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Your Business Life Cycle

From the moment you make the decision to set up a business, you’re in the “business lifecycle.” This lifecycle will see your journey go from idea to startup, to the growth and maturity phases, and finally if all goes well, to a successful exit.

Starting and growing a business has multiple challenges. As we look at each of the stages of the business lifecycle we will see a unique set of obstacles to deal with and overcome. You will have to be flexible in your thinking and adapt your strategy as you move along. Indeed, different approaches are required for market penetration versus, for example, what may be required to achieve growth or retain market share.

According to the recent Startup Genome Report, an estimated 90% of those startups that fail do so primarily due to self-destruction. It was their founders’ own bad choices or lack of preparedness rather than so-called “bad luck” or market conditions that were out of their control. Understanding your position in the business lifecycle just might help you stay a bit ahead of the game here and defy the odds, as you anticipate the potential challenges and obstacles that are upon you or are on the way depending on what phase you are in or about to transition to.

Simply put, as your business grows and develops, so too do your business aims, objectives, priorities and strategies– and that’s why an awareness of what stage of the business lifecycle you are currently in can be helpful.

Stage 1: Seed And Development
This is the very beginning of the business lifecycle, before your startup is even officially in existence. You’ve got your business idea and you are ready to take the plunge. But first you must assess just how viable your startup is likely to be.
At this stage, you should garner advice and opinion as to the potential of your business idea from as many sources as possible: friends, family, colleagues, business associates, or any industry specialists you may have access to. Ultimately the success of your business will come down to many factors– including your own abilities, the readiness of the market you wish to enter and, of course, the financial foundation in place (how are you going to finance your launch?).
In some ways, this is the soul-searching phase. It’s where you take a step back and consider the feasibility of your business idea, and also ask yourself if you have what it takes to make it a success.

Stage 2: Startup
Once you have thoroughly canvassed and tested your business idea and are satisfied that it is ready to go, it’s time to make it official and launch your startup. Many believe this is the riskiest stage of the entire lifecycle. In fact, it is believed that mistakes made at this stage impact the company years down the line, and are the primary reason why 25% of startups do not reach their fifth birthday.

Adaptability is key here, and much of your time in this stage will be spent tweaking your products or services based on the initial feedback of your first customers. It can even get to the point where you are making so many changes to your offering that you start to feel a bit of confusion. That’s just noise, and the main advice here is to power through the blurriness, because extreme iterations upfront will naturally seem confusing. Rest assured the clarity will once again come.

Stage 3: Growth And Establishment
If you’re at this stage, your business should now be generating a consistent source of income and regularly taking on new customers. Cash flow should start to improve as recurring revenues help to cover ongoing expenses, and you should be looking forward to seeing your profits improve slowly and steadily.

The biggest challenge for entrepreneurs in this stage is dividing time between a whole new range of demands requiring your attention– managing increasing levels of revenue, attending to customers, dealing with the competition, accommodating an expanding workforce, etc.

Hiring smart people with complementary skillsets is necessary to make the most of your company’s potential during this phase, and so any good founder will be spending a lot of time directly involved in the recruitment process.

It is essential that you start to come into your role as head of the company in this stage. While you’ll still be on the front lines often enough, you need to be aware of how your expanding and highly qualified team is going to be taking over a great deal of the responsibilities that were previously tightly under your control. It is your job now to start establishing real order and cohesion as you mobilize the teams according to clearly defined and communicated goals.

Stage 4: Expansion
At this stage you might feel there is almost a routine-like feel to running your business. Staff is in place to handle the areas that you no longer have the time to manage (nor should you be managing), and your business has now firmly established its presence within the industry. Here you might start to think about capitalizing on this certain level of stability by broadening your horizons with expanded offerings and entry into new geographies.

Businesses in this stage often see rapid growth in both revenue and cash flow as the blueprint has now been established, but be warned about getting too comfortable. In business, if you are not moving forward you are moving backwards, and without a constant, almost nervous itch or desire to expand, complacency can set in, and you might get caught off guard.

