Marketing Begins in the Past

We have all heard the following sayings.  “It’s a small world” and “Reputations take years to build and minutes to destroy.”  These truisms are particularly relevant for professionals working as independent contractors.  Today’s job will be tomorrow’s past job.   With these thoughts in mind, contractors increase their marketability by following a few simple rules.

 Make smooth transitions:  If you are offered a permanent job with another company, it is professional courtesy to give your current employer two weeks notice.

Keep the firm your are working through informed of any changes in the scope of the engagement or any changes in the political environment.  This is for your benefit so that the staffing firm you are working for can help you achieve your personal career goals and help mitigate any possible challenges in a changing environment. 

Document your current assignment duties and successes.  These are the heart of your resume.

Remember you were hired for your expertise.  Each day assess what problems you can solve to make the process smoother.

Be respectful of your immediate managers and peers.  Do not insert yourself into company politics.  You are a neutral party that has more to lose in the long by choosing sides.  No matter what the fight, it is not yours.  The people on both sides of a political issue are your references for your next career step.

 Avoid the appearance of handling personal business on company time.  No checking personal e-mails or excessive cell phone use.  The company is paying you by the hour and expects your full attention to the task at hand.

Even if you hate the assignment and cannot image working another day at the company, it is still important to give two weeks notice.  Contractors who just decide to not come in the next day create an image of irresponsibility and are not likely to be placed as quickly as the contractor who conducts business as a professional.  Always contact the staffing firm you are working through when difficulties arise.  They may be able to extricate you out of the situation sooner without burning bridges or may be able to help resolve the problem that is the cause of concern.

Please feel free to contact Tracy Levine, President, Advantage Talent, Inc. if you have further thoughts or questions.

Did “Fat Finger” Syndrome contribute to Thursday’s market plunge?

By: Tracy Levine, President, Advantage Talent, Inc.

Thursday the stock market dropped 347.8 points by closing.  During the day, the stock market had plunged even lower, almost 1,000 points.  The world news alone does not explain this huge plunge.  Yes, there looks like there might be a hung parliament in the U.K. with no decisive winner and Greece’s economy has crashed.  All of this is old news.  Back in December political watchers were predicting that there would be no clear victory in the Parliamentary elections.  The news about Greece’s economy came out last week.  It is to be expected that the stock market would be affected by these events but not to the degree it was on Thursday.

Wall Street Veterans are blaming it on “Fat Finger” Syndrome.   “Fat Finger” Syndrome is when a trader makes an error in keying in a quantity or presses the wrong button. According to CNBC, the spotlight has been focused on a Citigroup trader who has been accused of having “Fat Finger” Syndrome and keying in the wrong number.  Over the years sophisticated computer trading systems running algorithms which trigger trades under preset conditions have become the norm at many Brokerage Firms.  Many believe that the Citigroup Trader’s supposed “fat finger” mistake contributed to Thursday’s huge market plunge and triggered automated trading by these algorithm programs.  Purportedly, the trader meant to key in a $16 million futures contract but instead typed in $16 Billion.  Citigroup has denied that a trader at their firm had made an error while keying in a trade.

It is surprising that something like this has not happened sooner.  In reality computer trading over the past twenty years has affected the markets.  Thursday’s supposed “fat finger” mistake only served to magnify the impact of automated trades on the stock market.   As Washington looks at financial regulation reform, it will be interesting to see if anyone will address the impact that one human error can have on the market in this age of fast, market responsive computer generated trading.

Post Update: May 07, 2010 est.—The following new articles contain more information and speculation about what happened on Thursday.  There is a debate over whether this was human error or a swing caused independently by computer trading.  Either way it caused investors to take notice yesterday.  The debate will continue as the incident is investigated further.

Did a Citibank Traders Error Worsen the Market Collapse? By Sam Guston http://www.dailyfinance.com/story/investing/did-a-citigroup-traders-error-add-to-market-collapse/19467905/

NYSE & Nasdaq’s 60% Cancellation Mystery: http://www.cnbc.com/id/37019184

Trading System May Have Dangerous Flaw: http://www.cnbc.com/id/37016611

The Blame Game: NYSE vs. Nasdaq:  http://www.cnbc.com/id/37017292

2010 Proxy Season Voting Rule Changes and impact to the CFO

By: Tracy Levine, President, Advantage Talent, Inc.

