The Frustrated CFO

The Frustrated CFO Is Looking for a Litigator to Defend an Employee - Part I

Let me say right away that it is impossible to even come up with a short definition for an attorney who would act on behalf of an employee.  That is why I had to devise such an expository title for this post.  But I am trying to help my fellow financial professional and a good friend MJ who has a very unique and quite a complicated case against her former employer.  What happened to her is strikingly unfair (there are details below) and I figured I would try to put a word out there through my blog in hopes of may be receiving some legal referrals from my readers.   

It appears that 99% of the lawyers listed as "labor litigators" work for the other side (the one with the deeper pockets), defending corporations against employees in court and advising them on preventative measures to make sure that they don't get sued in the first place.  Of course, there are plenty of injury specialists ready to jump on a work-related-accident case and civil rights defenders on a lookout for sexual harassment claims.  But apparently it is difficult to find somebody to stand on the side of an employee with a less obvious case.

I am pretty confident that MJ's case is one of a kind combination of various legal matters and an intelligent attorney may find it to be an interesting challenge.  It would possibly require ten posts to cover all details, and I don't find it necessary or productive.   Instead, I will try to stick to main facts only and present them in two consecutive installments.

The employer in question was a consumer debt management entity, which consisted of multiple collection agencies with a national law firm at the head of the structure.  Two business partners helmed the operations - an attorney (senior partner at the law firm) and a shrewed businessman who handled all operational and commercial activities.  Remarkably they have managed to ride the wave of debt securitization and succeeded, in spite of themselves, without any executive support - growing into an organization that employed over 500 people in 10 states, while all their accounting and financial functions were "handled" by an outside service of a one-person CPA firm!!!

By the end of 2007, though, the company started experiencing difficulties.  In the absence of budgets, cash flow projections, profitability analysis, and, more importantly, an insight of a seasoned expert, they couldn't even understand what was going wrong.

That was when MJ got hired as a Chief Financial Officer.  Putting all the necessary functions and instruments in place, dissecting the business's performance and fixing incorrectly kept books, allowed her to discover the weakest links in their falling apart system.  She suggested drastic restructuring, shut down the sectors that were bleeding money and got them out of disadvantageous financing relationships - in other words, saved their assess from going under several times over.

To be continued...

Quote of the Day

"It's a rare person who wants to hear what he doesn't want to hear."

                                      Dick Cavett

Quote of the Day

"The only normal people are the ones you don't know very well."

                                                                                                    Joe Ancis

The Infinite Wisdom of Trey Parker and Matt Stone

I have two confessions to make.

First of all, I have been a fan of Trey Parker and Matt Stone since the premier of the first episode of South Park on August 13, 1997 - nearly 14 years ago.  I love everything they've ever written themselves (note to those who don't know: they did not write BASEketball, which I hated) and my feelings for them were only further solidified in Eugene O'Neill Theater two weeks ago, when they nearly killed me with The Book of Mormon.

I count them among a small number of the most brilliant people in entertainment and consider their satiric abilities unmatchable.  But it's not just that.  They are incredibly sharp intellectuals, which, in my book, is probably the biggest compliment.  They just get shit like only very few people do.  And don't get me started on the courage - these two do not bow their heads in front of anybody: whoever deserves it, gets it.  It's really breathtaking.

The second thing I have to admit is that I am sick and tired of people still (for nearly three years now) asking me the same questions about the Global Financial Crisis (aka Credit Crunch).  Just the other week someone wanted "to pick my brain" about it again.  So, I started explaining (again!), trying to make it simple, but still using unavoidable terminology so familiar to my fellow CFOs and Controllers, but apparently still a foreign language for the laymen: federal reserve rates, sub-prime lending, securitization, predatory lending, blah, blah, blah... I am looking into the man's eyes and see no understanding of what all of this has to do with his pension fund.  Why am I doing this? 