There are, of course, two sides to this coin, with the other involving a risk of expanding too carelessly. While there is no crystal ball and it is very hard to get an idea of what will be the results of your undertakings, you can give yourself the best possible chance of continued success through careful planning. Look at your resources, be realistic about the effort and cost and potential returns, and always keep an expert eye on how expansion might impact the current quality of service you provide your existing customers.

Remember, while having a successful business model behind you is undoubtedly an advantage, it is not a guarantee that it will work elsewhere within other markets, or that new offerings will result in the same success. The business graveyard is littered with organizations that took on too much and failed. Your task is indeed to take on new challenges as you look to constantly expand, but measure your risk and do your best to secure the company for all eventualities.

Stage 5: Maturity And Possible Exit
Having navigated the expansion stage of the business lifecycle successfully, your company should now be seeing stable profits year-on-year. While some companies continue to grow the top line at a decent pace, others struggle to enjoy those same high growth rates.

It could be said that entrepreneurs here are faced with two choices: push for further expansion, or exit the business. If you decide to expand further, you will need to ask yourself the same questions you did at the expansion stage: Can the business sustain further growth? Are there enough opportunities out there for expansion? Is your business financially stable enough to cover an unsuccessful attempt at expansion?

And, perhaps most importantly, are you the type of leader who is up for the task of further expansion at this stage? In fact, many companies change leadership here, bringing in a seasoned CEO who is more fit to navigate the new challenges.
Many at this stage also look to move on through a sale. This could be a partial or full sale, and of course depending on the company type (for example, public or private), the negotiation may be a whole new journey in itself.

Navigating The Business Lifecycle
Not all businesses will experience every stage of the business lifecycle, and those that do may not necessarily experience them in chronological order. For example, some businesses may see astronomical growth right after startup, and the founders may decide to cash out right away, jumping straight to that “exit” stage.
For many companies, though, there will be some sort of resemblance to the stages defined above, and awareness may help you anticipate what is coming next and how you can best prepare yourself and your team to maximize your chance of success. Making the right decisions at each stage is another thing altogether, however, and that will require your usual mix of gut instinct and practical business sense.

Contributions to this article are primarily from
NEIL PETCH the Chairman at Virtugroup.

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Servant Leadership

This is a CFO Business Partner review of the book Servant Leadership: A Journey into the Nature of Legitimate Power & Greatness by Robert K. Greenleaf

This book was written out of a concern for students that seemingly had no hope of change in the institutional leadership. Secondly, the author had a desire to influence both leaders and followers to serve willingly with skill, understanding and spirit. This was brought out by an overarching concern for the total process of education of leaders. Mr. Greenleaf was observing an indifference to what makes up a leader beyond the mere intellectual preparation.

The author goes on to define a servant leader as one who has a natural desire to serve first. With this desire to serve as foremost the leader then takes the initiative to move forward with the ideas and structure down a path for the good of those he is leading and the organization he is a part of. The servant leader is a good listener and has a desire to understand the issues and concerns of his followers. He accepts the individual and empathizes with his position, even though the performance itself may be subject to correction. The servant leader operates with foresight, awareness and perception in leading an organization forward.

While most of the discussion on leadership and servant leadership centers on individuals, Mr. Greenleaf contends that institutions often are the medium that servant hood is carried out. “If a better society is to be built, one that is more just and more loving, one that provides greater creative opportunity for its people, then the most open course is to raise both the capacity to serve and the very performance as servant of existing major institutions by new regenerative forces operating within them.” (62) His focus is on three primary types of institutions: churches, universities, and businesses. His main focus is on the structure of leadership. He proposes that both the trustees as well as top leadership in organizations should be structured as a team of peers. They would be led by a primary leader, but this leader would have no more authority then anyone else on the team. He also believes that the Trustees of an organization must take a much more active role in servant leading.

