Today’s Myatt on Monday’s question was posed by a CEO who asked: “Can you define the difference between vision and mission?” What a great question…it’s always refreshing to me when an executive checks their ego and asks a clarifying question (a characteristic of great leaders by the way) rather than pretend they know the answer. The reason this is such a great question is that I’ve witnessed far too many executives confuse vision and mission in terms of both definition and application. In today’s post I’ll clearly explain the difference between vision and mission…

As as a backdrop to answering today’s question, I want to share a simple organizational framework I developed several years ago to help executives gain a better understanding of leadership structure. Just like an algebraic formula, business also functions according to rules governing order of operations. My premise was that business logic is similar to the logic used in solving mathematical equations - if  you attempt to solve a problem out of sequence it will result in a flawed outcome. The framework goes like this: “Values should underpin Vision, which dictates Mission, which determines Strategy, which surfaces Goals that frame Objectives, which in turn drives the Tactics that tell an organization what Resources, Infrastructure and Processes are needed to support a certainty of execution.” (Mike Myatt, 1988) 

Let me be clear – vision and mission are not interchangeable. Confusing mission and vision in definition or in sequence of application will result in inconsistent leadership decisions, confusion among the ranks, and the inevitability of flawed outcomes. It’s important to understand that vision statements are design oriented, while mission statements are execution oriented. In fact, it is the corporate vision that should determine its mission. The vision is bigger picture and future oriented, while the mission is more immediately focused on the present. It is the vision that defines the end game, and the mission is the road map that will take you there.

Vision statements, as implied in the construction of the phraseology itself, put forth a statement of envisioned future. This vision, if successful, must be underpinned by core ideology and then expressed with clarity and conviction. A non-existent, ambiguous, or ideologically weak corporate vision is nothing short of a recipe for disaster…It would be akin to the proverbial ship without a rudder adrift without any direction or control. As noted above, mission statements should reflect greater focus on more immediate concerns that support the overarching vision. Mission statements tend to be more functional in nature dealing with a variety of touch points throughout the value chain.

In keeping with the mathematical analogies above, it’s important to note that both vision and mission should be viewed as variables and not constants. What I mean by this is both the vision and mission need to be kept fresh and relevant. If either your vision or mission become outdated and irrelevant so too will your business.  

Lastly, even though this is a discussion of the differences between vision and mission, don’t forget the first and most important step…basing everything upon core values. Don’t get caught up in attempting to develop something catchy to be encapsulated within a piece of framed artwork that hangs in your reception area yet never put into practice. It is much more important that your vision and mission be understood by company employees, and translated into the resultant authenticity of their actions. Your customers don’t care what you put on paper, but they care immensely about whether or not a company’s vision and mission are reflected in a fulfilled brand promise.

Please feel free to share your thoughts and comments below.

Today’s Myatt on Mondays question comes from the president of a technology firm who asks: “I don’t have the best track record when it comes to making executive level hires. Do you have any specific suggestions that might help?” Since I have written often on the subject of talent management, and have covered the basics of recruiting in previous posts, I’m going to share a few secrets that can help separate the great talent from those that simply interview well…

We’ve all experienced the let down associated with someone who slipped through the cracks of the interview process and turned out to be everything except what they represented themselves to be. The reality is that most candidates interviewing for executive level positions will have strong resumes and will handle themselves well in predictable interviewing situations. This is why it is important to put potential C-level hires through a much more demanding interview process than management and staff level hires. While there are any number of interviewing nuances that can improve the odds of a successful hire, the following three suggestions will help you to quickly spot the posers from the players:

1. Dispense with Typical Interview Questions: When it comes to executive level hires I tend to stray from the usual questions surrounding career history and job functions (hopefully this type of screening has been done long before a candidate reaches my office), and use questions meant to probe deeply for character, problem solving and leadership ability. I use situational questions that force them respond quickly to the toughest of real world experiences where there are definitely right and wrong answers…This is a no spin zone as you either get the questions right or you don’t…
2. Conduct Interviews in Social Settings: Get the potential hire out of the office…Take the candidate out to a ball game, to dinner, for a round of golf or any other setting where they are likely to let their guard down and reveal their authentic self. While most people can present themselves well in a controlled environment, by switching things up on them you are likely to see signs of potential issues that may surface later as problems in the workplace.
3. Include the Spouse in the Interview: Nothing keeps a person humble and honest like the presence of their spouse…If a candidate has embellished certain things in prior interviews you’re likely to see inconsistencies pop-up in conversations held with their spouse present.

Candidates that can pass the rigor of non-traditional interviews with flying colors are likely to become valuable members of your executive team that will thrive on the demands of real world business challenges. Lastly, remember to hire slow and fire fast…This is even more important with executive level hires.

Today’s Myatt on Monday’s question comes from a CEO who asked: “Our employee turnover is higher than I would like it to be. If you had to point out one factor that drives employee churn, what would that be?” Few things in business are as costly and disruptive as having the proverbial revolving door for employees to exit from. Even worse is not knowing how to stop the door from turning. While an “employers job market” can certainly help slow the churn, it will not stop it. The harsh truth is that there are many secondary and tertiary items that can influence an employee’s decision to leave, in today’s post I’ll address the primary item; the one single factor that constitutes the overarching reason which drives a person’s decision to leave their employer.

