Board Meetings (Rule # 18)

Most CEOs with outside investors face the ongoing challenge of board meetings – How to organize them, what content to provide to board members, who should attend, what type of agenda to have, and perhaps most complicated,  how to “manage” the board itself.

My friend, George Von Gehr has written about board meetings in his book, “The Effective Entrepreneur: Fifty-nine rules to Create Value Throughout the Life Cycle of Your Company” (Amazon Link) and, with permission, reprint here Rule 18 – Structure Board Meetings.  Here’s George’s background in a previous post.

“Unless the board meeting schedule is mandated by investors, schedule board meetings with a frequency that reflects the pace of company activity.  Since many board members make their major contributions through discussions outside of board meetings, a better approach may be less frequent meetings — meetings held quarterly or semiannually — supplemented by status updates every four to six weeks via conference calls.  The board must be nimble so that conference calls and meetings can be scheduled easily as needed.

To preserve optimal focus and maximize contributions of the board members, the meetings themselves should rarely exceed two to four hours.  Materials should be sent out ahead by e-mail, especially indicating what decisions are to be made at the meeting and what the overall agenda will be.  This approach allows board members to prepare and to ask for additional information in advance; hopefully this will result in more effective decision-making at the meeting.  Board members expect regular updates showing progress and major decision points in the macro issues under consideration.

Presentations at board meetings should be made by a variety of company managers in order for the board to become familiar with a broad cross-section of management.  A major problem is that managers’ presentations often vastly exceed their allotted time; one way to conserve the schedule is to limit the number of PowerPoint slides presented.

Some board members occassionally argue vehemently, over-focus on unimportant issues, miss meetings, or disturb the board’s concentration by taking phone calls.  Action needs to be taken to correct counterproductive conduct.  The chairman or another board member must take the lead to preserve the CEO’s neutral stance.  The issues under contention must either be resolved, the board member persuaded to behave differently or be removed altogether.

Most companies keep brief minutes of these meetings.  What is important though, is to document, in the minutes, the basis for major decisions such as stock option pricing, senior management compensation, and financing.”

I posted a related entry on “Optimizing Board Meetings” in December, 2008.  Additionally, there are a number of interesting discussions and article on this and related topics on ExpertCEO at the links below:

Improving Board meetings

Maslow for CEOs

Firing a board member

“In The Spotlight” (ExpertCEO) articles

There are other discussions about this and related topics you can find on ExpertCEO by searching for “Board Meeting” on the site.

CEOs Optimistic for 2010

73% of CEOs Project Moderate or Strong Growth in 2010

Note – Every quarter, ExpertCEO asks its members to report on their previous quarter’s performance and share expectations for the future.  The results are presented in aggregate (ALL) and by industry segment for Technology/Media/Internet.  Although slightly more optimistic, the Technology segment’s performance and outlook tended to closely match that of the entire survey population.

The future looks bright for a vast majority of CEOs based upon the results of ExpertCEO’s third quarter economic outlook survey.  73% of all respondents expect their business to grow in 2010 and that number jumps to over 80% for the Technology segment.  For the most recent quarter completed (ended 9/30/09), only 19% of CEOs said actual results exceeded forecast.  It should be noted that this sense of optimism for 2010 is also reflected in another survey recently conducted by ExpertCEO – the CEO Compensation Survey, where 80% of CEOs expect to receive a bonus in 2010, vs. only 45% who expect to receive a bonus in 2009.

2010 Outlook

Results reflect a sense of optimism among most respondents, with 73% of CEOs projecting growth in their business in 2010.  Only 19% expect business to remain flat, while 8% anticipate a contraction in their business in the coming year.

Third Quarter Performance

54% of respondents either met or exceeded their forecasted goals in Q309 and a similar percentage saw growth in their business as compared to the previous year’s quarter, while 45% did not meet their forecast.  The Technology segment fared better with almost 70% seeing growth in business from Q308 to Q309.

Fourth Quarter Forecast

The glass is almost 2/3 full for CEOs, with over 60% of respondents anticipating growth in their business, this number jumps to 80% for the Technology segment.  That being said, one third of respondents still expect their business to contract in the fourth quarter.  Less than 5% say business will remain flat.