And then... Eureka!  "Margaritaville!!!"  In the aftermath of The Book of Mormon, I re-watched a few of my favorite South Park episodes, including the blessed Episode 3 of Season 13 (2009), Margaritaville.  The boys did it better than all analysts on screen or in print (of course!), but more importantly, they made it comprehensible like nobody else can.  As always, they managed to marry their uncanny perceptive powers with the  signature concise delivery, which resulted in the most  brilliant analysis and summation of the bizarre economic situation. 

So, please people, don't ask me anymore about this.  Click on the video below and you can have a four-minute taste of the Misters Parker and Stone's genius, and then go to THIS LINK and enjoy the full episode, so generously provided for your viewing by SouthParkStudios.com.  

And if you still don't get it, then, pretty please with the sugar on top, don't talk to me anymore - I don't have time for your lame asses. 

 

Quote of the Day

"The cloning of humans is on most of the lists of things to worry about from Science, along with behavior control, genetic engineering, transplanted heads, computer poetry and the unrestrained growth of plastic flowers."

                                                                                        Lewis Thomas

Warning: "Horrible Bosses"!

A quick warning to my readers, dealing with difficult bosses on daily basis as a part of their job descriptions:  You will not be able to relate to the protagonists of "Horrible Bosses."

It  is not a comedic representation of the workplace environment, which I always welcome when it's done well.  It's a physical farce of the "Hangover" kind.  It has nothing to do with the reality of professional life.  As the matter of fact, it did not need to be about work at all.  The preposterous premise that three men, who know each other (!), abhor their bosses to the point that they (all three of them at the same time!) decide to commit murders, cancels any possibility of intellectual thinking behind the story (what story?!).  The people depicted in the movie - both bosses and employees could have been anybody.  This could be about husbands vs. wives (or other way around), students vs. teachers, athletes vs. coaches - you get it, right?  And everyone acts like a clown.  I wouldn't mind the shenanigans if the heroes had any recognizable characterizations.  Do you know anybody who would agree to drink a full glass of Scotch in his boss's office at 8:15 AM?

It's just so sad that it always happens like that in Hollywood.  First someone has a commercial success with a certain concept - vampires, zombies, ordinary people getting themselves into rediculously farcical situations, etc.  Then bunch of unoriginal "filmmakers" follow suit - concept remains the same, but characters and circumstances change slightly.  AND NOBODY CARES ABOUT THE STORY!  It's all tricks and gimmicks.

How unfortunate that fantastic Kevin Spacey, whom I deeply respect and who gave me two of my top twenty theatrical experiences (in "The Iceman Cometh" and "A Moon for Misbegotten") has agreed to make this.  I know he needs money for all the great artistic endeavors he champions, like TriggerStreet and The Old Vic, but still.  You want to see him play a really scary boss, get Swimming with Sharks (1994) from Netflix.

Just watch the two videos below for comparison.

 

        

Job Search: Unemployment & Depression

At the end of February, The Ladders featured Debra Donston-Miller's article Depression is Making Unemployment Longer, which reiterated the well-known fact that unemployment walks hand in hand with depression and anxiety, and that, in turn, diminishes your ability to get employed. 

It's a vicious circle, you know.   A person looses his job - that's on its own is a hard blow to his ego.  Nevertheless, he gets right on all job boards - Monster, CareerBuilder, etc.  - posts his resume and applies to every single opening that matches his qualifications.  As time goes by, he keeps lowering his expectations - now applications go out to jobs with smaller titles and lower salaries.  Still, the response is not too hot.  

Nowadays, the statistical probability of converting applications into a recruiter's or hiring manager's interest is around 2% for high-level financial professionals - CFOs, Controllers, Financial Directors, etc.  The national numbers of people not being able to find employment in one, sometimes two, and more years are scary. 

While you are waiting for the sparks in the dark, your spirits get lower and lower.  You become listless, loose interest in everything - depression really kicks in.  The anxiety of not being able to support yourself when the savings and unemployment compensation run out gets overwhelming.  You swing between over-hype of appraising your possession for possible liquidation and inability to move a muscle.

Still, you force yourself to apply every day, you do your networking, ask people around.  Finally, quantity turns into quality: you've sent out 100 resumes and someone finally called you.   You've had a positive response after the phone interview and now you are going for a face-to-face appointment.  Anxiety floods you - the workspace environment, which you have not experienced for several months, seems so alien to you. 