As with any theory or philosophy, challenges always arise when theory meets practice. In an ideal world everyone would be eager to serve one another. Those leading would always have the best interests of others in mind and those being led would willingly submit to any servant leader that steps forward. Institutions would rise with the ethos of servant hood and Trustees would spend time serving in their capacity because they love the organization and the people they serve. The reality is we live in a world that is often rife with greed, jealousy and self-centeredness. Many leaders are corrupted at least partially by power, and will often times have a self-advancing agenda as a motive to lead as a servant. Yet, I believe that many of the principles put forward are valid and should be the expectation we have of our business leaders.

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CFO Book Review “Getting Naked” by Patrick Lencioni

If you, or your company interacts with a customer base, you inherently know that low prices and a quality product no longer guarantee success. Customers have more options than ever, and they’re using this leverage to look for something more. They want an experience; An interaction that goes beyond a simple transaction. They want to build relationships with their brands. We’re entering a world of professional intimacy that harkens back to the days of “Small Town USA”, days when the neighborhood butcher knew not only what cut of beef a customer preferred, but the names of their kids as well. We built relationships with our vendors and customers because we inherently knew that people do business with people they like, people they trust, people they know.

In Getting Naked, Lencioni teaches how to exemplify the one core trait that builds professional relationships faster than any other. “Without the willingness to be vulnerable, we will not build deep and lasting relationships in life.” Getting Naked is a book about the very real value of breaking down the walls so many of us put up when interacting with our customers and, instead, connecting with them on a human level. It’s a book about being comfortable being wrong, about worrying about the customer first, and our own ego second.

There are many lessons to be gleaned from the book. However, the lesson that stands out most prominently is that clinging to our ego prevents us from achieving our greatest business successes. Lencioni’s fictional Lighthouse Partners relies on its partners and consultants showing vulnerability and complete transparency to their clients, with the result being that they charge the richest fees in the industry, achieve the highest profitability and create unprecedented client stickiness, while minimizing the time spent on “pitching” business.

The way that Lighthouse’ consultants showed up with clients reminded me of the qualities of Level Five leadership, as detailed in Jim Collins’ book “Good to Great.” Whereas Level Five leaders “are ambitious for their company, not themselves” “naked” consultants are ambitious for their clients, not their selves, always putting their client’s interests before their own. Level Five leaders “display a compelling modesty, are self-effacing and understated.” The “naked” consultants of Lighthouse Partners check their egos at the door, when they show up at a client site.

At the end of the day, being a good service provider is simply a matter of focus. Are you focused on the best interests of yourself, or of the customer? Being focused on the customer means making some difficult choices; choices that could in fact hurt you. The irony, of course, is that working in the best interest of the customer is always the right decision and, more often than not, will reward you in ways you never would have experienced had you chosen the self-preservation mode instead. Just like personal relationships, magical things happen when you open up to the people who are important to you, and act in their best interest first. Getting Naked may be a business book, but I think it’s also a great reminder for all the relationships in our lives – professional and otherwise.

In the last chapter of the book, titled “The Model”, Lencioni summarizes the principles of “naked” consulting which center around the three fears that prevent us from building trust and loyalty with our clients. Below are the three fears and specific actions that a “naked” service provider can take to achieve client loyalty.

1. Fear of Losing the Business – What clients want more than anything is to know that we are more interested in helping them than we are in maintaining our revenue sources.
a. Consult, don’t sell.
b. Give away the business
c. Tell the kind truth.
d. Enter the danger.

2. Fear of Being Embarrassed – Naked service providers are so concerned about helping a client that they are willing to ask questions and make suggestions even if those questions and suggestions could turn out to be laughably wrong.
a. Ask dumb questions.
b. Make dumb suggestions.
c. Celebrate your mistakes.

3. Fear of Feeling Inferior – Naked service providers not only overcome their need to feel important in the eyes of their clients, but also purposefully put themselves in a lower position.
a. Take a bullet for the client.
b. Make everything about the client.
c. Honor the client’s work.
d. Do the dirty work.
e. Admit your wea

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CFO Book Review – Drive by Daniel Pink

The Industrial Revolution gave the world a new found efficiency in production and distribution in business. This revolution had a profound impact on employees and how they were motivated to produce an ever increasing supply of goods. Our current business operating system, in many ways, remains unchanged from over a hundred years ago.