Let me begin by stating that no company in the world has a 100% retention factor if measured over any meaningful length of time. However the question I want you to ponder is this: why do some companies have the ability to create excellent work environments leading to superior employee satisfaction and retention while others seem to fail miserably in their efforts in this regard. The answer is simpler than you may think…Organizations that display the healthy, dynamic, and positive culture that fosters a motivated and engaged workforce all have one thing in common…great leadership. 

There is an old saying that goes; “Employees don’t quit working for companies, they quit working for their bosses.” Regardless of tenure, position, title, etc., employees who voluntarily leave generally do so out of some type of perceived disconnect with leadership. Furthermore, while the accuracy of exit interviews are somewhat debatable, they nonetheless support the conclusion drawn in the previous sentence. The following list contains just five representative samples of the differences between solid company leadership and poor leadership…

• Hiring Methodology: Great leadership teams use a values based hiring methodology. They hire slowly, carefully, and only to fill a defined need with a specific skill set. Companies with challenged leadership hire quickly, often based on how affordably they can fill a position, and many times in absence of a defined need.
• Leadership Continuity: Great companies have a clear vision, mission, and strategy, which are evangelized by a cohesive leadership team. A crisply articulated vision, and continuity of leadership creates an engaged workforce that understands the business model and key objectives of the enterprise. Companies that have a fractured leadership team lose the confidence of line and staff. Employees that don’t understand what they’re playing for are very difficult to motivate and as a result are often disengaged and non-productive. 
• A Planned Transition: Outstanding leadership teams set employees up for success and not for failure. They have an established onboarding process which puts forth an initial roadmap for a successful transition by clearly defining key performance indicators, business objectives, and other key metrics. Well honed leadership teams immediately assign an in house mentor to new hires to help insure a successful acclimation. Unsophisticated leadership teams usually have a sink or swim mentality with regard to new hires and have substantial voids in training and management processes in the early days of a new hire. Poor leadership teams have a lack of continuity in their training and development which breeds discontentment and dissatisfaction.  
• Compensation: Great leadership teams understand the value of tier-one talent, and are not afraid to pay-up in order to attract it and retain it. They create a multi-tiered compensation plan that rewards employees at the top of industry scale when performance objectives are met or exceeded. Moreover they understand the value of non-compensatory recognition and apply it generously and judiciously. Companies with poor leadership often trip over dollars to pick-up pennies when it comes to compensation. Their compensation plans lack sophistication, creativity, and are engineered by default and not be design. People will often cite non-competitive compensation as an issue for leaving a company, but what they are really stating is that the company has an unsophisticated leadership team which is out of touch with both the market, and the needs of its employees.
• Professional Development: Solid leadership teams challenge their employees by offering them a clear path toward personal and professional growth. Great companies create a career path that offers the successful employee the option of matriculating throughout the company based upon achievements, needs, and qualifications. Great leadership teams understand that in order to create a thriving and sustainable enterprise that a key priority is to develop talent to their greatest potential, and ultimately to create other leaders. Poor leadership teams don’t see the value in training, mentoring, coaching, and other forms of professional development. Their workforces are stagnant and not competitive, which places them a not only a competitive disadvantage, but also at risk for long-term sustainability. 

While today’s post was an extemporaneous highlight of just a few critical acknowledgements, I hope it clearly portrayed the value of leadership in employee retention and development.

Family Business…a quote from Charles Dickens sums up my feelings about family businesses: “It was the best of times, it was the worst of times.” Oh what a conundrum…Family business; should I, or shouldn’t I? Today’s Myatt on Monday’s question comes from an entrepreneur who asks: “Should I involve family members in my business venture?” In my opinion there really isn’t a right or wrong answer to this question…it is simply a matter of personal preference. When family businesses work, there is nothing that can really compare to the benefits and upside afforded with such a structure. The problem is that they don’t always work…I have observed extremely successful family enterprises that strengthen relationships and flourish across generations, and I have also witnessed business ventures that were responsible for the total destruction of what were previously very close families. Whatever decision is made with respect to bringing family members into a business, it is a decision that should not be taken lightly. In today’s post I’ll share my thoughts on the topic of family businesses…

Let me begin by sharing some personal history with my involvement in family businesses. In addition to advising numerous family held businesses over the years, I have personally been involved in three family businesses. I have witnessed the good that can come from helping family members grow and prosper, and I’ve seen the harm that can come when greed becomes more important than right thinking. While my experience with family businesses wouldn’t keep me from involving family members in business ventures in the future, I also wouldn’t be quick to rush into such a venture. That being said, the following five points should be kept in mind when considering inviting family members into your business:

1. Think it Through: Family should be about unconditional love, security, and continuity of relationships. However business is often driven by conditional relationships, greed, and ego.  While business interests and family relationships can successfully coexist, the conflict of interest described in the statement above can often be terminal. If you cannot live with the possibility that things may not turn out on a positive note, and family relationships may be damaged, then I would strongly advise caution about including family members in your business venture.
2. Seek Alignment Up Front: It’s easy to assume that family members should all have the same values, but that is not always the case. Don’t just assume you family members share your values; confirm it is so prior to their inclusion in your business. While it is certainly easy to involve family members in your business, parting ways is rarely easy, and usually comes with more than its fair share of emotional turmoil. Spend the time up front to align expectations and talk through all the “what ifs” surrounding family involvement in the business. Spend more time talking about what happens if things don’t work out rather than the upside of potential success.
3. Document Everything: There is often a tendency to believe that since you’re dealing with family there is no need for formal business agreements…WRONG! Document everything when it comes to dealing with family members so that in the event of a dispute, sound business logic and prudent governance will prevail over emotions, revisionist history, or suddenly flawed memories.
4. Don’t Give Anything Away: My thinking on this topic applies to responsibility, titles, compensation, and ownership interests. In general I have found that human nature is such that people just don’t value something that they have not earned (this can be particularly true of family members who can often display an undeserved sense of entitlement).  The goal here is not to make things unduly difficult on family members, nor is it to make money off of family members, rather the goal should be to teach them that along with the privilege of ownership comes requirements for investment, risk, responsibility, and commitment.
5. Keep Things Close: While family should be family, this assumes value alignment, right thinking, and prudent behavior. The reality is that your chances for success in family businesses rapidly diminish the further removed you are from your immediate family. There are certainly exceptions to what I’m about to espouse, but the harsh reality is that your immediate family are much more likely to remain loyal in good times and in bad times than nieces, nephews, cousins or in-laws.   

The unfortunate reality is that conventional business logic often does not apply when dealing with family businesses. It is important to realize that even when you do everything correctly, things still may not work out when dealing with family businesses. The upside is that when things do work out well there are few things as rewarding as building something of value with your family at your side.

As the old saying goes, “The times they are a changing.” For those of you who are not regular readers of the Myatt on Mondays posts, Monday is the day that I often set aside to answer questions from readers. However in today’s post I’m going to switch things up a bit and ask you to answer a question posed by me. While I have given frequent counsel about how to successfully navigate the many challenges posed by these uncertain economic times, my question is this: “In the last 90 days what proactive changes have you made within your business which have placed you in a better position to survive the changing economic conditions that are presently vexing many a CEO?” In the text that follows I’ll give you a few places you might want to look at if you haven’t already…

A mantra that was drilled into me during my days in the military was “Adapt, Improvise, and Overcome.” Whether on the battlefield, or in the boardroom, your ability to change in accordance with the demands of the times will often determine your ability to survive. Changing times demand fluidity on the part of successful CEOs. If you’re not changing both the strategic and tactical approach in which you do business in this market you will live to regret it. Standing still in a rapidly evolving world will only result in your competition running you down. Savvy CEOs have likely already made many of the adjustments mentioned below, but it’s not too late to jump on the bandwagon if you’ve been slow on the trigger:

1. Cost Centers vs. Profit Centers: Slowing economic conditions require a greater emphasis on growth in revenue and profitability. Reallocate financial and non-financial resources to marketing and sales activities to prime the funnel. Look to reduce commitments to business units, departments, and headcount that don’t significantly impact contribution margin.
2. Go Shopping: Tough times create opportunities to acquire companies and/or other assets at discounts over normal pricing. The best deals are not made when multiples and trailing 12′s are at all-time highs, but rather when true value is unlocked as a result of recognizing market opportunity created by adversity.
3. The Talent Advantage: Weed out the lower echelons (the bottom 10%-20%) of your work force and seek to replace them with higher caliber talent looking for a better opportunity during tough times. This is an employer’s market with a dearth of talent available without having to pay the signing bonuses of old… 
4. Get Help: If you’re a younger CEO and this is your first economic downturn, get help…Find a coach or mentor who can help guide you through to the other side. As the old saying goes: “You don’t know what you don’t know.” 
5. Add to the War Chest: While the capital and credit markets have eased-off the frothy pace of the last few years, there is still an abundant supply of smart-money looking for a home. Underwriting and due diligence may be a bit more painful these days, but don’t let that stand in your way. Work every level of the capital structure and create as much operating leverage as possible at the lowest blended cost of capital.  
6. Don’t Forget the Customer: This is a time to not only remain close to your key accounts, but to also aggressively go after your competitions key accounts. Remember that if you’re not talking to your customers someone else will be.
7. Don’t Miss the Boat: Change, disrupt, innovate, disintermediate, and generally unleash havoc in the marketplace. More wealth is gained, and more dominant brands are established in declining markets than in advancing markets. Smart CEOs aren’t looking for safe harbors, rather they understand that waning economic conditions create a significant window of market opportunities…
8. It’s Not About the Risk: Don’t manage risk, exploit opportunities. Put incremental gains and process engineering on the back-burner as these types of initiatives won’t carry you through tough times. Cost cutting is not a business model, and it alone (especially the wrong kind) won’t save you. Invest your precious resources where you can create leverage, velocity, or economies of scale. Don’t trip over dollars to pick-up pennies.  