As for the overall economy, CEOs are split nearly 50/50 as to whether there will be an improvement in the fourth quarter or not.  Yet, no one felt highly confident that the economy would get back on track this quarter.

The Innovative CEO

Kelly Herrell

Another post by Kelly Herrell, one of our guest bloggers.  Kelly is the CEO of Vyatta, “a venture-funded company disrupting the networking industry” and is also a long-time member of ExpertCEO.  You can read his blog at http://kellyherrell.wordpress.com/

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By the time the facts are available, the trend is already underway

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A CEO I know recently fired his VP Marketing because “he wasn’t innovative enough.”  Perhaps a fair point, but it begs the question:  Do we hold ourselves to the same standards?  CEOs often talk of “fostering” innovation, but we should also be on the hook to be directly innovative ourselves.  To do that, we need to be able to see opportunities that others don’t.

Otherwise we’re just cows watching satellites.

Innovation happens when observations are filtered and synthesized.  Innovators are always first, in the sense that they do something creative and valuable before someone else does.  Their minds were working on it well ahead of everyone else… which means they began seeing trends and opportunities earlier than others.

How does an innovative CEO get ahead of the curve like this?  How can we learn to see around corners?  It’s a qualitative skill.  You don’t find an innovative opportunity by reading about it directly.  If the analysts and pundits are covering the evolution of an opportunity, you’re behind.  It’s already happened.  Satellites 1, Cows 0.

There’s no handbook for how to be innovative, but it seems to me there are a few key elements:

1.     Develop some strong mental models of how change occurs.  Sometimes history repeats itself, other times new dynamics are at work.  If you don’t have good mental frameworks for what drives change, start mooing.  Below I list a couple of books that I think are relevant; I’d love to hear what others have found to be useful.

2.     Challenge convention.  It’s hard to shake things up if you limit yourself to the same rules and assumptions that everyone inside and outside your company is using.  So unshackle yourself from the deepest and most sacred assumptions, and let the creativity flow.

3.    Look past your own desk.  There is a strong possibility that trends in other industries will affect yours.  Understand what’s happening before the competition does, and act on it earlier.

Often innovation is sparked from a blend of things that make it possible.  Take Apple:  They were previously “the Mac company.”  Then they harnessed the trends of digitized music and the explosion in bandwidth, and took a new power position in the music industry.  Or look at Amazon:  Previously the online book seller, they realized that they had developed mad data center skills.  Then they noticed that enterprise IT architectures were going to morph toward an evolution of the hosting / SaaS concept, so they blended the two and are now a force in the huge new trend of cloud computing.

Most innovations aren’t so earth-shaking.  But innovation is how we break through incrementalism and create step-function increases in the value of our companies.  Grok the structure of revolution, challenge convention, and unroll the ball of string farther than others do.  Then create a strategy around that.  You may sound crazy, but you won’t be suicidal.

To get started, do some mental calisthenics.  Get your brain in shape for innovation’s year-round swimsuit season with a steroid injection:  The Innovator’s Dilemma by Harvard’s Clayton Christensen.  It’s a brilliant integration of discrete theories on technology innovation into one highly actionable model.  Internalize it and you will start seeing around corners.

Second, to help break the habit of linear thinking, realize that innovation often occurs when different disciplines interact.  The Medici Effect does a quick and good job of describing this effect.  And if you really feel like spelunking on this concept, pick up Complexity:  The Emerging Science at the Edge of Order and Chaos by Mitchell Waldrop.  For two decades Citi has funded a research effort that puts prize-winning economists, physicists, biologists, and computer scientists all under one roof.  What they are discovering – and how they’re discovering it — will blow your funky innovative mind.

In the end, we’re CEOs not researchers. But we need to take our brains for long daily walks.  Henry Ford once said, “Thinking is the hardest work there is.  That’s why so few people actually do it.”