The primary approach to employee engagement over the years has been built around external, carrot-and-stick motivators. Science has long recognized that humans respond to rewards and punishments in our environment. However history suggests that this approach in business doesn’t usually work long-term and in many cases can actually do harm and become counter-productive.

Daniel Pink expands on the research of behavioral scientists of the last few decades that have discovered a different human drive. Motivation in the past has been fueled more by extrinsic desires than intrinsic ones. Motivational behavior was concerned more about external rewards to which an activity leads rather than the inherent satisfaction of the activity itself.

Daniel Pink suggests that business today needs to take a different approach. This new approach has three essential elements: Autonomy, Mastery, and Purpose.

1. Give Employees Autonomy
By nature, humans want to be “autonomous and self-directed.” Pink suggests empowering employees to explore new ideas, allowing them to work flexible schedules, giving them a say in hiring new talent, and letting them decide how they want to tackle a problem.

2. Give Employees Mastery Opportunities.
Pink says “making progress in one’s work turns out to be the single most motivating aspect of many jobs.” You can help employees achieve a sense of progress by working closely with them to assign tasks that match their skill levels, so employees are neither anxious nor bored.

3. Give Employees a Sense of Purpose.
“Humans, by their nature, seek purpose—to make a contribution and be a part of a cause greater and more enduring than themselves,” says Pink. You can fulfill your employees’ sense of purpose by making community service part of your corporate culture. Try organizing in-office food drives, or inviting the team to spend a day volunteering.

This new motivational drive, if business owners understand and can tap into, will strengthen our companies, elevate our lives, and improve the world.

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Cash Conversion Cycle – Big Companies Squeezing the Little Companies

One of the more interesting business phenomena of the past decade has been the flow of cash in and out of large corporations. A metric called the cash conversion cycle looks at the amount of time needed to sell inventory, the amount of time needed to collect receivables and the length of time the company is afforded to pay its bills without incurring penalties.

At department store chain Macy’s, it’s 71 days; at the legendarily efficient Wal-Mart, 12 days; at Costco, with its limited inventory and super-fast turnover, it’s just four days; at Amazon, the cash conversion cycle was negative 24 days in 2014. That is, on average the company took in cash from customers 24 days before it paid it out to suppliers.

How does Amazon make this happen? Here’s the explanation that the company gives every quarter in its earnings reports:
“Because of our model we are able to turn our inventory quickly and have a cash-generating operating cycle. On average, our high inventory velocity means we generally collect from consumers before our payments to suppliers come due.”

The reality is Amazon’s inventory turns is the same as Wal-Mart’s at 45 days, and is higher than Costco’s 30 days. What explains why its cash cycle is negative compared to Wal-Mart and Costco is how long it takes Amazon to pay people. Amazon’s average Days Payable Outstanding is about 90 days, meaning it takes an Amazon supplier 90 days on average to get paid for a sale they made to Amazon. Costco and Amazon are between 30 and 40 days.
Amazon is clearly making a choice to boost its own cash flow by making life harder for its suppliers. Unfortunately for the small business, other large corporations are taking notice and working hard at reducing their own Cash Conversion Cycles. Delaying payments to suppliers is becoming fashionable according to Stephanie Strom as reported in the New York Times in April 2014.
In the past, extended payment terms often were a signal that a company was experiencing worrisome cash flow problems, but these days big, robust companies are imposing new schedules on suppliers as a business strategy, analysts say.

The suppliers who have to deal with these extended payment terms tend to be smaller and have fewer resources than the companies delaying payment.
“Eventually,” said V. G. Narayanan, chief of the accounting practice unit at Harvard Business School, “the additional financing costs that suppliers incur because they aren’t being paid promptly work their way back into higher prices for consumers.” The practice is often crippling for suppliers, especially smaller businesses that have little cushion. Banks have tightened up lending, especially to small businesses, so it becomes even harder to manage. You still have a payroll to make, your own suppliers to pay, electric and other utility bills — they can’t wait four months for payment.