As the old saying goes, “it’s better late than never.” Only the most arrogant, or the most foolhardy CEOs don’t recognize the need for rapid change in reacting to today’s slowing economic conditions. 

Today’s Myatt on Monday’s question comes from a CEO who asks: ”what is the best way for me to synthesize the overwhelming amount incoming information I receive while making the best decisions possible in a timely fashion?” While I have written often on the subject of decision making, today’s question is a bit more narrow in scope asking for advice surrounding the filtering of various inputs. In today’s post I’ll address what I refer to as the hierarchy of knowledge which will provide an answer to today’s question…

Understanding that a hierarchy of knowledge exists is critically important when attempting to make prudent decisions. Put simply…not all inputs should weigh equally in one’s decisioning process. By developing a qualitative and quantitative filtering mechanism for your decisioning process you can make better decisions in a shorter period of time. The hierarchy of knowledge is as follows:

• Data: Raw data is comprised of disparate facts, statistics, or random pieces of information that in-and-of-themselves hold little value. Making conclusions based on data in its raw form will lead to flawed decisions based on incomplete data sets.
• Information: Information is simply an evolved, or more complete data set. Information is therefore derived from a collection of processed data where context and meaning have been added to disparate facts which allow for a more thorough analysis. 
• Knowledge: Knowledge is information that has been refined by analysis such that it has been assimilated, tested and/or validated. Most importantly, knowledge is actionable with a high degree of accuracy because proof of concept exists.

Even though people often treat theory as knowledge, and opinion as fact, they are not one in the same. Making executive decisions in today’s world has never been more complex, and when under extreme pressure I have seen many a savvy executive blur the lines between fact and fiction resulting in an ill advised decision. Decisions made at the data level can be made quickly, but offer a higher level of risk. Decisioning at the information level affords a higher degree of risk management, but are still not as safe as those decisions based upon actionable knowledge.

Another aspect that needs to be factored into the decisioning process is the source of the input. I believe it was Cyrus the Great who said “diversity in counsel, unity in command” meaning that good leaders seek the counsel of others, but maintain command control over the final decision. While most successful leaders subscribe to this theory, the real question in not whether you should seek counsel, but in fact where, and how much counsel you should seek. You see more input, or the wrong input, doesn’t necessarily add value to a decisioning process. Volume for the sake of volume will only tend to confuse matters, and seeking input from sources that can’t offer significant contributions is likely a waste of time. Two other issues that should be considered in your decisioning process as they relate to the source of input are as follows:

1. Credibility: What is the track record of your source? Is the source reliable and credible? Are they delivering data, information or knowledge? Will the source tell you what you want to hear, what they want you to hear, or will they provide the unedited version of cold hard truth?
2. Bias: Are there any hidden and/or competing agendas that are coloring the input being received? Is the input being provided for the benefit of the source or the benefit of the enterprise? 

Good luck and good decisioning…

Today’s Myatt on Monday’s question comes from a board member who asks: ”Our current CEO is underperforming against expectations…How does the board know when it is time to transition the CEO?” While it is refreshing to hear a board member paying attention to CEO performance, the decision to replace a CEO not only requires a complex analysis, but the wrong decision will have far reaching consequences. In today’s post I’ll share my thoughts on the right reasons to transition the CEO…

The first thing to understand is that transitioning the CEO should only happen as a result of a sound succession plan. Spontaneous or surprise changes in leadership are the worst possible scenario, and should be avoided at all costs. In collaboration with the board of directors, it is a CEOs obligation to identify and develop successor leadership (a recent article in Fortune points to the successful transition of A. G. Lafley and is worth reading). Nobody knows what the future holds…whether the CEO is called upon to resign, or decides of his or her own accord to pass the baton, a company that has developed a strategic process surrounding the succession planning of key executives will transition more smoothly than those entities who wing it… 

Before I address the question at hand, for contextual purposes, I believe it’s important to actually define the role of the board of directors. While there are certainly a variety of opinions as to the roles and obligations of a company’s board of directors, from my perspective they can all be boiled down into four simple responsibilities:

1. Shareholder Accountability: A board member’s primary responsibility is to act in good faith as a fiduciary in representing the long-term best interests of shareholders. A board’s actions and decisions must be able to pass the litmus test of public scrutiny (legally, morally, and ethically), rise above personal agendas, and always place shareholder interests above all else;
2. Corporate Governance: A board must insure that the corporation’s charter and by-laws are adhered to. Moreover a board must use its best efforts to hold executives accountable for insuring that corporate actions fall within other legal, financial, regulatory, and compliance boundaries. Ignorance and apathy are not the traits of a good board. Great board members are proactive, involved, supportive, consultative, experienced, and savvy. They know the rules, play between the lines, and do the right things. 
3. CEO Oversight: It is the board’s job to select the CEO, provide the CEO with support and guidance, and to hold the CEO accountable. Good boards exercise great care and prudence in profiling CEO candidates, recruiting the right CEO for the job, providing the CEO with a clear job description, successfully onboarding the CEO, and holding the CEO accountable for meeting a set of clearly defined expectations. Good boards do not attempt to micro-manage a CEO, rather they understand their highest value in being a value added resource for the CEO focused on helping the CEO become successful. 
4. External Visibility: A key responsibility of the board is to serve as an external champion of the corporate brand. Board members should have a clear understanding of the corporate vision and mission, and where prudent, evangelize the message for the benefit of the corporation. Whether this requires providing networking assistance, investor relations support, or engaging the media, a highly regarded and active board can add substantial value to the enterprise.