You are prepared, though - you are a seasoned executive with superior qualifications, a likable person, well-spoken, know how to handle yourself.  The interview seems to go well, but there are so many candidates, and you might have said something wrong just because the depression and anxiety ate some of your confidence away.  Every day you wait for a call back, but nobody ever does; nobody even sends an email to let you know that you did not qualify - people don't do those sort of polite things anymore.

Now, you are loosing hope altogether: it is more and more difficult to make yourself even to look at the job listings.  It seems like staring at the television screen all day without seeing what's on is a better option...

You know what?  I am not going to tell you that it will get better.  I am not a fortune teller.  I don't know it, but neither do you.  Yes, it's fucking tough out there!  As I always say,  we live in a new economic reality.  The truth is that you may need to rethink your entire life.  But you cannot let the depression eating away your time.  FIGHT IT!  Do you know what happens with every single day you waste on giving in to nothingness? It disappears and you will never get it back. 

The Ladders' article quoted cognitive behavioral psychologist Deb Brown, who suggests creating a routine for yourself as one of the helpful tools.  My readers know how big I am on time-management and routines.  Whether you are fighting the unemployment depression or job frustration, scheduling your time and filling your day with meaningful tasks always helps.   And when you are unemployed, you have an opportunity to do things that you never had time for before: study Spanish with that Rosetta Stone pack you've got for your birthday two years ago; transfer all those home videos onto DVDs, get yourself fit.  

You don't really need more than two-three hours a day to look for new openings and apply.  Spend the rest of your free time (FREE TIME - when do we have it otherwise?) catching up on your life.  And don't be a prisoner of your schedule either - let go of it for a day, when you feel frustrated.

And listen, even if things with employment never get better and some drastic decisions will need to be made, at least you will not need to look back at the long stretch of a complete misery right before that.       

Quote of the Day

"I didn't want to be rich, I just wanted enough to get the couch reupholstered."

                                                                            Kate (Mrs. Zero) Mostel

The Frustrated CFO Attends a Panel on Risk, Probability, and Chance

Annual World Science Festival took place this week in New York City.  It is a wonderful fair with over 40 events and I try to catch at least two or three.  One of the discussions, I felt, was important for me to attend this time was The Illusion of Certainty: Risk, Probability, and Chance. 

Not only that I find practical application of mathematical, statistical and cognitive theories to business risks, economic uncertainty and commercial intuition to be imperative for strategically inclined CFOs and Controllers, but also my upcoming book on functionality of hands-on financial executives will have a chapter on Risks.  Besides, I've enjoyed books penned by two of the panelists - Leonard Mlodinow's The Drunkard's Walk: how randomness rules our lives and Gerd Gigerenzer's Gut Feelings: The Intelligence of the Unconscious (both are featured on by book list to the right).  And even though the distinguished panel, which also included mathematician Amir Aczel and MIT's professor of Computational Cognitive Science Josh Tenenbaum, ran out of time before they got anywhere near concepts of risks, they have touched on quite a few other fascinating concepts  that have direct application to our professional lives.

Here are few highlights.

I.  Self-confidence vs. probability and empirical evidence.  Our ambitions and drive to succeed mandates nurturing of confidence.  Business schools and work experiences show us that only assertive people who stick to their positions, even if they are based on guesses, achieve their goals.  Here comes, the Monty Hall Paradox - a logical statistical problem with an odd, but empirically demonstrable result. 

It is a probability puzzle based on the TV program Let's Make a Deal originally hosted by Monty Hall.  In the first round, the contestants on the show had to chose one out of three closed doors - two concealing goats and one hiding a car.  Then, the host would open one of the remaining doors revealing goats.  Now, that this door is eliminated, the following question is posted: do you want to switch or retain your original choice.  The confident, "believe-in-yourself" people like us most likely will stick to their guns.  Yet, years of replicating the experiment showed that changing your original choice doubles the probability of winning the car: from 1 in 3 to 2 in 3.  This maybe a good indication that there is nothing wrong with rethinking your position - it may actually be beneficial.

