passed.

The point here: traditional boards cannot ignore the influence, control, and power that women hold as decision-makers, consumers, and, as investors, to go away. Or that they can have a dramatic impact on sales and have gained, through their dominant use of new media, a growing ability to advocate for or against a company’s products and services. Companies that understand and reflect this in their boardrooms will have the advantage over those who do not.

Here are some questions to ponder. With women’s dominant role in customer and financial decisions, coupled with growing transparency of company operations and board composition, plus the rise of electronic reporting and social media allowing everyone to easily see where a board is aligned or not with its customer base and markets (and this new economy), where do you want your company to be? What is the likelihood that if your board has a negative attitude toward more women in the boardroom, your company will be targeted for activist or populist actions and retaliations at a speed, and scale, never previously imagined?

Quotas are coming! Quotas are coming?

Board diversity, especially the number of women serving on boards, has become regular headline news, reflecting a growing pressure on boards to change or explain why their composition is appropriate. Legislative bodies worldwide find themselves under enormous pressure, and have started instituting changes. Outside the U.S., 16 countries have mandated some type of quota, threatening fines and, in some cases, dissolution if corporations don’t meet deadlines for achieving legislated. Formal quotas were introduced nine years ago in Norway where resident companies were required to have 40% of their board seats occupied by women by January 2008. Quota requirements are going global. This past November, Germany legislated a requirement that 30% of all non-executive board seats be occupied by women by January 1, 2016. At the close of last year, women held 14.1% of all non-executive board seats there. In our own backyard—Canada—the Province of Quebec requires that women occupy half of all board seats on state-owned institutions.

In this country, it’s important to gauge the increasing momentum behind gender diversity quotas. Currently, women hold 16.9% of the board posts in U.S. Fortune 500 Companies, have barely improved in their 16.6% performance since 2012. The numbers are even smaller among Fortune 1000 and mid-cap companies. Boards’ failure to respond to these changes will invite legislative and regulatory mandated quotas, if only to relieve the pressure regulators feel. If history is any example, the slower the pace of voluntary change, the faster the pace of imposed change. The more boards resist, the more likely change will come in ways they might not anticipate or want.

Sooner is better than later.

I’m no fan of imposed regulations in the board room. Regulations and mandates, while well-intentioned, often produce unintended effects and consequences. Quotas, with aggressive time limits can easily translate into board seats occupied by people who don’t belong. I applaud boards that see diversity positively now, and are going on to adopt, adapt, and improve. Boards that carefully consider and bring on excellent, relevant female board members improve their perspective and ability to deliberate. Diversity contributes to better board governance, because, as the number of qualified and valued women increases and becomes known, the perceived need for external actions (i.e. quotas) will start to fade. Thus, as your board grows more diverse, the pressure on other boards to do likewise will increase, even if only in a very small way.

So, “fellas,” here’s where this leaves us: this boardroom diversity “thing” isn’t going away. Diversity and equality in the boardroom is coming. How soon you face it and embrace it is up to you. Resistance is futile.

Sustaining High Performing Boards

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Let’s face it, it’s a tough job for any board to oversee and direct a company. To do so while staying highly functional, with continued relevance in a volatile global economy, can be daunting. Even one misplaced or dysfunctional director increases the risk of failure for the entire board. One such person can quickly take a toll on the company, CEO, senior management team (who can lose faith in and respect for the board), and the other directors’ abilities to execute. An under performing board winds up impacting the company’s credibility in the market: consider the examples set by HP, Hess, JC Penny, and BlackBerry. In conversations with numerous CEOs, Chairmen, Lead Directors, and others, it’s still remarkable to see how often exceptional directors are willing to live with and cover for less effective directors.

Eventually, the pain of working with such a “professional” on the board leads even the most detached directors to consider the need for director succession, or removal of one of their peers. This is usually a painful and difficult process, which is why many prefer to brush this under the table versus dealing with it in the open. When it does happen, the process is compounded by a new “emergency” quest to find a replacement. This is not something most directors expect to sign up for.