Let’s turn our attention back to the original question…In the text that follows I’ll offer several points that will help a board evaluate whether or not they have the right CEO for the job:

• Tenure: In a previous post entitled “CEO Term Limits” (a must read for board members) I stated that there is no such thing as a standard shelf-life for a CEO. No rules of thumb apply when evaluating whether a CEO has outworn his/her usefulness purely from a chronological perspective. I’ve witnessed CEO’s where the company has outgrown their skill sets, and/or abilities within a year of hire (a bad hire…), and I’ve also observed many instances of CEOs that have successfully guided companies for 20+ years. The question is not how long a CEO serves, but rather what he or she does while serving. Whether age 32, or age 72, a board must ask themselves, is our CEO doing the job, and perhaps the better question is, are they the best CEO for the job?
• Performance: The topic of performance is a multi-faceted issue. A CEO’s performance should be benchmarked against a variety of key performance indicators which are clearly spelled out in the chief executive’s employment agreement. When evaluating performance, a board must evaluate whether a lack of performance exists across all areas or in a single area, whether the lack of performance is a short-term aberration vs. the likelihood of it being a burgeoning problem, and whether the CEO can be coached through the performance gap or whether the lack of performance is an irreconcilable issue.
• Ethics Violations: The character of the CEO is often synonymous with the brand of the enterprise. Once a chief executive has violated the public trust, or made a gross or negligent error in judgment which could taint the corporate brand, a board should move swiftly to restore the integrity of the corporation. Many things can be spun, justified, rationalized, or managed, but a lack of ethical behavior on the part of the chief executive is not one of them.
• Loss of Confidence: Once the board, the employees, the capital markets, the press, or other key constituencies have lost confidence in the CEO, the board must replace the CEO. A CEO cannot lead, motivate, or inspire without the trust and confidence of those they serve.
• Lack of Development: The corporate enterprise and the business world in general, are dynamic, fluid, and evolving environments. Therefore great chief executives cannot be static in their personal or professional development, or in their strategic and tactical approach to doing business. A CEO that does not exhibit the ability to change, innovate, and grow with the world around them is someone who will likely need to be replaced.

In the final analysis, the board’s decision as to whether a CEO should be replaced is a decision that should be made within the framework of managing risk and opportunity. The board must weigh the transitioning a CEO against the financial costs, the impact of the business disruption and lack of continuity that can come with replacing the CEO, the market reaction to a change in leadership, and whether the decision is ultimately motivated by right thinking.

“Can you provide any tips for modeling a winning compensation plan?” is today’s Myatt on Mondays question which was asked by a CFO of an Internet marketing company. While certainly a great question, I must admit that I have been reluctant to address the topic of compensation in previous posts as compensation theory is not only complex, but it often varies greatly based upon the situational realities of different workplace environments. That being said, there are definitely key elements which serve as the foundation for any well designed compensation plan which I’ll cover in today’s post…

As critical an issue as compensation is to a company’s health and well-being it is not something that should be assessed solely on its own merits. Compensation is interwoven into the core of a company’s culture and has many touch points across the enterprise. Moreover the best compensation plan in the world will not make up for a lack of leadership, a poor product or service offering, a lack of integrity or any number of other more important corporate characteristics and values. As an example, if you have a best in class compensation plan, but a low quality product offering you won’t attract quality clients or quality talent. Rather you’ll just attract mercenary employees looking to exploit a compensation plan and who will disappoint clients that will in turn seek solace from your competitors.

Taking note of the above referenced caveats, it has still been my experience that if you desire to effect change or influence culture within a corporate setting the most effective catalyst is a well engineered compensation plan. A fully integrated comp plan built upon sound underlying business logic is one of the very few strategic management tools available to an organization that can lift company morale, as well as have a simultaneous, dramatic positive impact on both the top and bottom line.

In order to thrive in today’s ultra-competitive marketplace, it is essential that companies invest in processes that reward profitable behavior, align groups (i.e. teams, business units or operating entities) and meet the strategic goals of the enterprise. Realizing the direct correlation that a properly designed compensation strategy has to operational and financial performance, it is mission critical to implement an integrated compensation model that is fair, rewarding and profitable for the both the company and its employees. In order to be effective for all concerned parties, an integrated compensation plan must provide the following benefits:

• Create a better alignment between strategy, efforts and results;
• Create the proper relationship between fixed and variable compensation overhead;
• Grow revenue by quickly adapting to changing business conditions and competitive threats;
• Increase profitability by cutting administrative costs and tying compensation to variables that keep compensation overhead within industry norms while advancing business initiatives;
• Serve to focus corporate culture and behavior on revenue growth and profitability;
• Serve as a leverage point for recruiting and retention efforts;
• Create goal congruence between the employees and the company;
• Serve as a foundational catalyst for change management across the enterprise;
• Preserve continuity of equity/ownership;
• Provide long-term wealth creation for key employees without disrupting continuity or creating a funding hardship for the enterprise;
• Maximize tax advantages for the company and its employees, and;
• Enhance the overall quality of company benefits plan by providing a wide array of meaningful benefits to employees at all levels.