What are your thoughts on divining innovation from the CEO?  Let’s talk about it in here…

(the discussion on ExpertCEO)

Rule #15 – Make Staff Meetings Productive

One of the functions that has always frustrated me has been management staff meetings.  Who should attend?  How frequently should they be held?  What’s the agenda?  How to control “bickering”?  How to make them more productive?

I have always felt that the primary objective of these meetings is to facilitate communication amongst the various members of the executive staff.  My style has always involved open communication, so I usually am knowledgeable about the status and issues of the people that work for me.  However, I am continuously amazed at how little informed the staff members are of each other’s status and issues.

For some sound, timeless advice, I again return to George Von Gehr’s new book, “The Effective Entrepreneur: Fifty-nine rules to Create Value Throughout the Life Cycle of Your Company” (Amazon Link) and, with permission, reprint here Rule 15.  Here’s George’s background in a previous post.

“Staff meetings often suffer from lack of productivity because they:

• Are too frequent
• Last too long
• Are contentious instead of problem solving
• Lack consistent structure

Since immediate problems are addressed as they occur, staff meetings should be less frequent than most managers expect.  Once can experiment with the frequency, but weekly may be too often.  Less frequent scheduling encourages attendance.

Fixed agendas help provide structure and may minimize argument.  Most arguments result from company politics and/or narrow functional, business unit or divisional views.  To maximize productivity and efficiency, it is the CEO’s responsibility to remove politics from these meeting and to foster cross-functional or cross-divisional cooperation.

Most emerging companies typically have more opportunities than people to support them, so setting priorities for the use of resources – human and other – is a frequent task at these meetings.  In addition, it is imperative to establish who “owns” or is responsible for each major initiative resulting from the priority setting.  Ownership facilitates tracking and results in the owner feeling responsibility.

These meetings should also be time-constrained so that attendees can plan their days.  Such planning also encourages a crisp trip through the agenda.  If special topics need longer treatment, then notice should be given.

An important periodic topic for this meeting is progress on both the annual operating budget and the longer-range strategic plan.  It is critical to recognize inflection points for each of these plans.  If it appears the operating plan cannot be met, then the causes for the shortfalls are essential discussion points and may require a longer, supplemental meeting.  The strategic plan may not be a normal agenda topic at all meetings, but when market disruption of a technological or competitive nature occurs, this event should be explored.

Beware of unrealistic operating targets accompanied by overbearing pressure to reach them, especially when these targets and pressures have major effects on compensation.  These sorts of plans were the seeds for an entire garden of fraudulent account and high bonus payments at Fannie May, Enron, Sunbeam, Tyco International and many other companies.” [KR Note – add Lehman Bros. and AIG]

My experience indicates that weekly staff meetings are the right frequency, and they should be conducted with a strict time limit of about 2 hours or less.  Work and meeting time can easily expand to fill whatever time is allotted.  The other thing I have found effective is to have each participant submit an email to the group with his or her weekly status, issues, etc.  That way, most minor, operational items can get taken care of via email without wasting time at the meeting, and the participants have some time to consider questions and discussion topics prior to the start of the meeting.  Lastly, I have found that it is effective to have a major topic to be covered at each meeting and this should be laid out in advance – product status, annual budget, a new system implementation or whatever.

CEO: Category Evangelizing Officer

“Be not simply good; be good for something.”  Thoreau

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Kelly Herrell

I want to welcome Kelly Herrell, our first guest blogger.  Kelly is the CEO of Vyatta, “a venture-funded company disrupting the networking industry” and is also a long-time member of ExpertCEO.  You can read his blog at http://kellyherrell.wordpress.com/

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When’s the last time you were in a product review meeting and fought a yawn?  Incrementalism is like walking – a moderately good exercise that never actually gets your heart rate up like, say, kicking sand in a bully’s face.

News Flash:  Our job as CEOs is to create and grow value.  And value creation can go stratospheric if you successfully create and then own a new, relevant category.  Milk it if ya got it, but what if you don’t?