The big news this proxy season is the SEC’s vote to prohibit brokers from discretionary voting of stock the firm holds for their clients, in Board Elections.  Shareholder Advocates see this as a hard won victory that has been in the works since 2006.  Corporations worry that the new rule will be disruptive to the functioning of Corporate Boards and the Proxy Process.  For many years there has been a fight brewing with large activist shareholders and corporations.  Corporations have been mostly successful in keeping shareholder activists’ candidates out of the Proxy and off of the Director Slate.  Campaigns to change the rules have mostly been unsuccessful.  With the SEC approving the amendment to NYSE Rule 452, the activist groups may have achieved their goal in a roundabout way. 

A.) What does this new rule mean to a CFO?  In most companies the CFO is ultimately responsible for all SEC filings, including making sure that the proxy is mailed out to shareholders on time for the Annual Board Meeting.  This process has been getting easier with the advent of e-Proxy Voting.  In the past, the proxy votes were tallied to see if there was a quorum to elect the typically unopposed slate of Directors.  With the success of blocking non-management nominees from the slate, the activist shareholders were left with two choices: (1) Wage an expensive legal battle or (2) Vote no or withhold votes for the proposed slate.  Voting No or withholding votes most of the time did not effectuate change.  Brokers typically cast their clients’ votes with management.  It was not their job to be activists.  Therefore, the corporation was able to fairly easily reach a quorum for their chosen slate.

With the amendment of NYSE Rule 452, corporations may not be able to get a quorum as easily as before when activist shareholders choose to vote no or withhold votes.  Corporations can no longer depend on the Brokers to be the deciding vote and the votes used to reach a majority quorum.  CFOs may have to start to budget more money to send out more notices to garner shareholder votes in order to reach a quorum.  It could be a very expensive exercise.  Complicating this issue is the new access to E-Proxy voting.  It is cheaper for the company but so far shareholder voting has not gone up but instead has gone down with the transition to E-Proxy Voting.

 B.) What does this new rule mean to a CFO?   Numbers, Numbers, Numbers.  Now all shareholders will be holding management more accountable on a quarter to quarter basis.  Management may be in the untenable situation of being afraid to carryout good long term strategic plans because in the short term the plan does not produce immediate results or has a temporary negative impact due to implementation costs.

C.) What does this new rule mean to a CFO?   On the positive side, CFOs who have been in the position of having to tell the CEO and Board of Directors….NO, now have a powerful ally in the shareholders.

For a good summary of how the Amendment to NYSE Rule 452 may affect your corporation read:  Willkie, Farr, & Gallagher, LLP: Discretionary Voting by Brokers Prohibited in Director Elections

Read the SEC Announcement at http://edgar.sec.gov/rules/sro/nyseamex/2010/34-61292.pdf

A Shift in the Burden of the Liquidity Crunch

Liquidity is tight.  CFOs are doing whatever they can to keep a reserve of ‘dry powder’ cash.  This includes stretching account payables as far as possible, even if it means alienating some long term vendors.  Many vendors have been slammed by a surge of unpaid bills.  Now these same companies are receiving notifications that customers are going to take longer to pay.  The following is typical of the wording included:

“We are changing our payment policy to 90 days effective (Month/Day), 2009. Please plan your cash flow requirements accordingly.”

                With these two simple sentences, the CFO of one company is effectively sharing the credit pressure with another CFO.  Changing the payment policy puts additional pressure on the vendor to increase their bank borrowings and to increase the timeframe in which this company takes to pay their vendors. An end to this cycle does not seem to be possible in the near term, as the economy continues to experience negative momentum.  As a result the accounts receivable DSO (days sales outstanding) will continue to increase, and an associated increase of time to pay vendors.  To make this less painful for all parties involved, CFOs are taking steps to improve their partnerships by being open as to why the action of stretching the payment cycle is being taken.  Sending a clear message that the steps are not arbitrary and will not be forever goes a long way.

