Thursday, December 27, 2012

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)

Tuesday, December 18, 2012

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 21st 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?


Thursday, December 6, 2012

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 19th 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.