“I think the whole idea is very bad,” Professor Narayanan of Harvard said. “They essentially are going to their suppliers for credit, rather than their banks — and for big, creditworthy companies like these, that’s ridiculous.”

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How Much Cash Reserve is Enough?

”Cash is King” is the mantra of many small business owners. It is true that cash is the fuel that makes a business run. It is needed to pay salaries, fund marketing programs, acquire and retain new customers, invest in equipment and facilities, pay rent, supplies and the many day-to-day activities of a small business. But how much is enough? When does is make sense for the small business owner to share the wealth with key employees or take a distribution from the business? This blog will give some insights into figuring out how much cash to have in reserve.

Most financial experts recommend three to six months of operating expenses, but using this for every business in every situation is misleading. Regulating cash flow isn’t just about quantity. It’s about having enough cash at the right times. Having enough cash in Week Four doesn’t help when you don’t have enough cash to cover payroll in Week Three. Consider the following three key areas to help determine how much cash you need.

1. How Much Cash Have You Been Using?
Run monthly cash flow report from your accounting software. This report will provide an historical and seasonal perspective. Note the cash received from sales and the cash spent. Most cash flow reports will show you your net income for the given period and adjust the numbers based on how much cash you received from customers and how much cash you spent on operations; in essence removing Accounts Receivable and Accounts Payable from the equation. The net of these two is often referred to as the “net burn rate.”
Your “gross burn rate” only takes cash expenditures into account and is the more conservative analysis, since it does not assume any sales are made. Historical spending patterns are a good starting point in considering future spending plans.

2. How Much Cash Do You Plan to Use?
Look at the monthly cash flow projection covering the next 12 to 15 months. You should be able to find this information in your monthly budget, or if don’t have a budget, from a financial forecast created for this purpose. As you did with actual cash expenditures in the preceding paragraph look at the sales (cash in) and expenditures (cash out) separately.
Be conservative in your forecast as actual results often differ from what’s stated in your business plan. And keep in mind that expenses are usually more predictable than revenue because many are relatively fixed, such as payroll and rent.
For a small business, the past is not necessarily the best predictor of future needs. You need to consider the stage of your business in your forecasts.

3. What Is the Stage of Your Business?
Are you in start-up, first year of operation, maintaining an ongoing business that stays fairly consistent each month and year, or do you have plans to grow or make large purchases. Each of these will impact the cash forecast discussed above. While an established business may have good benchmarks, a start-up has few benchmarks and the most uncertainty, and thus should be more conservative when setting cash flow needs.
In growing businesses, accounts receivables, and maybe inventory, expand to support the increased sales. But it is often overlooked that you need cash to fuel this growth—you must spend money to generate the sale before the customer remits cash.

How Long It Will Take to Get More Cash?

Now you know your cash needs for the next 12-15 months. The next consideration is how long it will take to get more cash if and when it is needed. If you’re funding the business from your own resources, the time is short. Getting the needed funds likely means writing a check from a bank account or selling a security from an investment account—you might only need three to five days for the cash to be available to use.
However, if you need a bank loan to get cash, it might take two months or longer—one month to find a bank willing to make the loan and one or more months to do the paperwork. This option assumes you have a business plan in almost-ready condition and have maintained good relations with your bank if you have an established business or on your personal account if you’re in start-up mode.

Raising funds from angel investors extends the time considerably. If you go this route, count on six to nine months to prepare the business plan/investor pitch, make presentations to several angel groups to find one that is interested and a good fit, and wait while the angel group conducts its due diligence.

Once you know how much cash you’ve been using, how much you plan to use, and how long it will take to get it, you can determine how much cash you need to keep in the business. For example, if you plan to use a bank loan to fund your cash needs and you plan to spend $50,000 a month then you should probably keep a minimum of $100,000 in your bank account—if you have certain sales revenue occurring in these two months you can reduce the needed cash in the bank by a like amount. However, if you plan on using angel funding then you might want to have $300,000 in your bank account.
Before approaching a bank or angel group, consider some other funding sources

Are There Other Cash Sources?

