Three New Year’s Resolutions Every CFO Must Make in 2013

John Calia

It’s that time again.  Time for the annual ritual of New Year’s resolutions. 

Bored with it?  Too busy?  Well, I say never let a good ritual go to waste.  It’s a great opportunity to refocus your team and engage the entire company in the priorities you consider most important in the coming year.

With that in in mind, here are three priorities that should top your list.

Cash is King:  Will a deal on the Fiscal Cliff include a major change to the corporate tax code?  And, how would that change the way in which you invest your capital.  Both the President and Republicans have suggested we need an overhaul.  The code is arcane to say the least. We have the highest tax rate among OECD countries, but actual revenue collection is low due to loopholes and deductions. Companies have responded aggressively.  Scads of lawyers and accountants seek offshore tax havens.  Many locate jobs overseas.

Small businesses, most of which are eligible for S-Corp tax treatment, are most likely to be negatively impacted by a fiscal cliff deal, affecting investment in the demographic segment most likely to generate jobs.  If the tax rate on the highest earners goes up (as seems likely), it will negatively impact business investment. 

Will all this uncertainty have an impact?  You bet.  Even small businesses without well-documented business plans rent space and buy equipment.  But, they don’t if they aren’t sure how they will be taxed.

The pundits might whine and the public may shake their heads, but CFO’s should consider the old adage “Cash is King” as a guiding principal during the coming year.  Cash is a cushion in the event of a downturn driven by Mid-East unrest or EU insolvency.  Cash is protection against the impact of fiscal contraction.  Cash is a hedge in a near zero interest rate environment. 

In 2013, hold on to cash.

Obamacare:  now it’s serious.  Those who were awaiting the outcome of the election and hoping for at least a partial repeal know that’s not going to happen.  But, what will happen? 

Well, it’s still hard to say.  A major bill of nearly 3,000 pages creates a lot of work for regulators who are still writing the rules to implement it.  Among the great mysteries is what form the new insurance exchanges will take.  Is your state among those that will set up an insurance exchange?  If not, there may be a tax imposed.  How will that impact employers?  No one is quite sure.

Meanwhile, costs are projected to rise by 7.5%costs are projected to rise by 7.5% in 2013, according to a report by PricewaterhouseCoopers.

While we contemplate the costs and benefits of the new law, an approach taken by major employers Sears and Darden may become a template for many.  They will contribute a fixed amount to an exchange managed by AON Hewitt, who in turn will offer a choice of plans to employees.  The approach doesn’t necessarily shift more cost to employees but forces them to take more responsibility for their choices.

Solutions of this sort will be the order of the day as we approach full implementation of Obamacare in 2014.

In 2013, it’s time to color outside the lines.  Consider new and different options for providing benefits to your employees.

The Mobile Wave:  for the first time in history, consumer preference is driving change in corporate IT infrastructure.   Nearly all application development is taking place on mobile platforms.  Even if you are not in a consumer business, there is a consumer – corporate or individual -- at the end of your supply chain.  And, consumers are increasingly enabled by mobile apps. 

As access to corporate and personal data extends outward, concerns about data security will heighten.  A recent whitepaper by McAfee Corporation concluded, in part, “Fortune Global 2,000 firms [can be divided] into two categories: those that know they’ve been compromised and those that don’t yet know.”

If we don’t know what’s hit us, how can we defend ourselves?  And with the advent of Near Field Communications, mobile banking and electronic medical records, it can’t get better.  It can only get worse.

Is your data encrypted?  Do you have a contingency plan to guide your company in the event of a data breach?

Typically, data security is owned by the IT department (which may report to the CFO).  But, the policies relating to data security must be embraced by the entire organization.  Last year, a security test at the U.S. Department of Homeland Security resulted in over 60% of government employees, who found a thumb drive on the ground in the parking lot, plugging it into their computer in the office.  Sounds like a much easier way to hack the system than trying to untie the Gordian Knot of firewalls and VPN’s. 