In addition, some large, well-known companies that have been in the spotlight of government investigation and litigation have been backed into a corner on director succession ― by mandate. The last thing any director wants is to stare across the table at government officials (or aggressive activist investors for that matter), who want to step into their boardroom and tell them who should be there, and how they could better manage the company.

So, what have boards done to mitigate such risks? Many boards now have a CEO succession plan or are putting one in place (hopefully), yet very few have built a sound succession process for themselves ― the board of directors. The fact is that many corporate directors find the succession process somewhat uncomfortable to deal with. After all, how many of us actually look forward to replacing ourselves?

Roger Kenny, a well known and respected governance advisor, says “I’ve seen this issue time and time again and it’s critical for boards today, more than ever, to have a succession plan for themselves and to review and renew that plan every year. Frankly, many boards must start retiring their directors, as their lack of relevance becomes a liability to the company and shareholders. A good board assessment, applied together with a strategically built and managed bench of directors, can address and further help manage the assets and liabilities of the board. They must consider having the right skilled directors sitting in those seats. It’s important for directors to have more than one skill ― they must have breadth. Directors should not be recruited to solve a short-term problem.”

In these times, boards need to be more dynamic than they are today, if they want to continue to succeed. Life term directors and board “continuity” are no longer the prime means of keeping a board strong. Boards need to “refresh” and “rebalance” in response to changing business environments. In addition, we’ve seen boards presented with directors on a golden platter and “sold” on a few desirable-at-the-moment points promoted by external parties. When boards are looking for the looks good rather than what they really need, they can begin the (often unnoticed) slide downhill.

To combat these risks, boards need to have a strong, relevant, and dynamic resource from which to draw, and a significantly more robust process than a “guess who’s coming to dinner” evaluation of potential directors. Considering this, some boards have put in a revolving guest door for one or two individuals who might be perceived as potential prospects for board service. Others keep a running list of “who’s available” in the lineup of who they know, however, this is insufficient. In fact, that’s how many boards got into trouble in the first place. Some other boards are now starting to consider building a “bench” of potential directors to hedge against unexpected departures and to find new strength to address changes in markets and global economies.

Virginia Gambale, who has served on a number of high profile boards, agrees that a bench is an important and intelligent tool that public, and even private companies, need to keep up and remain strong. “In today’s dynamic and volatile environment, change occurs every day. Having a bench to draw from is critical.”

In speaking and working with Ron Geffner, a former SEC attorney and highly respected counsel who specializes in working with CEOs and boards on investor challenges, regulatory investigations, and actions, the discussions about the quality and value a good board brings to any given situation comes front and center. He states that “given the turbulent environment we live and work in today, having the ability to draw upon a trusted resource (bench) for experienced, diverse, prospects who can become exceptionally engaged directors, is not only critical to corporate leaders, it’s reassuring to shareholders. A board that’s strong, relevant, and committed also increases the opportunity for success and explains why some businesses not only survive during troubled times but rather excel.”

What could be considered a trusted resource of experienced, diverse, well-vetted prospects? Perhaps boards need to look at what teams, and more specifically sports teams, have done for decades: building and managing strong lineups of talent. After all, who goes into a season with only one quarterback or pitcher? Such talent takes time to find and cultivate to a point where they can come off the sideline and step up exactly when needed. Every team refers to such on-hand depth of talent as its bench.

Ideally, boards need such a dynamic and reliable tool. Whether you call it a bench or pipeline, it means having on-hand exceptional executives who have the right skills and are both capable and readily available to serve on your board and who can be trusted to add to the long-term health and value of your company. More importantly, having a bench of two or three prospects is not enough. There should be a full lineup that’s kept fresh and able to realistically address the complexity of the business should issues arise.

A number of Fortune 100 companies are already using some form of a bench today. A good number of them have been backed into doing so through government, legal, and regulatory intervention. There has even been some side discussion with insurers on innovative ways to use a bench to reduce the liability and risk on the part of the board and the D&O insurer.