There are many other sources of cash. For purchases, ask the vendor for credit terms or a longer period in which to pay. For sales, ask customers to pay you in shorter timeframe and offer a discount as an incentive to pay earlier. Other cash sources include increasing your credit card balances, taking out a home equity loan, borrowing from family and friends, tapping into savings and retirement accounts, leasing rather and purchasing equipment—the list goes on. It’s also good practice to have a bank line of credit as a safety net—one that can be dipped into when needed.

When Is the Best Time to Seek More Cash?

A common axiom is that the best time to obtain funds is when you don’t need them. Sounds counterintuitive, but during these times you aren’t desperate to take the only offer made. You have time to shop for the best source, with the best terms, and you can negotiate from a position of strength.

Too Much or Too Little Cash

There are many lists of common reasons for business failures. The two items frequently near the top are undercapitalization (not enough cash) and overcapitalization (too much cash). The first reason is pretty easy to understand. But companies can also get into trouble when they have too much cash, as they often undertake projects, hire staff, buy equipment, move to larger offices, and other such expensive actions, which incur ongoing implications like fixed costs.

Often these decisions are not made with the same planning rigor when cash was tighter. If your company is fortunate to have “excess” cash beyond the forecasted needs, then make a distribution to the owners or a bonus to your employees rather than make a decision that may have far-reaching effects.

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CFO Book Review: Saving the Corporate Soul by David Batstone

823875The image of corporate America has been rapidly eroding over the past years as scandal, greed and layoffs are highlighted on the evening news. In this book the author explores what it takes for a corporation to act and engage in business in a way that aligns with the values of its workers. The author proposes eight principles for a corporation to incorporate into their operations that will create an environment that not only will help it operate in a values-based way, but in most cases help it excel financially over the long haul. The author also addresses the common challenge in how to measure the results of doing “good”. Most senior managers have a desire to operate corporations with integrity and fairness, but have a difficult time justifying fairness and integrity decisions based on a measurable outcome. The author holds forth that a principled company will maintain and enhance its reputation which creates an environment much more conducive to gaining new customers. In addition, a principled company will reduce its liability exposure when it comes to lawsuits, both from a product perspective as well as from an employment perspective. Lastly a principled company will better manage the networks that it is involved in.

Each of the principles that are mentioned, are followed with examples of companies that are following and implementing the principles mentioned. The first principle is for the executive leadership to align their personal interests with the interest of all the stakeholders. Leadership matters in setting the direction of a corporation, but it is also critical that the top leaders also set the example from an integrity and ethical perspective. The second principle is for a company to be transparent about its operations. Each decision that is made should be able to stand up to public scrutiny. There will always be detractors, but with adequate explanation a decision should be able to make sense to the average worker of the company. The third principle is for the company to consider itself an active part of the community. As a company looks at the community as more than just an economic market, as well as being an active citizen that is interested in the wellbeing of the community, good things happen. The fourth principle is for the company to represent their products honestly and be proactive in caring for their customer. This customer care goes beyond just delivering a product and collecting a check. The fifth principle is to value and treat employees as a partner and team member in the success of the business. The sixth principle is to treat the environment as a stakeholder. The seventh principle is to strive for a diverse and balanced employee, customer and vendor base. The eighth principle is for companies that pursue international trade to be aware and sensitive to worker’s rights and justice issues in other countries.

This book was written to encourage the corporate worker to consider how he/she can use the position, talents and influence that he/she has to create an environment that allows for a sense of significance. The author puts forth antidotal evidence that a worker doesn’t have to be the CEO to affect change in a company. The author wants the reader to consider how he/she doesn’t have to feel trapped in an environment that puts his/her integrity at risk. If a worker operates within his/her own sphere with integrity and encourages the leadership of the company to follow the eight principles that were laid out then change can happen. These principles also provide a measurement tool for the worker to determine if the company he/she is working for is making progress in implementing these principles into the operations of the company. Ultimately, if the company isn’t operating with integrity in these areas, and doesn’t appear to be working toward change, then this can provide cause for the worker to begin to search for the company that is operating under these principles.