Before diving in and re-engineering an existing compensation plan, careful consideration should be given to both the current dynamics and future goals of the enterprise. In assessing the various options for the architecture of an integrated compensation plan the following items must be taken into account:

• The organizational and operating history of entity;
• The compensation history surrounding the entity and its employees;
• Current compensation of employees bench-marked against national standards, local competitors, current production, and future business goals;
• The duties, responsibilities and current risk exposure of employees, and;
• The employee’s current and future role as team members of the company.

Let’s take a look at some of the building blocks available to management when considering different compensation options. The following items are all viable options to be included in a fully integrated compensation plan:

• A Competitive Salary and Benefits Program;
• Executive Perquisites (company car, use of corporate jet, club memberships, housing allowance, expense accounts, etc.);
• Commission and Override Structures;
• Defined Benefit and Defined Contribution Plans;
• Deferred Compensation Plans;
• Incentive Stock Options (ISO’s);
• Non-qualified Stock Options (NSO’s);
• Employee Stock Purchase Plans (ESPP’s);
• Employee Stock Ownership Plans (ESOP’s);
• Phantom Stock Ownership Plans and other Non-qualified plans;
• Profit Sharing Plans;
• Bonus Pools, and;
• Project or Initiative Based Incentive and Participation Plans.

As noted above the implementation of a compensation plan in and of itself will not heal an otherwise ailing company. However a fully integrated and well designed compensation plan rolled out in a healthy corporate culture based upon quality, integrity and character will have a dramatic positive result.

Today’s Myatt on Mondays question comes from an entrepreneur who asks: “What provisions can I place into a purchase and sale agreement to limit my post disposition liability when selling my business?” While there are virtually endless numbers of provisions that can be incorporated into a purchase and sale agreement it is important to remember that in most circumstances when a seller includes language that mitigates his/her risk that the buyer will want a corresponding price adjustment. That said, the reality is that all negotiated business points are just that; negotiated…they are dependant upon how badly a seller desires to dispose of the business, how sophisticated the buyer is and how motivated the buyer is to acquire the business. In today’s post I’ll share some of the more common indemnification provisions that can be used to manage a seller’s risk…

As touched upon above, it is a rare transaction in which the seller will have the needed leverage to negotiate a risk free agreement and maintain desired pricing. However if it is post transaction peace of mind you’re seeking as a seller, then you may want to consider the following deal points:

1. Transactional Language: If the buyer’s counsel drafts the purchase and sale agreement it will likely read something to the effect of: “The Seller hereby indemnifies and holds harmless the Buyer for any false statements, omissions, misrepresentations, malfeasance, misfeasance etc. etc…The seller’s counsel will typically respond by attempting to insert mitigating language such as placing “known” in front of false statements, “material” in front of omissions and misrepresentations, replace malfeasance and misfeasance with “fraud” and so on…The buy-side team is looking for broad sweeping language and sell-side team is looking for narrow specific language. Do not allow ambiguity to pervade the terminology used in your purchase and sale agreement as this leaves provisions subject to interpretation. An example would be the use of the word “fraud” as grounds to trigger an indemnification or unwinding provision. While fraud is very difficult to prove, and is certainly better language for the seller than misrepresentation, the use of “convicted of fraud” is even better. Without the use of the words “convicted of” being inserted in front of fraud it is left up to interpretation as to whether an allegation of fraud is enough to trigger the provision. Specificity in language is good for the seller… 

2. Indemnity Cap: While the battle of terminology is important, perhaps even more important is limiting the actual amount of liability by insisting on a liability cap. Avoid the omnibus indemnification clause at all costs.  Many sellers are not aware that it is fairly commonplace to negotiate a cap and therefore don’t even attempt to do so. Caps can range anywhere from a static percentage of the acquisition price, to actual cash that trades hands plus any assumed debt up to the full purchase price. The sell-side goal is to end-up with an indemnity cap at 25% or less of the purchase price.

3. Timeframe Limitations: While point number 2 above talks about limiting the actual dollar amount of seller liability, it is also important to limit the timeframe for which you expose yourself to liability as a seller. As a seller you should never accept liability in perpetuity. Much like with civil and criminal statues of limitations a seller should negotiate a time period certain for the limitation of claims liability. I have always taken the position that after a buyer has had possession of a business for more than 12 months that it would be almost impossible to determine seller liability for anything. Accepting liability for anymore than 36 months for claims deadlines would not be prudent as a seller.