By: Tracy Levine, President, Advantage Talent, Inc.    TLevine@AdvantageTalentInc.com

Dashboards:Managing the Information Flow for Meaningful Strategic Planning

Ultimately, it is up to the CFO to make sure that the financial information that is shared with other members of the Executive Management Team, the Board of Directors or the Private Equity Group accurately reflects the true health of the company and the performance of the company so that relevant strategic planning can be implemented.  To help streamline the information and to have a more timely flow of information, many companies are using Dashboards with varying degrees of success and satisfaction.

A good dashboard delivers information in a customized manner that is tailored to the industry and the individual company.  Effective dashboards all have the following characteristics: 1.) Includes meaningful key performance indicators; 2.) User friendly summaries that are timely and transparent so that management can be proactive instead of reactive in running the business; 3.) Allows management to use a collaborative approach to create best practices; 4.) Effectively and accurately tracks performance indicators, such as, profitability, backlog, cash flow requirements, inventory levels, receivables management, etc.

Some of the red flags of an ineffective dashboard are the following: 1.) Reams of data that provides minimal insight; 2.) Lack of ability for customization which is particularly a problem for businesses that have grown rapidly through acquisitions where each subsidiary is using a different system; 3.) Excessive readjustments to information, incomplete information or incorrect information that renders the reports minimally useful; 4.) Lack of buy in by management of the importance of assuring the information is entered in a timely manner.   Most managers are expected to do more with less time and resources.  They are forced to prioritize their work and filling in the information for the dashboard rarely makes it to the top of anyone’s list.  This is particularly true of sales management which is typically paid on closing deals not on the amount of reports that are filled out.  Getting buy in by others and showing them the value of participating is vital to gathering complete financial data.

Cost Cutting without Sacrificing Human Capital

In the current economy, corporations are asking Senior Management to take a closer look at the bottom line and cut costs.  This creates a koan for the CFO.  The dismal state of the economy has necessitated that corporations eliminate jobs for short term survival and economic health.  A global approach using cold hard numbers and math is the deciding factor on the percentage of jobs that have to be eliminated. 

A common concern among CFO’s is how do you keep from decimating and sacrificing the company’s human capital that will be needed when it is time to turn the company in a positive direction or to support growth when the economy rebounds.

Companies are taking the follow actions to reduce cost without sacrificing the human capital that they had already invested in developing.  The following were some of the steps being taken: 

1.) Reducing work week hours;

2.) Implementing partial month furloughs;

3.) Creating situations where employees can job share; and

4.) Reducing the pay of employees.   

These measures save money for the company while allowing the company to retain more of its human capital.  However, it creates a unique environment that management has to address.  Many employees just see these steps as a precursor to the next reduction in force.  Senior Management needs to clearly communicate their vision for the future of the company and how the employees are an integral part of this success.

Banks vs. other investors including Private Equity Groups and Public Shareholders

We are hearing the following from CFOs and Senior Fiancial Executives.

     Banks are still doing business but in a decidedly different manner than before.  This has created some rather unique situations.  Banks appear to be trying to be proactive and thoughtful in handling what seems to be the next inevitable bump in the road…..the rising corporate bankruptcy rates resulting in corporate loan defaults.

Banks vs. other investors including Private Equity Groups and Public Shareholders

     Many companies have several investors, the bank that provides the securitized loan; the Private Equity Groups who provided seed money along the way and the public shareholders.  Typically, the goals and objectives of these groups are in line with each other in the short run and in the long run.

 

     Most bank agreements contain language that states upon default/foreclosure, the bank has the legal right to replace senior management.  Typically, this standard clause is never executed before the banker pulls the line of credit or the bank, in corporate bankruptcy situations, as the primary creditor just liquidates a company’s assets to recoup money.  Banks are not in the business of running corporations.  In an apparent strategic move banks may decide in some instances that liquidation of assets is not an option because of the current state of the economy and a different strategy needs to be employed. 

 Scenario:

  • A bank may have issued credit to several companies in similar lines of business. 
  • One business seems to have weathered the storm better than their peers and is not currently in violation of the bank covenants and considering the environment seems very likely to be able to survive the economic downturn in the long run and eventually become profitable once again.  The senior management is solid.  However, unless some other source of money from another investor is infused into the company it looks like the company will within a short period of time be in violation of their loan covenants.
  • The second business has already breached their loan covenants and the loan is in default.