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Whatever Happened to Corporate Stewardship – Rick Wartzman

In November 1956, Time magazine explored a phenomenon that went by various names: “capitalism with a conscience,” “enlightened conservatism,” “people’s capitalism,” and, most popularly, “The New Conservatism.”
No matter which label one preferred, the basic concept was clear: Business leaders were demonstrating an ever increasing willingness, in the words of the story, to “shoulder a host of new responsibilities” and “judge their actions, not only from the standpoint of profit and loss” in their financial results “but of profit and loss to the community.”
I decided to dig out this piece and reread it after news broke this week that Burger King is buying the Canadian coffee-and-doughnut chain Tim Hortons for about $11 billion. Once the acquisition is complete, Burger King plans to move its headquarters north of the border, where the statutory tax rate is lower than in the United States, in a maneuver known as an inversion.
The company has denied that it would get much, if any, tax relief from the deal and insists that it is acquiring Tim Hortons for a legitimate strategic reason—namely, to accelerate expansion in a super-competitive industry.
In this case, the Home of the Whopper may well be telling the truth. Yet whatever Burger King’s actual motivation, it’s not surprising that some people have reacted strongly, condemning the company as a “traitor” and urging a boycott of its restaurants. What they’re really responding to, deep down, is a growing sense that most American corporations care (to use Time’s phrasing from 1956) only about the profit and loss on their income statement, but not about profit and loss to the community.
Back when Time published that essay, big companies prided themselves on taking care of a full range of constituents: their shareholders, yes, but also their customers, their suppliers and their workers. Indeed, most large employers, as well as many smaller ones, began in the 1950s to forge a social contract with their employees that would solidify over the next decade or two: rising wages, guaranteed pensions, good healthcare benefits and stable jobs.
Like their 21st century successors, top executives of the ’50s weren’t typically fans of Washington playing too large a role in the economy. Implicit in the corporate social contract, in fact, was the view that most working people would find the security they were looking for as participants in the private sector, not as wards of the public sector. Companies practicing what was once called “welfare capitalism”—not the welfare state—would meet the bulk of their needs.
Nevertheless, Time asserted, “the majority” of businessmen in the Eisenhower era had come to realize that government “welfare programs help store up purchasing power in the hands of the consumer.”
“Unemployment compensation is desirable,” the magazine quoted Gaylord A. Freeman Jr., vice president of the First National Bank of Chicago, as saying. “Social legislation can add to the totality of freedom, increase the dignity of the individual.”
Few if any businesses—then or now—would willingly shell out more to Uncle Sam. General Electric, for instance, crusaded 60 years ago against what its president, Ralph Cordiner, termed “excessively high taxes.” But the company, which famously touted trying to serve the “balanced best interests” of all its stakeholders, also made a point of paying what it owed “with no bargains asked,” as GE vice president Lemuel Boulware put it. This, he said, was part of being “a good corporate citizen.”
Make no mistake: GE, where Ronald Reagan shaped much of his Washington-is-the-problem ideology as a corporate pitchman for eight years beginning in 1954, wanted smaller government. Still, it wouldn’t have dreamed of not paying its share.
Today, by contrast, GE does all it can to escape taxation, in large part through “innovative accounting that enables it to concentrate its profits offshore,” as the New York Times characterized it. And it is hardly alone. The Senate Permanent Subcommittee on Investigations has exposed how Microsoft, Hewlett-Packard, Apple, and Caterpillar, among others, have all used various tax-avoidance strategies.
Of course, the social contract between employer and employee began to fray in the 1970s, and it has since been totally ripped apart. Myriad culprits are to blame, including rapidly advancing technology, heightened global competition, the weakening of unions and, perhaps more than anything, a horribly misplaced mindset that has elevated stockowners above all other groups.