Disrupt.  Change the rules.  Lay a course to claim an unaddressed space…  or make a conscious decision to give an extant industry an atomic wedgie in a way that makes you, the wedger, very new and relevant.  Defined right and evangelized effectively, the industry will grant you entrance to capitalism’s Valhalla:  “Market Leader.”  First rung on the Ladder of Perception.  Cool as the other side of the pillow.

But if the change you’re introducing is that disruptive, how does the CEO’s role change during that time?  I subscribe to the “You break it, you own it” theory.  That is, the greater the disruption you decide to deliver, the more it must be publicly championed from the top.  There are scads of reasons for this, but in general it’s because disruptions create cognitive dissonance.  And the bigger the disruption, the more dissonance to be overcome – from outside as well as from inside.

That’s why the CEO needs to become the Category Evangelizing Officer.  Don’t delegate it; you’re the one with control of the company’s resources.  Your stakeholders need to hear from you directly – your investors, the market, your team.  Repeatedly.

Evangelizing’s not a short-term gig, either.  You don’t pencil it into your calendar for Thursdays at 10:30am.  It’s a very public full-court press, a “venue-seek-and-destroy” mission.  Know the beliefs you’re trying to change, by audience type.  Work through the thermoclines of opinion influencers.  Crack the bone of denial so Marketing can get at the marrow of dissonance and feed on it.

Evangelizing takes time.  It’s a judo flip on super-slow-mo.   But in the end the old concept is on its back, embarrassed at the position it’s found itself in.  And for a big disruption, it’s your job to own it all the way to the end.  As Chi Chi said, “Ninety-five percent of the shots that don’t actually get to the hole won’t go in.”

And whatever you do, talk to your peers; this is why a venue like ExpertCEO is so valuable.  Many have already trod the path you’re considering. The dialogue inside is beginning…If you’re a current member of ExpertCEO, click here.  If not, go to www.expertceo.com to join.

Timeless thoughts on Timesharing

This post is NOT about vacation homes!

I recently attended an event at the Computer History Museum titled “Timesharing / Remote Processing Services”.  Though the gathering was intended as a look back at nearly half a century ago, I was fascinated by how many of the concepts were very much still at work in contemporary computing, albeit in different configurations.

The conference brought together 15 or so executives who had founded and/or run companies in the 1960s and 1970s that most of you have never heard of, including Comshare, Compuserve, Tymeshare, NCSS, GEISCO, IDC, On-line business systems, and my company, Ross Systems.  My experiences at Ross Systems were part of the catalyst for the formation of ExpertCEO.

Wikipedia defines ‘Time-sharing’ as a computing resource shared among many users by multitasking. Its introduction in the 1960s, and emergence as the prominent model of computing in the 1970s, represented a major historical shift in the history of computing from “batch processing” to interactive (“on line”) computing. By allowing a large number of users to interact simultaneously on a single computer, time-sharing dramatically lowered the cost of providing computing to the individual, while at the same time making the computing experience much more interactive.

During the two-day session, attendees discussed a number of topics, including technology (and its constantly decreasing cost), business models, applications, communications, and industry consolidation. The similarities between today’s computing paradigms and issues and those that existed in the 60s and 70s continue to amaze me.

Two important trends today, virtualization and cloud computing almost perfectly parallel the timesharing concepts, albeit with vastly differing technologies and economics.  However, the basic concepts of better machine utilization, sharing of centralized computing resources and a better user experience are common to both eras.

Virtualization – Refers to the technology to divide one physical machine into many “virtual machines” so that multiple, independent programs can run simultaneously.  The primary benefits are better machine utilization, server consolidation, reduced energy costs, etc.

Cloud computing – A model of computing in which dynamically scalable and often virtualized resources are provided as a service over the Internet.  Users need not have knowledge of, expertise in, or control over the technology infrastructure in the “cloud” that supports them.   Software as a Service (Saas) can be considered part of cloud computing (see my blog post titled “The Future of SaaS”).

Some differences between then and now are worth noting. Communications speeds when time-sharing was prevalant began at 11 characters per second (cps) with a teletype and gradually grew to 30 cps and then 120 cps.  Compare this with today, where my Comcast cable modem operates at 6 million bps or about 600,000 cps.  An 88 MB (that’s an “M”) disc cost approximately $40,000 in 1975 or about $450 million for a TB of storage.  Today, you can go to Fry’s and purchase a 1TB disk for a couple of hundred dollars.  This price decrease closely approximates Moore’s law which indicates that the improvement in technology will double every 2 years.