Frequent review and update of your corporate data security policy must be high on your list of New Year’s resolutions for 2013.  Every disruptive technology creates new risks.  Make sure your IT team is up to date and don’t scrimp on bringing in outside experts to review what you have done. 

In 2013, it’s time to defend the ramparts.

Like every year, 2013 will present new challenges.  Are you ready?  If it turns out the Mayans are wrong, you’ll have to be. 

John Calia is a partner in The SCA Group (www.thescagroupllc.com) a provider of interim C-Level management and strategic advisory services.  He is also a partner in the McCracken Alliance (www.mccrackenalliance.com) and author of a blog on leadership, “Who Will Lead?”(www.whowilllead.blogspot.com)

The U.S. Constitution Was Designed to be Amended

It’s time to get military weapons out of the hands of civilians.  Yes, I know that the assault weapons ban passed during the Clinton administration was rendered unconstitutional by the Supreme Court.  But, the Constitution was designed to be amended.  And, if we need to amend it to get a ban on weapons manufactured with a military purpose, then amend it we must.

I am a great respecter of the U.S. Constitution.  It is a brilliant document, a reflection of the Age of Enlightenment and the courage of the men who wrote it.  Among its most brilliant elements is Article V, which outlines the procedure for amendments.  The Founders knew that society would evolve. 

The Second Amendment was written at a time when we had just concluded a revolution against the King of England.   There was a legitimate fear of the tyranny of a central government.  Would a new United States government confiscate private property to serve its own ends?  No one could be sure.

The Founders wrote the Second Amendment to the Constitution as part of the Bill of Rights with that in mind.  The United States had yet to take the form of a single country and it only made sense to grant the citizens the right to bear arms against a potentially repressive government.

Is such a fear rational in the 21^st Century?  And if it is, what group of citizens could defend itself against the U.S. Army?  Not those guys in camo holed up in the woods of Michigan or Idaho. 

Now, I have heard the argument – haven’t we all – that the school principal in Newtown, CT might have defended herself rather than sacrificed her life to protect the children.  And, perhaps that’s so.  But, do we really want to live in a society where our teachers need to arm themselves?  Where will that lead us?  Should our teachers be required to carry and use guns?  What of those who won’t or can’t?  Should they lose their jobs because they don’t carry weapons in the classroom?

It’s a ludicrous argument.

I grew up in New York where today anyone carrying an unlicensed gun risks going to jail.  There is good reason to fear gun violence in the city that never sleeps as it is in many of our big cities. 

But, I also lived in Colorado where gun ownership is routine.  I worked with a guy who told me he used to go home after school to get his .22 caliber rifle, tie it to the handlebars of his bike and go hunting rabbits.  No one thought anything of it.  I know that ranchers and farmers consider a rifle an essential tool, and often use it to defend their livestock from a hungry coyote or to put down an injured animal.  I met another guy who used a .45 caliber pistol to kill a grizzly bear while camping in the wilderness.

But, none of them owned an AK-47.

Could Adam Lanza have killed first-graders with a pistol or single shot rifle?  Yes, he could have.  But, not so many and not so quickly.

Do we still fear that our government might confiscate our property, as did the Founders?  Isn’t it time to get past that argument?

Clinton’s assault weapons ban, passed in 1994, gave impetus to the NRA to target Congressional Democrats who had voted for it in the mid-term elections.  Their campaign contributed to that year’s change of control from Democrat to Republican for the first time in 40 years.  Democrats have not pressed for gun control legislation since. 

However, the President expressed the feelings of many when he said on Monday, “a lot of gun owners would agree that AK-47s belong in the hands of soldiers, not in the hands of criminals –– that they belong on the battlefield of war, not on the streets of our cities….  that we should do everything possible to prevent criminals and fugitives from purchasing weapons; … that a mentally unbalanced individual should not be able to get his hands on a gun so easily. These steps shouldn’t be controversial. They should be common sense.”

Any measure must be able to withstand the scrutiny of the Supreme Court, bound to interpret the Constitution and apply it to Congress’ legislation.   But, Article V…  well, Article V grants the power to amend the Constitution to the Congress and the state legislatures.  The President has no role in the process.