Building and managing these types of “board benches” takes time and exceptional focus, generally much more than most boards can afford to do well on their own, especially as they face added compliance, regulations, economic shifts, and strategic and financial oversight concerns. Properly filling and maintaining such a bench usually requires a greater reach than the board’s connections alone to avoid settling for less than what’s needed. One director of a global company shared that they had tried to build their own type of bench, and found it nearly impossible due to time, inexperience, and thin networks. He went on to say that: “We’ve been challenged with this issue in the past and have gotten stuck with two poor performing directors. One we learned, had conflicts of interest with our company, and he didn’t even understand why we confronted him with this. The other, we still have on the board, yet unfortunately, they adds little real value.”

Some other steps in the process include a deep, honest, and detailed review of the current board’s foundation, value provided, risks, and much more. Once set, a board’s bench also needs to be managed: continually tracked, evaluated, and monitored against the relevant direction and challenges of the company. That’s because a board’s Nominating/Governance Committee needs to stay current with their bench prospects, so that they can fill gaps without skipping a beat, feeling confident that the right people are there to fill those empty seats.

What’s the upside? When a new director is needed, final selection, election, and “on-boarding” occurs with great speed and fluid integration, enabling a board to function without skipping a beat.

This leads to the question: how do we get this started and going? A simple question, that requires a more complex answer. The first step is to make the decision not to follow the “same old, same old” process, or do the same thing over and over expecting different results. This is a whole board commitment. The next is to solicit (or assign) board member responsibility to plan and pursue this effort. After that, a realistic budget, timeline, and goals are needed to execute and manage the “bench.” An honest appraisal is important to determine whether the board can tackle this complex process on its own, or if it needs experienced outside assistance. If there’s one message to remember, it is this: Your board should never rely just on a “who do we know” approach.

Retirement, debt and the true cost of a university education

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According to a poll commissioned by CIBC (Canadian Imperial Bank of Commerce, one of Canada’s 5 largest banks) and released on August 22nd, 2013, parents may have to work for an additional five years to help their children pay off their university loans. This as the cost of a university education continues to rise in lockstep with the debt load graduates are and will be carrying.

Value for money and student debt now figure more prominently in deliberations over post-secondary education than at any time in the recent past. It’s why we conceived Personal Due Diligence.

For more information, please review the posts you’ll find here. Then call or write to us.

Sincerely,

Neil Morris
Personal Due Diligence Project

http://personalduediligence.com
info@personalduediligence.ca

905 273 9880

When money is everything and work is scarce

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Is it my imagination, or does everything these days seem to revolve around money?

That seems to be the message coming out of the media. Ninety-nine per cent of us—and our governments—have become so good at spending that we’ve managed to rack up record levels of debt. The remaining 1% of us can’t seem to accumulate it fast enough—money, that is—and our economy is being hollowed out.

Rick Salutin is a Canadian novelist, playwright, journalist, and critic and has been writing for more than forty years. His column appears Fridays in the Toronto Star. “Passover, Easter and the ethics of a shepherd” appeared on Good Friday, March 29^th.

In his piece, Salutin wrote: “All the main founder-heroes there — Abraham, Isaac, Jacob, Moses, David — thrived in wandering, rural lives. Settled, urban locales like Babylon, Egypt, even Jerusalem, were far more ambiguous morally. Moses dies just as the Hebrew tribes end their 40 desert years. David’s moral compass deteriorates when he’s king in Jerusalem. Hazony implies an original biblical preference — albeit a complex one — for wandering.”

There aren’t very many amenities in a desert. Or roads, for that matter. The Hebrew tribes made it up as they went along. To be resourceful they had to be creative. They couldn’t fall back on the old ways or follow the old roads because both were behind them and there was no turning back. They had to confront and deal with what they found when they found it. But at least they had a leader.

We’ve been wandering in our own economic wilderness. Some of us realize it; most of us don’t. Our political leaders are so far removed from something that even vaguely resembles biblical stature that even they can’t figure out how things got to be the way they are, much less help us chart a course to where we expected or wanted to be.