What was the primary cause of the demise of the timesharing industry?  The dramatic improvements in technology that continue today were also occurring in 1981.  IBM released its first PC in 1981. PCs were very inexpensive, offered a better user experience, and there were numerous apps available at a relatively low cost (e.g. Lotus 1-2-3).  The cost and complexity of the infrastructure associated with a central timesharing computer could no longer compete with the lower cost and better interactive experience of PCs for these types of applications.

Today, Microsoft, Google, Amazon and others are building huge, complex data centers to support cloud computing infrastructures and SaaS apps.  There’s an interesting article in the June 8 edition of the New York Times Magazine titled “Data Center Overload”.  It is a fascinating description of the size and complexity of the data centers that are now under construction, and the energy costs that are required to power and cool them.

Babbage Engine - Computer History Museum

The timesharing industry had a great ride for about 10 years.  Ten years from now, might the same trends that doomed timesharing, cause the demise of the cloud computing infrastructure?

A final note: The computer history museum contains a wealth of information and very interesting exhibits.  I encourage people to visit the museum and give to its support.

OffShoring – Revisited

Last October, I wrote a blog entry titled “Off-shoring software development.”  It was a cautionary description of some experiences I had with a previous company.  I concluded with a paragraph that said:

“Bottom line:  communicating effectively with an off-shoring organization, especially for small and evolving organizations, can be challenging.  When considering the economics and time involved in managing such an effort, build cushion into your budget expectations to account for these inevitabilities, before deciding what’s right for your organization.”

Well, we at ExpertCEO have just finished migrating our development partner from a local (San Francisco) organization to one located in Costa Rica.  We also moved our hosting service to “the cloud.”  We’re now up and running after a successful migration, and I thought it would be useful for me to share some of what we’ve accomplished.

First, our primary reason for this transition was cost.  We carefully manage our expenses, but we have a long list of features and capabilities we want to add to ExpertCEO.  These represent our own strategic direction as well as customer-requested features.  We felt by off-shoring the development, we could dramatically reduce our hourly development cost, thereby enabling us to add needed capabilities for our members while controlling our expenses.  However, we didn’t want to fall into the communication trap I had previously experienced using development resources located halfway around the world.  And we certainly did not want to spend long nights on conference calls with an organization many time zones away.

Avantica (www.avantica.net) in Costa Rica is our new partner, and we selected them because they are roughly  in the same time zone as California, and their team speaks excellent English.  It turns out they’re great developers, too!  We’ve found by using Google Sites for our Wiki, Skype (for chat and video conferencing), and Unfuddle for bug tracking that we’re able to work with the people in Costa Rica as closely as if they were next door, say Palo Alto or Mountain View.  The combination of similar time zones, no language barrier and web-based communication technologies has streamlined our interactions.

The ExpertCEO site has been developed using Ruby on Rails, and Engine Yard seemed the logical choice for hosting our site.  Their SOLO offering (based on Amazon’s EC2) offered us the growth flexibility we required, at a cost that was appropriate for our size.

We’ve also now working with Open Mountain, located in the Bay Area, which provides engineering management and oversight services to insure that all of the technical, architectural and operational aspects of our technology are synchronized.

We’re now positioned with excellent, cost-effective development resources so that we can execute our long range plan to make ExpertCEO the premier site for senior executives to confidentially exchange ideas with peers, locate trusted resources, ask questions of experts across a range of disciplines, and quickly solve real-world business problems.

Twitter for Business: Step by Step

I’ve asked ExpertCEO’s marketing manager Nathalee Ghafouri, who we affectionately refer to as the “Queen of Twitter,” to write a guest post about using Twitter for business. You can follow her here and me here.  This post is a basic “how to.”  Our next post will detail how we, at ExpertCEO, use Twitter as a marketing tool.