Great change comes about when large majorities demand it.  Will a large majority of Americans demand the change we need? 

Do we have the will to do it? 

WHO WILL LEAD?

What’s NEXT for Florida? Ask Alex Sink

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Alex Sink

I love former politicians.  They learn to fly once their political parties no longer tether them to the ground.  In the case of Alex Sink, it’s more like soaring than flying.  Ms. Sink is the former CFO of the State of Florida and ran an unsuccessful campaign for governor two years ago.  Before politics, she was a banker and a really good one at that.  She enjoyed a reputation as someone who truly got to know her clients’ business.

With that as a background, it surprised no one when she founded the Florida NEXT Foundation last year.  It’s mission?  To “empower young people, entrepreneurs and small businesses so they can drive the innovation needed to enhance Florida’s economy and quality of life”.

I had the pleasure of hosting a luncheon at which Alex was in attendance last week along with my partners at The SCA Group. The attendees included business owners, professionals and executives.  It was interesting to watch Alex hold court.  Like all great leaders, she listens more than she talks.

We had a far ranging conversation covering education, business incubation and, most of all, how we keep our best talent from relocating to another state. 

This last topic was of great interest to one of our guests, Dan Madden.  Dan is COO/CIO of Lake Worth based Eastern Metal Supply.  He is also a Ph.D. candidate at Nova Southeastern University and is in the process of founding a non-profit of his own.  The “95 Research Corridor Alliance” would nurture technology businesses in Southeast Florida.

With everything he is involved with, I wondered why he would make time for this new initiative.  “Because I don’t want to have to travel to Texas or California to visit my kids when they graduate from college,” he told me. 

Those are two very interesting states when you think of nurturing business.  California, of course, is home to Silicon Valley, highly concentrated with venture capitalists and tech entrepreneurs.  Texas’ claim to fame in this regard is Austin, home to the University of Texas and a burgeoning tech incubator in its own right. 

But, beyond that, the two states are very different.  California – the Golden State – has been a center of innovation and cultural leadership for over a century.  But, the emphasis here should be on the words “has been”.  A recent report of the Federal Reserve Bank of San Francisco concluded, “economies of states ranked high on tax-and-cost indexes [meaning lower taxes and costs]…  tended to grow faster than the states ranked lower”. 

Meanwhile, low tax and low cost Texas – with its low propensity to provide social services and quality public education – is thriving.  Now, before you conclude it’s all because of oil, I’ll tell you that the Dallas Federal Reserve Bank has reported that only 2.4% of Texas employment is in the oil and gas industry.  And, Texas’ job growth has been more than triple that of California over the last 20 years.

So, how should Florida respond to Dan Madden’s desire to keep his kids closer to home?  Should we become California with its first class public schools and infrastructure?  Or Texas with its 19^th Century pioneer spirit? 

Well, my answer is neither.  We shouldn’t pursue job growth so single-mindedly that we sacrifice efforts to improve public education.  The workforce of the future will be better educated than past or even current employees or else they’ll be waiting tables.

In other words, the fundamentals of attracting businesses and high content jobs to Florida are low cost and low taxes coupled with a well-educated workforce.  In a micro sense, Dan Madden’s 95 Research Corridor Alliance is focused on incubating businesses, especially high technology businesses – info, bio or nano.  In the macro sense, Alex Sink’s Florida NEXT is about mixing the right cocktail of entrepreneurial energy, government policy and infrastructure. 

Florida is a small business state.  In the tri-county area that makes up the Miami metropolis, there are about 3000 businesses with more than $10 Million annual revenue.  Of those, only 300 exceed $100 Million. 

We keep hearing that small businesses drive job growth and that’s true.  But, it’s not universally true.  A November report by McKinsey & Company identified the top tier of job creators by industry – heavy construction, social services, industrial instrumentation, chemicals and utilities.  So, should Florida focus on attracting those industries?  And, how should we take into account the wave of mobile technology that is destroying jobs in airports, publishing and banking?  What jobs will be created?  What companies will thrive?