The Hebrew tribes had strong survival instincts because they had to: they weren’t resource rich. Our children are, but they’re going to have to rely on themselves to carve out the life they want (read “survive”). How well they search for, find and apply the resources that are there, waiting to be used, will determine how soon they reach their own personal, meaningful destination when the one they originally had in mind doesn’t exist any more.

After wandering in their own deserts, advertisers discovered the power of information and learned how to be devilishly clever about applying it to plying their trade. In Hyper Targeting: How Brands Track You Online, the latest installment of Under the Influence on CBC Radio One, Terry O’Reilly surgically dissects precisely how advertisers have mastered the art of accumulating bits of data and using them to build deep, detailed profiles of the people to whom to pitch and sell their wares.

Whether it’s applied to selecting one postsecondary institution over another, or building a list of prospective employers, information is power. Advertisers are succeeding not only because they’re getting their message out, but also because they know to whom they should be pitching it. What you’ll be buying for your children from MMRU (Make Me Rich University) is what they’ll be pitching to a prospective buyer of their services. Navigating through the desert we’re in demands deep thinking, understanding and focus on a level unlike any we’ve seen before. The spaghetti-on-the-wall approach to preparing for and conducting effective job search is dead.

If you’ve been following this space, you know how often the print and electronic media have spoken about the employment dilemmas working people face. Another of those reports is on the front page of the Toronto Star’s April 2, 2013 Business section. Employment dilemmas are a fact of life in the wilderness we’re in and wilderness doesn’t reward miscalculations. The one we’re in now won’t either.

Personal Due Diligence doesn’t play favourites when it comes to choosing from among university, community college or skills training options. The U.S. Patent Office granted one of my uncles a patent for a consumer product. It never saw the light of day because it was never manufactured, much less sold or distributed. There is no less dignity in work that gives ideas shape and substance than there is in conceiving the idea in the first place. In hockey there is no less dignity in preventing a goal than there is in scoring one.

You won’t find “one-size-fits-all” in PDD’s approach to guiding people to the resources they need and showing them how to use them. All that matters is that the approach be right for you.

We’re all in the same boat; we all have skin in this game. What we don’t have is the luxury of 40 years to reach our destination.

When was your wake-up call?

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I like to think I found the best first job as a professional engineer. It was in my field of expertise and in an area where I always wanted to be. It also meant some travel and to make it even better, my company was investing heavily in me.

My first job meant going through six months of classroom training of which the second half was in my company’s headquarters. Accommodation fully paid, plus extra cash for other basic expenses. Upon completion, guess what: another six months of “on the job” training.

A year later, I transitioned into a new role. When I met my boss, he gave me my “career plan” for the year, which essentially said where they wanted me to be and which courses they wanted me to take. About eight in total. Not too long ago (unless you ask my kids, of course) organizations were “career parents” and as employees, we were, to a great extent, their “children”.

A few years after, I was in a meeting with our Regional Vice President. As a way of offering a vision for our company, he said we should not expect much more training; in fact, we should actively seek alternate ways to keep our skills current.

That was my wake-up call. While it felt great to have someone else plan, fund and support my career, I had to adjust to the new normal. In a very short time, I became a “career orphan” and had to take control of my own future, making me a “career owner”, as it should be. A year after this meeting, I began my executive MBA to acquire the tools I would need to support my career goals.

Though I spent the first half of my career in an environment with a 20% unemployment rate, I have seen the most significant changes and instability in the second half: I have lived through two mergers, one of which became a “de-merger”. While my wake-up call happened fifteen years ago, I’m still surprised that so many of the professionals I run into have yet to receive theirs.

People say times have changed, but very few translate that into action. Let me be more specific. One day someone I know called to tell me that, after a lengthy search, he had found a new job. It was a contract position, but he was back on his feet, a good position to be in if the job became permanent. I advised him to build an internal network of allies so that he’d be visible, desirable and aware of how goings-on inside the organization might have an impact on him. But he didn’t follow through. A few months later he found himself looking again. This situation repeated itself twice more under very similar circumstances.