Twitter grew a record 131% in March! Start tweeting or get left behind. (Graph via TechCrunch)

You can’t turn on the news or go to a dinner party these days without someone mentioning Twitter. If you’re an ExpertCEO member, this link will take you to one of our most popular discussion threads–about Twitter. Usually, the word “Twitter” is met by the groans of non-believers (non-users) and squeals of excitement from the faithful. So why this divide? It’s simple: you can’t understand Twitter until you’ve tried it. The purpose of this post will be to get you started using Twitter for business.

Twitter For Business Basics:

1. Sign up for an account. Pick a username that either identifies you by name, by company or a combination of these. You could be SteveJobs, Apple or SteveatApple. Don’t make your username too long though as this could cause difficulties later.

2.  Fill out the profile: Upload a headshot, company logo or some combination of the two. Write your 160 character bio and give it some personality. Remember Twitter should be fun!

3.  Jump right in! Put up a couple tweets. A good first tweet is something like, “Figuring out Twitter.” Then you can follow by posting an interesting article you’ve read recently. Remember, everything you post SHOULD NOT reference your company. I’ve heard that 1 in 10 posts should be self-referential, but shooting for 1 out of 5 I think is reasonable.

4.  Start “following” people: Yes, this is a creepy term, but we’re stuck with it. Following someone just means that you want to have their tweets appear on your Twitter homepage. It’s kind of like “friending” someone on other sites. To do this, have Twitter search your contacts for people you already know on Twitter (using Find People). Then use search.twitter.com to search for keywords that interest you, then click on the people who are talking about these topics. If they look interesting, click the “Follow” button under their picture. You’ll receive an email every time someone follows you, so when you get those, follow the links to see if you want to follow the person back.

5.  Engage: Do not just “shout into the void”, have conversations, make friends. Two ways:

• Reply: If you see someone ask a question you know the answer to, reply! You can do this by typing @thepersonsusername into your tweet box followed by your message. You can see the @replies people have sent you by clicking on @yourusername on the right sidebar of your Twitter homepage. You can also @reply to agree with someone, give additional insight or give them a compliment. Rember, @replies are visible to everyone. They’re different than Direct Messages (DM).

• Retweet (RT): If you see a tweet that really resonates with you, you should retweet it. To RT, type “RT @personsusername:” then cut and paste their original tweet. Sometimes you’ll need to shorten it to make it under 140 characters. This is why you don’t want your username to be too long, it makes it harder to RT you. Many people consider RTs to be the highest compliment on Twitter. If someone RTs you, it will show up with your @replies.

6. DO NOT Auto DM (Direct Message): Twitter allows you to send direct messages to people who follow you. Please use these wisely. It is wildly popular to set up an automated direct message through apps like SocialToo, but please resist the temptation (it’s also wildly unpopular among the people who receive them). Auto DMs clog inboxes and can run up text charges for those who have DMs delivered to their phones. It’s fine to send a DM if you have a private comment to share with one person, just don’t abuse the privilege.

7. Repeat steps 3 , 4 and 5 for a few days until you feel like you’re starting to get the hang of it. Then you’ll be ready for the big leagues!

Advanced Twitter for Business

1. Follower Notifications: SocialToo may help with the evil auto DM, but it has a very useful feature. It can notify you of new followers. Sign up for this, and you can get one email per day with all of your new followers instead of 20 separate emails. Once you’ve done this, you can turn off the notifications in the Settings area of Twitter.

2. Download TweetDeck: This is a desktop application that will give you a lot of utility with Twitter. It will automatically have columns set up for your incoming tweets (the tweets of the people you follow), @replies and DMs. You can add columns for saved searches (on keywords that interest you, your company name, competitors’ names, etc.). You can also set up groups (family, coworkers, clients, etc.). You can have a max of 10 columns, so use them wisely.

3. Monitor TweetDeck: You can perform pretty much every Twitter function here and will seldom need to go back to www.twitter.com. Watch for conversations to participate in and go for it! Scroll over peoples’ pictures to reply, RT or DM them.