“For some time now,” says David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, “the ‘shareholder uber alles’ mantra has been crowding out the old-fashioned stakeholder notion.”
What sometimes gets lost in the discussion, though, is that this shift hits employees and communities not only directly but indirectly. The very same forces that have shredded the corporate social contract—once a robust private safety net—have also driven companies to deploy every possible tax shelter, thereby cutting their contributions to the public safety net. In all, the Tax Policy Center cites estimates that “nearly $1 trillion is held by U.S. corporations abroad, accumulated over time from booking income in low-tax countries.”
It is easy to overly romanticize 1950s corporate America. People of color faced terrible workplace discrimination at that time, as did women. Late in the decade, many big companies hardened their stance against organized labor, hastening its steep decline. Business culture could be rigid and stifling—the world of The Organization Man. Fear of communism and socialism, as much as altruism, was often at the root of corporate generosity.
But for all the faults of that period, an ethos has been lost. The University of Michigan’s Mark Mizruchi, in his book The Fracturing of the American Corporate Elite, describes it as “concern for the well-being of the broader society.” Notably, Mizruchi points to the 1956 Time article as a good representative of the ideas that then “dominated in the corporate discourse.”
“The majority of Americans support private enterprise, not as a God-given right but as the best practical means of conducting business in a free society,” pulp and paper executive J. D. Zellerbach told the magazine. “They regard business management as a stewardship, and they expect it to operate the economy as a public trust for the benefit of all the people.”
I think Zellerbach’s observation about what the American people expect of business remains essentially true in 2014. What has changed is the way that so many companies have turned so far away from this philosophy. That change makes Time’s portrayal seem like it’s not just from another age but from another planet.
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Rick Wartzman is the executive director of the Drucker Institute at Claremont Graduate University and anonline columnist for Time

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Why CFO Business Partner

The tagline for CFO Business Partner is “Stewarding Profits, People, Partners, and Places.” Over the course of the next few months I will be expanding on this theme and providing you with insights into what this tag line means to me, and how I am using this passion to help businesses flourish. In the meantime, below is a one page overview of who CFO Business Partner is and why a business might engage with CFO Business Partner.

Why does CFO Business Partner exist?

Small business is the backbone of our country’s economic engine. When business flourishes, the community surrounding that business flourishes as well. It is my passion to do my part in helping your small business flourish, so that our communities flourish along with you.

Who is CFO Business Partner?

Art Zylstra is your principal trusted advisor for strategic financial oversight of your privately held business. Art has over 30 years of experience working with small businesses in a variety of industries as their Accountant, Controller, and CFO.

What makes CFO Business Partner unique?

CFO Business Partner fills a unique market need for your small privately held business. With CFO Business Partner you get the expertise of a strategic CFO, the disciplined oversight of an experienced Controller, and the “roll up your sleeves” work ethic of someone who does what it takes to get the work done, all rolled into one package at an affordable price.

Who is an ideal client for CFO Business Partner?

CFO Business Partner excels with businesses that are growing and have between $1 million and $5 million in annual revenue, or 5 to 50 employees.

How do I know if CFO Business Partner is right for me?

The first step is to have a no-pressure introductory meeting with Art. Art will ask you about your business and the various day to day challenges you face as an owner. If we both agree that a potential match exists, then Art will move forward with a complimentary, yet comprehensive, financial analysis of your business. This analysis will include recommendations on how CFO Business Partner might assist you in achieving your financial goals.

Who are some of the clients that CFO Business Partner is helping now?

Seattle area coffee roaster; Seattle area commercial balancing service; Eastside game manufacturer and distributor; Eastside insurance and financial planning firm; North King County estate guardian and trust company; East King County asphalt and concrete company; East King County software developer and reseller; Southern California non-profit.

How do I contact CFO Business Partner to see if this is the best option for my company?

Art can be contacted by phone, email, website, or LinkedIn – 425-931-3430; ArtZ@CFOBusinessPartner.com; www.CFOBusinessPartner.com; www.linkedin.com/in/artzylstra/

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