4. Liability Thresholds: Negotiating liability thresholds means that the seller will not have to come out-of-pocket and pay for any buyer losses until said losses have reached an agreed upon amount (the threshold). The theory behind this principle is relatively straight forward in that claims take time and money to resolve and the seller should not be burdened with responding to any claim until the buyers losses have both been proven to be the responsibility of the seller and have reached a meaningful dollar amount. There are numerous ways to negotiate thresholds including the use of baskets, tipping baskets, mini-baskets, deductibles and so on…

5. Double-Dipping: Often times a buyer might be able to recover losses from other third party sources such as insurance companies or they may be able to write-off losses for tax purposes. All sellers should make sure to include a provision which states that the buyer has a duty to pursue all third party offsets prior to making a claim against the seller and that any third party recovery or other offset of losses will be deducted from any amount for which the seller is liable.

6. Self Representation: Many agreements call for the buyer to represent the seller against claims made by third party lawsuits. While this certainly places the burden for potential legal fees on the back of the buyer I question whether the buyer will always provide the best defense for the seller. I would strongly suggest that sellers negotiate the right to defend themselves in third party actions if they so choose.

7. Containment Provisions: Every seller needs what is referred to as a sole-remedy provision. This provision typically states that any legal actions by the buyer to recover losses against the seller must be put forth as an indemnity claim under the purchase and sale agreement and therefore subject to the terms and conditions negotiated between the parties in said purchase and sale agreement. This provision will keep the buyer from pursuing other legal actions and remedies which would not be subject to the any of the limiting provisions negotiated and agreed upon in the purchase and sale agreement.

8. Stay Involved: The best way to mitigate post transaction risk is to stay involved with the business post closing. As a seller, if you keep even a semi-active role in the business post closing you may be able to avert any issues before they become very real problems. Typical methods for staying involved post closing can be as a consultant, advisor, board member, employee or to have representation by proxy at board meetings.

Bottom line…all sellers will be subject to a certain amount of post transaction liability however the terms and conditions of such liability are clearly negotiable. Sleeping well at night and not having to look over your shoulder is well within your hands if you understand how to mitigate your risk within the purchase and sale agreement. Lastly, while I typically don’t answer legal questions via the blog, I felt that this question was material enough to our readers that it warranted an answer. That being said, all transactions are unique and there are also jurisdictional limitations and/or restrictions that may apply based upon the geographic location of the business being sold. It is my strongest recommendation that you seek advice from your tax and legal advisors prior to implementing any advice given in this post.

Today’s Myatt on Monday’s question was posed by a new CEO who asked: “Do you have any tips for first-time chief executives of a start-up company that would allow for a faster and more effective transition?” Virtually all of the advice and counsel I provide to CEOs is just as applicable to first-time CEOs as it is to tenured executives. Moreover, while start-up and early stage companies certainly have unique issues, great executive leadership is really not life-cycle centric. While I could suggest you buy a copy of my book, or read other posts contained on this blog (not bad suggestions by the way), I thought it might be interesting to see how other CEOs would answer the question. In the text that follows, I have provided a variety of answers to today’s question, which have been put forth by a number of different C-level executives and directors… 

“Take a very critical look at your product, how competitors will respond, and why customers are going to give you a chance. The high tech landscape is littered with companies that had great ideas and were even first to market, only to be crushed. Netscape is a great example, along with countless PC companies, dotcoms, and yes even wireless companies. Patents in theory are great, in reality they are easy to get around and expensive to defend, so you can’t hang your hat on that. The bottom line is that founders are rightfully proud of their product, company and strategy; and this often blinds them to the competitive threats in the market place and the challenges of entering/penetrating the market and gaining market share. The best question to ask is why.”
~ CEO of a Service Company

“Retain a CEO Coach…someone who’s been there before and knows how to avoid the land mines that you would undoubtedly uncover if left to your own devices”
~ CEO of a Technology Company 

“All that matters when you are starting is funding. Period. If you don’t have the money backing you, the best laid plans in the first 100 days, or rallying your troops to support your efforts won’t matter. Number one priority should be an excellent member of the team who is LOCKED into the venture community that has done this before.”
   ~ CEO of a Technology Company

“Build a customer value analysis spreadsheet or table that succinctly quantifies the value to a potential customer. If you can demonstrate an overwhelming or compelling customer benefit (e.g. X months payback, Y percent IRR [internal rate of return] etc.), then investors will be intrigued. It’s not the technology; it’s the value it creates for customers, and your ability to defend your unique intellectual property, through patents and trade secrets, that should be emphasized.”
~ Senior Executive of an Energy Company

“I cannot overemphasize the importance of having a skilled and trusted finance professional on your team from day one. I would recommend that you not even make the first phone call to a VC or Angel without this person in place (either a full time or trusted contractor/CFO for hire type). Second, you must get referenceable customer traction (installs and most importantly revenue, however little) as soon as possible. Third, from day one, make sure you build a workable/trusted alliance with the founders and that they are in agreement that you ’are‘ the CEO both outside and inside the company.”
~ CEO of a Software Company

“You need to take some fast actions on low-hanging fruit to show the organization and team that you are quick on your feet and a decisive leader. They (your new team) all know the low-hanging fruit, pick some. And as the CEO, you are responsible for the Corporate Culture, so make it clear early on what type of culture you are driving.”
~ CEO of a Telecom Company