Twitter Ettiquette

I love the Twitter is like a cocktail party analogy: No one wants to talk to the person at the cocktail party that only talks about themselves, just like no one wants to read a stream that’s only about your business. Be interesting, share industry news, be a thought leader, show your personal side every once in a while. Be the life of the party.

Don’t ghost write. If you put someone’s name and face on a Twitter account, they should be the one actually tweeting. A recent article that we featured on ExpertCEO also indicates that CEOs have had much success tweeting for their businesses and that they shouldn’t delegate the task.

Twitter Definitions (I found these definitions here, and have tweaked them slightly):

• Regular tweets — You speak to all your followers by typing news and info into your status update bar.

• Retweets (RTs) — Forwarding something someone else has said. Do this by typing RT, then space, then @username, then copying their tweet in its entirety. This is considered a huge compliment in Twitter World. You can also add your own take if there is space.

• Direct Messages (DMs) — You are speaking to only one person, and only he/she can read this tweet.  You can DM on twitter.com by using the “Direct Message” button. It will give you a drop-down menu for names, then you can just type your tweet in the status . You can only DM people if you are following them AND they are following you.

• “At Replies” (@reply) — This is the friendliest form of tweeting. You are responding directly to one person, but every one of your followers can read it and can jump into the conversation. Do this by typing @username, then space, then your tweet. You can also do @replies on twitter.com by scrolling over the right side of a tweet message and hitting the “flip-around-looking arrow” that appears.

• #/hastag: Hashtags are a bit more complicated.  They are basically for when you want to participate or follow a discussion on a specific subject or event.  It’s kind of like making a separate “room” for a discussion.  You can access this room by searching for the hastag.

Happy Tweeting!

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Executive Compensation – The “Third Rail” for today’s CEO?

Pick up any newspaper or magazine today and you’re likely to find coverage of the ongoing controversy surrounding executive compensation. Outsized pay packages, particularly for corporate leaders whose companies have produced sub-par results (or worse), have attracted increased scrutiny in recent years. In part, this stems from the absolute size of these awards, and as taxpayer funds have become involved, political considerations are also in play.

For small and mid-size company CEOs, outrageous pay packages are rarely seen, whether ownership is public or private (see ExpertCEO salary survey for sample results). Nonetheless, intense review of these compensation programs is commonplace in today’s weak economic environment, so it’s worth reviewing the two key objectives when considering the size and composition of any senior executive’s pay package: motivation and retention.

For some sound, timeless advice, I return to George Von Gehr’s new book, “The Effective Entrepreneur: Fifty-nine rules to Create Value Throughout the Life Cycle of Your Company” (Amazon link) and, with permission, reprint here Rule 16. (see my blog  dated 2/11/09 for George’s background)

“Many sources provide reference information on cash compensation at different organizational levels. When designing incentive compensation, the difficult issues for consideration swirl around these factors:

· Cash or stock

· Mechanism determining payout

· Payout timing

· Provisions for change of control

Any individual’s incentive program must be consistent with those of the other members of the executive group; there must be “parity” or balance across the group based on responsibility, experience, performance requirements, and total payout. Compensation must be competitive but not excessive. Consider the $100 million plus programs of Grasso (NYSE), Quattrone (CSFB), and Nardelli (NYSE:HD). Litigation may often follow. (KR note – add AIG, Merrill Lynch to the list).

Designing cash incentives involves two time-lines: twelve-month horizons that increase motivation and multi-year – usually three year – horizons that encourage retention. In either case, each executive’s incentive program should have at least two parts to the payout. The first part must be designed around the executive’s specific objectives – both qualitative and quantitative – of motivating achievement of individual targets. The second part should reflect corporate targets to foster teamwork and long-term retention.

Ordinary stock options vest over time and are assumed to be strong retention devices. They may represent a poor program for the company however, because the executive gains stock rights, regardless of the executive’s performance. It may be useful to custom design options in such that they have a second vesting standard tied to long-term company performance goals and / or to the recipient’s objectives. The recipient’s benefits are received only with both the running of time and the achievement of specified targets. Also keep in mind that some employees value options more than others do (usually higher management levels), and so indiscriminate distribution throughout the company may make little sense.