In a subsequent conversation with him, I discovered this person had very little knowledge of networking. Limited use of networking tools and techniques and a small internal network relegated him to a pool of other look-alike potential candidates from whom he had failed to differentiate himself. By not raising his profile he diluted himself, his brand and his unique credentials and attributes in the eyes of the organization. He still thinks he was making himself visible so he could be discovered. The organization thought otherwise.

Getting a hold of your career is much more than pressing the “apply on line” button. It means having the ability to read the industry, key players, roles, colleagues, potential bosses, related extra-curricular activities and a plethora of other skills to anticipate where the puck will be. Unfortunately, like this person, what many fail to see is that career building may have a start, but rarely an end.

The economy is the message

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Newton dubbed his definition of inertia his First Law of Motion. Simply put, it’s the tendency of objects to resist being set in motion when they’re at rest and to resist being brought to a stop when they are in motion. The change from one state to the other happens when the object “feels” an external force.

We humans also embody inertia. But unlike inanimate objects, we feel the external economic and social forces that impact on us emotionally and intellectually, not physically. We make a conscious decision to resist compromising our principles and to not take calls from telemarketers. But we can be prone to consciously misapplying that resistance, especially those of us with children whom we want to be university-bound because we’re convinced—and want them to believe—that a university degree is still the best way to ensure secure, career-long, high-paying employment with benefits and a path to a comfortable retirement.

But then that makes us external influences. What if we’re wrong?

The forces at play today bear careful scrutiny. With certain exceptions, notably STEM positions, university education is no longer a guarantee of securing a dream job, or any job for that matter. Downsizing, off-shoring and outsourcing are directed at all working people, newly minted graduates included. Since the beginning of 2013, the Toronto Star and other media outlets have reported on a labour market in which one half of all employees are working in contract or part-time positions with no paid benefits and few if any prospects for upward mobility. University graduates, some with two degrees, are finding no work at all. They’re either overqualified or mis-qualified.

A growing number have agreed to work as unpaid interns. Banks hear “unpaid” and think, “won’t be able to repay a loan”. Landlords hear, “won’t be able to pay rent”. Graduates take it to mean, “may not be able to get married and start a family”. Nor are these graduates debt-free. Many are struggling with loan repayments totalling between $25,000 and $30,000 each. Some, more.

This is the point at which many parents would be tempted to say, “O.K. We’ve lived through tough times before and we will again.” Once upon a time maybe, but not now.

Adding insult to injury is the fact that employers know that there is such a thing as free lunch. The provincial government is doing nothing to enforce laws that preclude hiring unpaid workers to do work normally done by salaried staff; they have no means of monitoring the situation. Unpaid workers don’t show up on payrolls so there are no tax records to audit showing that they’ve worked or that they’ve contributed to Employment Insurance. Why would an employer who knowingly “employs” unpaid interns illegally want to attract the government’s attention by submitting a Record of Employment for someone who wasn’t supposed to be there. Salaries and benefit premiums aren’t the only things these employers aren’t paying. They’re also saving matching contributions to CPP and EI.

If these facts of life aren’t enough to “force” us to re-examine long-held beliefs, we may have just reached the tipping point. Employers are reported to be insisting that their employees be within earshot of a BlackBerry or similar device and that they respond within 60 seconds to e-mails sent after normal business hours and on weekends. And what about vacations?

Deliberately or otherwise, employers are dabbling in social engineering. Not all, to be sure, but some. It might not be stretching the truth to say that, at this rate, there may be no next generation. Some employers appear to be moving in the direction of the farmer who tried to save money by training his horse to pull his wagon while reducing its daily ration of oats one day at a time. The day the horse ate nothing was the day it died.

The carrot-and-stick story I grew up with was a wake-up call for the donkey. For PDD, the antics of some of our employers qualify as a wake-up call. There are already predictions that when the recovery comes, it will bypass new graduates and the chronically unemployed. This as the ranks of the top 1% are predicted to grow by over 30%.