“Talk to everyone in the organization and in the industry as soon as possible; deliver bad information immediately (and don’t try to ’spin‘ it); and remember to breathe!”
~ CEO of a Consumer Services Company

“1. If you haven’t already, draft a ‘first 100-day’ plan.
2. Start-ups and early stage companies are fun to run; but you need to move quickly….constantly work at creating a higher sense of urgency — even when you think things can’t possibly move any faster.”
~ President of a Media Company

“In the start-up operation, it is very important that you do the ‘SWOT’ analysis (Strength, Weakness, Opportunities and Threat). Moreover, a pilot run based on a predetermined period would unfold all the problems related to your start-up operations. Isolate them, and find solutions and alternative methods to address the same and move forward. The key is to have a positive cash-flow at the end of the first year.”
~ President of an Apparel Company

“Surround yourself with trustworthy people as quickly as possible. With so many decisions to make in a short amount of time, you will often have to move forward without having all of the information you would want. This works best when you can tap into people who have relevant, specialized expertise and are not afraid to challenge your thinking, while at the same time have demonstrated a commitment to making the overall business successful (not just about themselves). Then you will be more likely to make fewer critical mistakes.”
~ Senior Executive of a Biotech Firm

“Understand the culture and the current people who play in that culture. I found that some have hidden agendas that will undermine what you were brought in to accomplish.”
~ Senior Executive in the Food and Beverage Industry

“You need to be a good listener. Hear what your people have to say about what is working and what is not. Make them feel that they are part of the change process and you will have their buy-in along the way. Create an action agenda that outlines clearly where the company is going and what needs to get done along the way to achieve the desired results and continue to keep people updated on the company’s progress.”
~ Senior Executive of a Pharma Company

“Make sure you have a clear understanding of the priorities of your Board of Directors, both individually and collectively, and establish good frequent dialog with them. No matter how brilliant your action plans and strategies, you must be in alignment with your board’s expectations and priorities to be successful as CEO.”
~ Managing Partner, Private Equity Firm

“Take some private time. Don’t let the job define you.”
~ Senior Executive of a Telecom Company

“One sure way to win respect and loyalty is to find out what the key priority of the team was that was dismissed by the former CEO. If there is any kind of consensus that the company was being held back in an area by your predecessor, you can look like a hero; show that you listen to and value your subordinates’ ideas, and there is a good chance that they are right and the company will pick up in performance.”
~ CEO of a Marketing Company

“Leadership is the key attribute for ensuring success as a CEO; and leadership, in my opinion, is very much driven by one’s ability to manage expectations of the numerous constituencies a CEO must deal with — employees, board members, investors, strategic partners, community, industry associations, etc. To accomplish this requires clear and precise communications with all, combined with the ability to adjust your/their expectations as critical information is obtained, assessed and addressed.”
~Senior Executive of a Financial Services Firm

“My advice would be to develop your personal networks while in the CEO position, to have a support system outside the company, and to develop a net in the event that the position does not work out to your expectations.”
~Director of a Phara Company

“It is all about expectations! Or, more to the point, the difference between expectations and reality. Try as we might to control the reality of our surrounds, it is far easier to control (or at least moderate) the expectations.”         ~ CEO of an IT Consultancy

“If possible, a few days before you actually start, have the HR person or CFO hold a short meeting of all your direct reports to be; the person controlling the meeting asks, ‘What do we want to know about John/Jane Doe?’ The second question asked is, ‘What do we want him/ her to know about us as a group?’ The third question is, ‘What do we want him/her to do for the company?’ The fourth question is, ‘What do we want him/her to do for us as a group?’ The responses are noted and presented to you when you first take the chair. It can be quite surprising what comes out of these questions asked when you are not there and may never know (at least for sure) who asked what, unless the one raising the question tells you.  The one critical point is that when you reconvene the group to give them your answers, to be done within 72 hours of your start, you are totally honest and candid, as you will be measured against your initial statements. This does not mean that actions cannot be flexed from the initial statement but do them with recognition of what you said and give comment as to why, so all can understand; it helps the trust factor significantly. Obviously the objective is to shorten the learning period in a structured way, and for me it has always proven beneficial.”
~ CEO of a Manufacturing Company

“1. Meet with your board members individually (typically over lunch or dinner).
2. Find a very good mentor.
3. Stay calm, stay cool, stay collected.”
~ CEO of a Bank

“It is all about making money! Nothing more, nothing less. You’re in because they made a bet that you will make them more money than the other guy. You’re out because you did not make very much money for them. Don’t ever forget that.”
~ CEO of a Professional Services Business

“What is success as a CEO? It’s simply this: Living life without fear in your gut (living with peace) and looking back and being proud of yourself for the positive impact you made on people, both high and low in rank. You see, it’s all about your attitude and how people see you. What’s inside can be contagious.”
~ CEO of a Manufacturing Company

“Do not hesitate to make a decision. Hesitation or being indecisive will become rampant in the organization. Do not be shy about laughing at yourself in front of others. Never compromise your personal ethics and beliefs. Finally, know when it is time to go home. It is a job.”
~ President of a Manufacturing Company