Sales compensation is a much-debated area. The only caveat here is, whatever scheme is put in place, the sales people will push it to extreme limits, so evaluate the structure carefully and anticipate all outcomes. Place caps on unlimited payouts. (KR note: caps on payouts are always contentious issues with sales people but extremely large payouts, at least in technology companies, usually involve unique circumstances and need to be treated as special cases).

In acquisitions, company executives may be asked to negotiate and complete a transaction in which they receive little or nothing for their stock; by this I mean those acquisitions in which the consideration is less than the preferred liquidation preference. Under these conditions, the board should provide a motivational incentive – usually a percentage of the price paid to the shareholders – as a carve-out before shareholder distributions.”

So how should CEOs, compensation committees, and boards structure pay programs to achieve their motivation and retention objectives, while avoiding perverse incentives and criticism from other constituents? In my experience, several relatively straightforward tasks can increase the likelihood of success:

1) Collect current, relevant data on salary, bonus, equity and commission plans. You may not always match the competition, but you’ll avoid unintended insults/attrition.

2) Understand your company’s capacity—cash-strapped but equity-rich? Try to attract key hires whose personal objectives match your resources.

3) Assume employees will compare notes; be prepared to explain your decisions.

4) Keep both long-term and short-term in mind. Create company-wide, as well as individual targets.

5) Communicate clearly, and in writing, goals and the way compensation is related to those goals.

Use experts when appropriate—a good attorney who specialized in compensation matters can more than pay for themselves with practical advice. Consultants who focus on compensation and who may have benchmark results (ex: Advanced HR, Radford) are also valuable contacts.  Confer with peers by joining in on relevant discussions on ExpertCEO. Not a member? Go to ExpertCEO and apply to join today.

Hail To The Chief (Executive)

With the nation’s attention on next week’s inaugural events, speculation around President-elect Obama’s agenda for his first weeks in office is the focus of presidential scholars and leadership experts alike.  Whether elected or appointed, every new CEO must gather information, understand challenges and opportunities, set priorities, and communicate with a variety of constituents during their first 100 days in office.  I’ve taken the helm more than a dozen times as a founder, “hired” CEO and interim CEO, and over the years I’ve developed a new CEO’s to-do list that’s proven effective in achieving these goals, which I’ll summarize below.

 

Executive-staff Interviews

• Listen carefully – Learn about their strengths, weaknesses and issues (you’ll also hear a lot about other members of the executive staff).  Try to ferret out names of others, lower in the organization, who are especially well-respected.  These latter individuals can be key to future organizational changes.
• Identify common themes – people, products, technology, etc.
• Go back and do it again, trying to organize your thoughts and interview points based upon what you learned the first time.

Short-term Budget/Cash Flow

• Understand the company’s short-term financial status – Cash issues will take priority over everything else if there are short-term problems.  If you have breathing room (or positive cash flow) so much the better.
• Focus on immediate actions, if necessary

Products

• Understand current offerings/programs/services.
• Get demos from current product managers.
• Identify key product priorities.

Customers

• Meet customers – listen to their concerns and priorities.
• Note: Make sure you do this after you’ve gained a basic understanding of the people, products and issues.

Keep an Open Door (and an Open Email Box)

• It’s amazing who will wander in and unburden themselves with issues and concerns.  This is a great source of information to cross-reference against executive-staff interviews.

Communication 

• Communicate frequently and often with investors, customers, board members and employees.  It goes without saying that all of these stakeholders are nervous and anxious for information from a new CEO.

President-elect Obama has had 11 weeks to prepare, and as he takes the helm, he’ll be employing some of these very same techniques.  For example, we can already see his focus on budgets and cash flow, though, unlike any of us, he can “print money” to overcome it (in the short-term).  And he is focused on taking the immediate actions he believes are necessary to remedy the problem.  Like any CEO, he needs to persuade various constituents to support his efforts.  Regardless of our political leanings, the nation needs Obama to succeed, so let’s hope his “getting started” list stands him in good stead.