The “victory” of the free-lunch crowd will almost certainly be self-limiting. The door is swinging open for employers who do believe in respect for the individual, no free lunch and no slavery to use that differentiator to outcompete the advocates of something for nothing for our best and brightest. As a society, we need young people with the thinking skills to survive in this economic climate. To be creative, to innovate, to be enthusiastic. What we don’t need is more horse and oats stories.

There’s a P.S. in all of this: all is not sweetness and light in the world of academe either. Please see Bruce Stewart’s post dated March 13^th. Then visit the Millenium Project website. You’ll sense the urgency educators are bringing to this undertaking to ensure that their profession remains relevant so that they, too, can continue to work. Relevance will be in the eye of the customer who pays the bills. As parents of the children who will be those customers, we may have to abandon the notion of ivy-covered buildings in favour of forcing our institutions of higher learning to compete successfully so that they might earn their way.

Those that fail to compete will fall by the wayside. The idea of closing unprofitable universities and colleges has already been broached in Millennium Project literature. Given the state of technology and distance learning, it’s not beyond the realm of possibility to envision a time when a single university will acquire the status of global centre of excellence for a given discipline and offer degree programmes to students via the Internet that will be recognized anywhere in the world.

We can never be too educated: not now, not ever. But we must be more selective about what education we buy and how we propose to leverage it. According to the media, one generation of young people is already at risk. Can we afford to lose another?

The quasi-slavery thinking that appears to be gaining some traction will benefit no one. In the short term, employers who embrace it may actually come out ahead. But at what cost to the next generation, assuming there is a next generation?

Pogo said, “We have met the enemy and he is us.” Parents in the process of investing in education for their children that speaks to yesterday instead of to today and tomorrow may be the enemy Pogo was referring to. Avoiding that role is a matter of personal due diligence.

To discuss what you’ve just read in greater depth so that you can develop and execute a strategy to deal with it, please contact us—before the 60-second clock on your BlackBerry starts ticking.

Just a few threats and opportunities to keep an eye on

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What are the latest threats and opportunities I’m keeping an eye on and helping Personal Due Diligence clients develop strategies around?

Well, they’re no secret, really. (The value of the client relationship is in the “what to do, where does that lead, and what risk does that force you to take on” part of the discussion, not the fact that there’s items out there anyone could find for themselves if they were doing their own diligence.)

Currency-induced madness: Have you seen the wobbling in the currency markets of late? 2013 has seen the British Pound drop by 10 cents. The Euro likewise. The Canadian dollar has gone from above the US one to three cents under it. The currencies, in other words, are going through one of their periodic moments of adjustment.

Unfortunately, this is one of those moments when, if you work for a firm that reports in US dollars, your earnings per share are about to be squeezed. Moves that strengthen other currencies against the US make for better earnings reports for the same sales; moves that weaken them against the US make it tougher to make the numbers. Tough enough, in fact, that layoffs will be part of the game of “meet the number” as the year goes on.

The Closing of the High Street and the Mall: Retailers have gone out of business since retail shops first made an appearance. What’s different in 2013 is the sheer number of closings all at once.

The Christmas season — which, for most retailers, is the only time of the year they really make money — wasn’t a good enough one to keep marginal players in business. Starting in January, closings began.

Britain’s high streets are decimated: the chains drove the independents out, and are now closing. In the United States, malls are closing — and recently built strip malls are not opening. Canadian stores, too, are wavering.

Frankly, there’s too much retail chasing the available business. But each retailer, in turn, supported salaries spent on other goods and services. In other words, it affects every line of business, not just a few.

Governments in trouble: We look at places like Greece and Spain, with 27 per cent and more unemployment (more than 50 per cent for youth) and say “well, thankfully, that’s not us”. But the crisis of governments that have structural deficits that just won’t quit, endless threats of and occasional downgrades raising their cost of borrowing, underfunded infrastructure and maintenance, pension and medical obligations they can’t afford, and the like is a global one.