II.  Influence of visual presentation on interpretations of data.  Throughout our careers we have been using graphs, charts, dashboards, etc. in presentations of performance results and other information, because experience shows that it impresses the data recipients better than numbers in tables or narratives.  The reason it works so well is because our instinctive cognitive abilities are much better than conscious digestion of facts.  We are capable of processing visual data flowing at us without even thinking about it. 

Like in the chart below, which shows the relationship between marketing expenses (Y-axis, in thousands of dollars) and sales (volume represented by the bubbles, in millions of dollars).  Just by glancing at the chart anyone can see that the larger bubbles (sales) correspond with higher marketing expenses.  Biologically, it is not that much different from our ability to discern danger when we walk through the jungle.  So, when we design our graphic presentations, we should keep that in mind and try to create images that don't just look pretty, but actually transmit the most valuable messages.

III.  People's blind belief in numbers.  This is something that all financial professionals constantly use while communicating with lenders, investors, bosses, commercial partners, etc., without even thinking twice about underlying scientific theories.  Everybody knows, when you pitch a proposal, renew a credit line, or report on the business results, the more numbers you throw at "them," the better.  Presence of the numbers in a message on its own creates the illusion of certainty, regardless of their substance. 

Advertisers know that very well too.  When we hear in a commercial that 9 out of 10 users of this new cosmetic product saw an improvement in their appearance (or whatever), we automatically accept this as a proof of great achievement.  People forget that because these values are assigned by humans, they cannot be precise.   First of all, what is the definition of "improvement?"  And what if I tell you that the product was used on a group of 30 healthy, good-looking people, ages 20 to 25.  Will you still think that it will work on you as well?

CFO's Ode to Gross-Profit-Based Commissions

Commissions (in all possible forms, including percentage-base bonuses and even royalties) are curiously contradictory – they are revenue-driven expenses.  Unlike other costs in the value chain, they don’t precede, but follow commercial transactions of converting products and services into business returns.  These incentives are basically wages calculated as a percentage of one or another base.  And it is the selection of the base that, unfortunately, hurts most of the companies using this type of remuneration.

In many industries commissions are traditionally based on volume – sales, purchases, collections, etc.  Employing a system like that stimulates the race for big numbers – the more you sell (procure, collect), the higher are your commissions.  The sales force, or procurement team, runs down every single order without any concern for its contribution into the company’s bottom line.  Of course, returns, allowances, price discounts are all accounted for in the calculations, but otherwise volume-based payees don’t care whether the company looses or makes money on their deals.

This eats away profits of many organizations.  Even if a company consistently doing well, even if you have a system of pre-approving deals by projecting their profitability, there are always some transactions that will end up loosing money for one or another reason: the freight rates, for example, have a tendency of  suddenly going up all the time due to the spikes in oil prices.   Yet, the commissions on those sales will be paid anyway, further deteriorating the bottom line.

Of course, some good CFOs and controllers try to absorb the possibilities of losses into their calculations and fight for reduction of rates.  But the truth is that most of the time, especially in smaller businesses, the companies stick to industry standards and you need a revolution to change them.

The only way to avoid this multiplication of losses is switching your company to commissions paid based on the transactional gross profit.  The reason I use the term "transactional" here is because, unless you have one person receiving commissions for the entire volume, you will have to enter the world of segmenting your business into portions that correspond to all recipient's sectors: countries, regions, products, and even transactions.    

I will not deny the fact that it is a pain: there is a lot of work involved into all that, including the process of allocating shared expenses and overheads.  Moreover, I can guarantee you that your calculations will be severely scrutinized by all interested parties. 

Over the years of my career I was able to implement such systems in two companies.  The matters were further complicated by the fact that procurers and sales people cooperated on different transactions, in different combinations.  Can you imagine dividing all those shared credits?!  Both times I had a dedicated analyst assigned to the task and personally dealt with complaints from the traders.  But the benefits to the businesses were undeniable – no commissions were ever paid on loosing deals.   Think about it.