Whatever the answers are – and, I don’t think there is only one right answer – the LEADERSHIP provided by both Ms. Sink and Mr. Madden will be critical to our success.

Are You Ready for Y2K? No, I Am Not Kidding

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I am not sure why we love zeroes.  But, we do.  It’s noteworthy when the stock market hits a milestone, when our odometer goes over 100,000 or when our age passes a decade mark.  The granddaddy of them all?   Y2K!  It was supposed to be a big deal.  And…

Nothing significant happened.  Sure, the stock market crashed.  But that’s hardly unusual.

We shouldn’t be surprised.  It has been the years ending in 1-3 that have been significant in our history.

In 1813, our nation was at war.  That, in and of itself, is not surprising.  But the War of 1812 was the first time the nation fought as the United States of America.  The Revolutionary War had been fought by separately governed colonies united in a common cause.

The defeat of a superior military force, twice in a generation, solidified U.S. dominance of the North American continent.  The economic expansion that followed – known as the Era of Good Feelings – was driven by immigration, cheap land and laissez-faire capitalism.  The military hero of the war was future President Andrew Jackson, whose efforts to decentralize banks financed the growth of an agricultural economy for half a century.

The passage of the 16^th amendment to the U.S. Constitution, authorizing the federal income tax, was the watershed that marked the year 1913. The Progressive Woodrow Wilson, inaugurated that same year, ushered in the era of big government. 

Progressivism was a reaction to corporate abuse leading to the creation of the Federal Reserve Bank, the Federal Trade Commission and a variety of federal financing schemes to help the little guy.  All were funded by a tax of 1% of income above $3,000 rising to 7% of income above $500,000.

The expansion of the U.S. military began with WWI and continues to this day.  Large-scale public works projects, the passion of Herbert Hoover, were expanded during the New Deal.  LBJ’s Great Society created new entitlement programs building on FDR’s legacy. Over the last 100 years, government has grown inexorably to become the force it is today.

The evolution of corporate interests drove the reforms of the 1910’s just as the evolution of the global economy over the last two decades has set the stage for 2013.  

Despite the massive loss of U.S. manufacturing jobs (from 18 Million to 12 Million over the last decade), the volume of manufactured goods is increasing.  Automation has allowed U.S. companies to repatriate their factories if not the jobs that went with them. 

A recent study by the McKinsey Global Institute outlines the impact succinctly:   “Two key priorities for both governments and businesses are education and the development of skills. Companies … will need qualified, computer-savvy factory workers … policy makers must work with industry and educational institutions to ensure that skills learned in school fit the needs of employers.”

So, at a time when many have started to question the value of a college education, as tuitions rise and jobs are not abundant, companies will look for different skill sets.  I expect that many who are not eligible for the top academic programs that lead to Wall Street or the Silicon Valley will opt for specialized programs that will train them as welders who understand metallurgy, fabricators who understand computer aided design and repair technicians who deal with the software that runs a modern factory. 

Concurrently, the International Energy Agency projects that the U.S. could become the world’s largest oil producer by 2020.  The combination of new technology and the discovery of abundant oil and gas resources offer hope of energy independence within a couple of decades.  These developments will have a major impact on our foreign policy and military strategies as the Middle East becomes less important as a provider of natural resources even as terrorism remains a strategic threat. 

For the first time in history, a majority of people lives in cities, 3.3 Billion people according to the World Bank. In the United States, the trend toward urbanization has created entrepreneurialism and innovation.  Our best educated students are flocking to cities like Palo Alto and Boston if they are tech oriented; or, to New York or Chicago if they are financially oriented.   But, even cities like Pittsburgh, a symbol of rust belt decay a generation ago, have undergone a renaissance of entrepreneurialism. 

Journalists and pundits tell us that in 2012, the electorate has chosen the status quo.  The president was reelected and the makeup of Congress was hardly affected by the election three weeks ago.  But, it was the states with large cities that reelected the president.  And it is the urbanization of the electorate will engender social change.  When Bill Clinton was elected 20 years ago, the WW II generation was a significant factor in the electorate.  Now most of them are gone, replaced by the millennial generation with open attitudes toward social issues and a drive to create new ventures in a more connected world. 