     The old ways may in some instances be passed over for a new strategy.  The banker is approaching the company that has strong management with an interesting proposition.   We know that you will probably break your loan covenants during the next quarter.  However, we feel comfortable with Management and want to make a proposal to you.   When the loan covenants are broken, we have the ability to pull your primary source of financing and/or fire everyone in Senior Management.  However, we will let you keep your loan and your job but with one catch.   We are going to be ousting the management of another business whose loan is in default and will be merging this business with your company, leaving you as the Management of the new entity.

     While this may be a proactive solution on the bankers’ side, it is not without side effects for Senior Management, private equity investors or public shareholders.   Senior Management is left to assess how to manage and merge two companies in a successful manner that does not derail the stability of their original business.  The private equity groups and shareholders are left with their investment significantly diminished, and a company unrecognizable when compared to the company they originally invested.  Only time will tell whether out of the box moves like this by bankers will be beneficial or harmful in the long run.

Bank Covenants and Senior Management:

     Most Banks have always viewed senior management as part of the mix when deciding whether or not to issue any type of corporate loan, securitized or non-securitized.  Now it seems that this informal review is becoming a bit more formal when it comes to small cap and mid cap companies.  It seems that some banks have already started, and others are going to be possibly following suit by adding the following line in loan agreements, “Firing the CFO other than for cause, triggers a loan default.” 

     The rational for this additional written covenant given to a CFO last week follows:  “Bankers have developed trust and confidence in the CFO that they will do the right thing in administering the credit agreement and in managing the business ethically.”  When the banker sees the CEO firing the CFO for reasons other than for cause, a huge “red flag” is raised.  From past experience this normally signals a change in what the bank signed up for when the loan was granted.

     One CFO who started off on the banking side explained that in bad times, numerous situations occur to cause more tension between the CEO and CFO.  In closely held public and private companies, independent of size, the CFO or Senior Financial person is put in the position of saying “no” to Management that is used to being able to keep their “sacred cow” departments, employees or perks or initiating any idea without regard to serious analysis of ROI (Return On Investment).  In difficult economic environments every allocation or use of a company’s assets are important to the company’s growth and/or survival.   In these types of showdowns, history shows the Senior Financial Executive is left to confront management and many times is forced to resign or is fired for “cost” cutting reasons.  In the perception of many bankers, particularly as it relates to small or mid cap companies, removing the CFO or Senior Financial Executive as a “cost” cutting measure or forced resignation is typically not considered a positive strategic business move and signals possible Senior Management problems that can lead to credit issues.

     Most Bankers consider the Senior Financial Executive, typically the CFO, an integral strategic and operations Executive, not someone who just gathers the numbers and publishes the reports.  A firing not based on cause, or forced resignation is interpreted as a sure sign that there is a disagreement related to the strategic and operating goals of the company among Senior Executive Management. This results in concerns on the banker’s part.

 

Corporate Cost Containment in Tough Economic Times

As the economy continues to create challenges for companies, many are searching for ways to cut cost. Included in the list that follows are some common and some not so common examples of what companies are telling us they are doing to survive and thrive:

• Reduce hiring and/or terminate underperformers

• Encourage employees to take pay cuts

• Find sublease tenants for underutilized properties

• Identify new sources of revenue

• Hire firms that specialize in cost containment strategy to help (logistics audits, telecom, etc.)

• Review all items on income statement and determine which need reduction/elimination

• Use zero based budgeting and determine ROI for each expenditure

• If you have a sourcing department, use them to pressure pricing concessions

• Create a ‘CFO Bounty’ to pay employees for identifying cost cutting ideas over certain thresholds

• Re-negotiate fees for Tax and Audit and Legal services, etc.

• Shift to a ‘pay for performance’ compensation model. Reduce base and increase commission/bonus where possible.

• Consider purchasing a company that is a supplier to you to reduce overall costs

• Elimination of 401K match

What are some of the steps your company is taking to deal with Cost Containment in the current economic environment?