Austerity — the twenty-first century term for “living within your means” — is too austere for voters to take, witness Italy most recently. Yet the alternative is a crash-up, when the day comes (and it’s close) when there are no more lenders available to sop up the ever mounting piles of government borrowing.

What this means is that eventually the public sector will have to do what the private sector knows how to do. Close out whole lines of business (aka eliminate whole ministries that don’t add any value, like “intergovernmental affairs”), cut low-performing outlets (aka some of the universities and community colleges, alongside lower-use hospitals), automate and reduce staff, and the like.

This isn’t saying any of that is right, you understand. It just is. Arithmetic is funny that way: it’s not affiliated with any political point of view.

The knock-on effects on all sectors of cutting government’s portion of GDP will be severe. And, no doubt, not enough of the nasty medicine will be taken quickly enough to make the period of pain short and over quickly.

Supply lines in question: Shipping companies around the world overbuilt. Now some of the shippers are bankrupt and their boats idled. This — alongside oscillating resource prices that make new projects questionable, capital return shortfalls, and the rising cost of labour in East Asia, mean that supply chains are going to be reconfigured yet again.

Along with that, will be spot shortages. This will confirm a hypothesis: it’s easier to change things when they’re growing than when they’re stable or shrinking.

Those are just a few of the issues that pose threats to job security and family well-being this year. Working with the advisors at Personal Due Diligence can help you anticipate how these (and other factors) will affect you, your future, and your children’s prospects.

Get in touch with us. You’ll be glad you did.

Which is it: too few jobs, or too few people?

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Two different memes are making the rounds these days. Let’s try and net them out.

On the one hand, growth is getting ever harder to come by. More and more of us are getting older: 2013 is the year in Canada when the number of over-55s exceeds the number of under-25s for the first time in history. Half a million of us turn 60 this year. And next, and in 2015, and each year thereafter until we’re into the 2020s. Most of these expect to have to keep working well into their late 70s; most of their employers see their “end of career” pay scales and are planning the early retirement buyouts even as we speak.

Meanwhile, they’re not necessarily replaced. So the young find getting work a challenge. It all ends up looking like too few jobs.

Now the other hand: for a decade now the evidence that we don’t have the people we need to fill jobs has existed. British Columbia’s finance minister of the day, Carole Taylor, issued a report to this effect in 2006, pointing out that there’d be a 35 per cent gap between qualified individuals to fill jobs and jobs open by 2015. It only gets worse from there.

Now qualified, in this case, often points to specific educational paths. Oddly enough, journalism, business management, law, social work, and a host of other fields popular in universities didn’t make the cut. Science, Technology, Engineering and Mathematics did. So did health care.

But it also points to having people where they’re needed. BC Hydro, for instance, has struggled with having ten per cent and more of its positions open constantly now for years. Most of those, in turn, are in rural areas: you have to run power lines everywhere, even when over eighty per cent of the population lives in just a few major metropolitan areas. So you end up with jobs going begging in the middle of nowhere while people in the suburbs can’t find work.

There are, of course, reasons why folks don’t flock to take that linesman’s job in Fort Nelson, Vanderhoof, Cranbrook, Bountiful or Port Hardy, and it’s not because these can’t be delightful places to live. It’s because parents want their children to have advantages, and rural schools seldom offer the range of options that a city school does. eLearning can only go so far in offering course options: ultimately, the special programs aren’t found where population isn’t. Likewise, the top coaches, the range of after-school programs, and the like — all important in getting a student pointed toward the best universities in the world — aren’t often found where people aren’t.

(Let’s not also point out that trekking hundreds of kilometres when you need something beyond the basics from the store — and it’s hard to deal with Internet shopping when you don’t know what you want — and the lack of theatre, nightspots and the like can put a little strain on a family as well. Not to mention that rural living is far too often a “junk your career aspirations, dear” experience…)

So, in your own diligence efforts, which future matters more? The one with too few jobs (and a need to work) or the one where jobs go begging and can’t be filled?

You see, they’re both right, simultaneously. Plan accordingly.

Nancy May

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