The forces that will overcome our financial crisis are in place.  Capital will be invested and investors will get a return.  

Jobs will be created.  The world will be a better place.  And, when that happens, our short-term petty squabbles will fade away.

And, a hundred years from now, no one will remember the fiscal cliff or why gay marriage and immigration reform were controversial.

I Love a Parade

I checked the Palm Beach Post yesterday, scoping out the parade options.  I have a choice of several but it appears that West Palm Beach offers the best of the lot.  The parade will be on Clematis Street, an oasis of upscale casual dining and night clubs.  It will be followed by entertainment.

Today, Veterans Day, will be marked by pronouncements made on high and somber flag raising ceremonies.  And, tomorrow…  Well, tomorrow we’ll go back to business as usual. 

Less than 1% of Americans have been on active duty in the military.  So, it’s difficult for us to relate to the challenges of the veterans whose service we celebrate today. 

I have served on the board of Operation Homefront's Florida chapter until its merger with the national organization recently.  OH helped over 156,000 veterans and their families last year alone.  Yet, as the wars wind down, the challenges of reintegrating veterans into civilian life absorb less of our attention. 

United Way of Broward County and their counterparts at the American Red Cross have come together to create a consortium of non-profits and government entities with the goal of helping veterans.  The effort has been branded as Mission United under the leadership of Commander Nancy Vaniman, USN (ret.).  Nancy is the type of person who, when told to take the hill, will be planting a flag there before long.

There are a variety of national efforts focused on defining the challenges of veteran reintegration.  Much of it focuses on the impact of PTSD on the individuals and their families.  My focus, as a member of the Mission United Advisory Committee is on employment. 

I asked Nancy if there were a set of best practices that have been documented so we don’t reinvent the wheel.  “We’re not reinventing the wheel,” she said.  “We’re INVENTING the wheel.” 

It’s a daunting challenge.  When I got out of the Navy, nearly every hiring manager had been in the service.  Now it’s rare that you find someone who has served.  Do those folks understand the value of hiring a vet?  Are they up to the challenge?

Put another way…  How many people who say they “support out troops” are really willing to help?

So, how do we develop and implement a plan to close the gap between our best intentions and actual results?

I tend to rely on my business training when developing a game plan to achieve an objective.  Before you make a “to-do” list, you need to define your strategies.  To address the challenge of improving the employment results, we have developed four.

First and foremost is Reintegration.  A lot of work has been done to create a framework for integrating veterans.  The military was the first and only job many of them have ever had.

Second is basic training.  No, not pushups and the rifle range, but rather learning how to write a resume and interview for a job. 

Next is our communication strategy.  We must let veterans know how to get help and get our message to prospective employers.

And, of course, we need to train those employers on the value of hiring veterans and the associated challenges.  This isn’t just about doing the right thing; it’s about the value a military veteran can add to a business.

It’s this last challenge that I think will be the toughest.  Employers no longer value general skills like discipline, creativity and goal orientation – which military veterans have in abundance.  They are looking for direct functional experience. 

I never hire that way.  I would rather hire someone who has the right attitude and personal orientation and teach them the fundamentals.  I like teams who are goal oriented, committed to a plan and who won’t give up until they achieve their objectives. Results are more important than expertise. But, as regular readers know by know by now, I am something of a dinosaur. 

Yes, I love a parade.  But, when Monday comes, veterans face a very difficult reality. 

And you?  Are you a hiring manager?  Are you willing to adapt your hiring practices to truly support our troops? 

Or to put it another way…  WHO WILL LEAD?

The Right is Wrong and the Left is Not Right, Part 2

It seems hard to believe that a few of you haven’t decided how to vote tomorrow --    2% according to Rasmussen Polls.  Perhaps your indecisiveness is from the queasy feeling you get when you really think about what Democrats and Republicans have to offer.

Whether it’s the Federal budget, the role of government or social policy, hypocrisy abounds.  Here are just a few of my favorite examples.

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One could spend lots of time debating the merits of various government programs.  But, our fiscal mess isn’t about Big Bird; it’s about entitlement and tax reform.  Yet, Democrats steadfastly refuse to consider entitlement reform and Republicans will not consider any increase in taxes.  A number of bi-partisan groups – including the President’s own commission (Simpson-Bowles) – have concluded that we must do both. 

The commission recommends entitlement reforms that include reducing benefits to upper income recipients and indexing the eligibility age to life expectancy.   Without it, they say, Social Security will go broke by 2037.  Among its other recommendations is the elimination or dramatic reduction of “tax expenditures”.  In plain English, they are saying that one can’t balance the budget without getting rid of or capping deductions that affect the middle class.   In other words, you can’t preserve entitlements without raising taxes and the idea that tax increases sufficient to reduce the deficit won’t touch the middle class is absurd. 

Yet, both presidential candidates have promised the middle class they will not see a tax increase. 

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Among my favorite contradictions is the way in which our political leaders approach the goal of reducing carbon emissions.  The 2009 Obama stimulus includes programs that invest in private green technology companies.  Anyone who is paying attention knows that at least two of them – Solyndra and A123 – have gone bankrupt following a combined government investment of over $700 Million. 

Senator Chuck Grassley has been among the most vocal of critics.  Taxpayer money should not be invested in businesses that can’t attract private money because they are financially unviable, says Grassley.  Now, assets of those companies are being picked over by Chinese businesses.  In effect, the assets purchased by the taxpayers will be acquired at a discount creating green jobs in China. 

Senator Charles Grassley (R-IA)

But, Grassley is a Republican from Iowa, where every presidential candidate is compelled to take the "Ethanol Pledge" or risk a poor showing in the Iowa Caucuses.  You see, Iowa produces more corn that any state in the nation.  The Energy Independence and Security Act of 2007, which was supported by Grassley, requires that gasoline sold in this country include 15 Billion gallons of ethanol from corn by 2015.  Never mind that Ethanol requires more energy to produce than it, in turn, produces.  Or that the law is driving up the cost of food during our current drought.  It helps farmers in Grassley’s home state.

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There is an old saw about the road to Hell being paved with good intentions.  Everyone likes being charitable.  Everyone likes to help others.  Many even see government as a solution to the need to provide for those less fortunate. 

But, when we look around us all we see is government going broke trying.  Exhibit A is the state of Illinois.  Promised pension and healthcare benefits to government employees have left the state with the second highest debt per capita (behind New York).  The State Budget Crisis Task Force concluded that despite all that borrowing, Illinois’ public pension system’s shortfall is estimated at $85 billion. So, how can government improve schools, upgrade crumbling infrastructure and improve the lives of the poor?  The deficit is hurting the people that liberals hope to help.

Over the years, voters haven’t been willing to pay higher taxes to fund the programs they say they want.  But, if no one wants to pay for it, do they really want it?  And, if they don’t really want it, shouldn’t our political leaders stop approving it?

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Conservatives like to talk about freedom.  They refer to the right to “life, liberty and the pursuit of happiness” asserted in the Declaration of Independence.  So, why doesn’t that right extend to those who disagree with the minority of Americans who describe themselves as evangelical Christians? 

The Republican Party caters to xenophobes and homophobes.  And the debate over a woman’s right to reproductive choice has elicited some of the most offensive comments about rape that I have heard since the 1970’s.  Does Todd Akin really believe that “if it’s a legitimate rape, the female body has ways to try to shut that whole thing down”?  He was talking about pregnancies.  Where did this guy study biology?  And, what exactly is a legitimate rape?

I am an old white guy.  So, the social policies of Republicans don't affect me directly.  But one must wonder.  Will there be enough old white guys left in America to elect Republicans in the future?

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Democrats undermine their credibility when they can’t pay for the programs they invent.  And, Republicans undermine their credibility when they preach freedom but seek to limit it for those with whom they disagree.

It’s no wonder you’re undecided.

WHO WILL LEAD?