So Many Hats!

By Lisë Stewart, Owner and Founder of Galliard Group

Hello everyone! As we prepare for the Autumn weather (should it ever arrive), many of our clients are thinking carefully about the end of 2010 and beginning to prepare for a robust New Year! One of the most important activities that a small business can do is to build the organization's bench strength - ensuring that we have the right people on board to grow the company and increase the sustainability and viability of the business. This will include an effective recruitment and selection process based upon the core competencies needed in the future, a method for developing and coaching a strong leadership team and finally, checking to make sure that you have the appropriate legal and business structure to support your growth and protect your team. This Quarter's Newsletter is filled with sound suggestions for doing all of the above - written by some of our most experienced team members. We certainly hope you enjoy the material and please feel free to follow-up with any of the members of Galliard Group or our affiliates.

 

Building a Strong Management Team

By Dawn Monroe, Jade River Consulting, Galliard Group Senior Business Advisor

Because today’s business environment is so challenging, it outdistances the most capable of leader’s ability to solely run an organization. This means that the senior management team, along with the organization’s leader, must work effectively together to insure an organization’s success. But building that team and creating the space for team members to contribute their best, yet act collectively, is often a challenge leaders fail to meet.

Research has shown that there are some critical requirements for a senior leadership team that works in a comprehensive and coordinated manner to insure the organization’s success. These include being a “real” team versus a team in name only, a purpose for the team, the right skills and mental mind sets of members, a team structure, an organization that values the purpose and contribution of the senior leadership team and opportunities to grow in the skills of being an team: voicing differing opinions, resolving conflict, coming to agreement, etc.

Looking at what is a “real” team, research shows that a "real” team member gets beyond her or his functional area and looks at the needs, issues and goals of the organization as whole. This member tries to see how her or his area can contribute to the organization even if this means the goals of the functional area may be subjugated to those of the organization. Each member of a "real” team understands the boundaries and expectations for the team and the need to act as interdependent members. We “sink or swim” as team is a mindset shared by each team member.  Real teams acknowledge the unique capabilities each member brings to the team and calls on those capabilities to help further the goals and direction and strength of the team in service of the organization.

Simply bringing together high level managers and declaring them a team usually does not result in a true team. “Real” teams require investment and thoughtful membership decisions.  One way to assess whether your business needs something stronger than a collection of individuals reporting on their individual functional areas is to assess how complex is your business. What is the strategic direction or plan for your organization? Is this more demanding than in previous years? Does it require more coordination? What are the financial challenges your organization is facing? Are these more critical than in previous years? How are you set for talent; do your employees contribute discretionary effort to your business; are you able to attract and retain those individuals who are critical for your organization’s success?

What kinds of challenges are down the road for your business? What kinds of decisions need to occur? How effective has your organization been in the past in achieving it plans? Does implementation need to be stepped up? If your answers to these questions are yes, you may want to consider developing a senior leadership team that works on organization wide strategies, problem solving and direction.

Dawn Monroe has more than 27 years of experience helping organizations, teams and individuals determine goals, design and implement strategy, and enhance performance. She can be reached at dmonroe@galliardgroup.com or 208.433.9353.

Strengthen Your Core Business Documents

By Donald J. Gary, Jr. Principal Winston & Cashatt

When creating a business, owners have essentially four legal business structures from which to choose. They include:
      1. Sole Proprietorship
      2. Partnership
      3. Corporation
      4. Limited Liability Company
An overview of all four choices will be covered in this article; however, the primary focus will be on the limited liability company.

In the technical arena of business, terminology is very important. Words trigger certain expectations and understandings on the part of professionals and business owners. For purposes of this discussion, we will distinguish the various entities and the documents associated with them.

Sole Proprietorships:
Sole proprietorships involve a single owner who has not chosen another form of business entity. Sole proprietors are liable for any debts or liabilities of the firm. Essentially, sole proprietors don’t own a “business.” Rather they own “assets” and incur “liabilities” for the production of income. There are no formal documents addressing a sole proprietorship.

Partnerships:
Partnerships are the association of two or more persons for the conduct of business for profit. There are two types of partnerships, general and limited. “Limited partnerships” are creatures of legal statute and offer limited liability to the limited partners. They are best suited for investment related ventures. “General partnerships” do not provide limited liability for the partners and each partner may be held liable for the acts or omissions of the other partners.
Partnerships are governed by “Partnership Agreements” which address the relationship between the partners, allocation of profits and loss, and the transfer of partnership interests. A well drafted partnership agreement should address foreseeable issues that might affect the partnership.

Corporations:
Corporations are entities created pursuant to state law. They are formed by filing “Articles of Incorporation” or a charter with a state. The law requires certain minimal information to be included in the Articles. Generally, with closely held corporations, Articles are limited to five or six key points. It is not generally advisable to include additional information. Once the articles are filed with a state, the entity is formed.
Corporations are also required to have “Bylaws,” which set forth certain rights and responsibilities of stock holders, directors and officers including the method for electing members to the board of directors, requirements for notice of meetings, identification and general descriptions of officers, and basic record keeping authorization and requirements. The Bylaws are generally not an appropriate place to negotiate individual agreements.

Directors and Shareholders of corporations are required to hold annual meetings and may hold other meetings, if necessary or desired. The proceedings from all meetings should be recorded in corporate “minutes” which are kept in the corporate minute book. While most states only require the election of a board of directors and appointment of corporate officers, it is wise to include additional information in the minutes including extraordinary bonuses, approval of agreements, plans for expansion, and other major business issues facing the company.

Although not required by state law, the relationship between shareholders, potential shareholders, former shareholders, employees and agents should be addressed in separate written documents. “Shareholder agreements (buy-sell agreements)” should establish major events that trigger change in ownership of the corporation, including death of a shareholder, retirement (not working full time), termination for cause, sales to third parties, disability, disqualification and covenants not to compete. “Employment agreements” should be used to clearly define each employee’s responsibilities to the company. They can be useful tools for segregating responsibilities, setting performance objectives, defining inappropriate or unacceptable behavior and limiting certain undesirable actions. Written agreements can be for a period of time (desirable if you are a shareholder but not a majority shareholder). Compensation issues, including bonus arrangements, can be established in these agreements, and the agreements can address and resolve negotiated severance where appropriate.

Limited Liability Companies:
Like corporations, “limited liability companies (LLCs)” are creatures of statute. An LLC is formed by filing an organizational document referred to as “Articles of Organization or Certificate of Formation” with the State. In addition, an LLC is required to have an “Operating Agreement” or internal document that sets forth the rights and responsibilities of the “Members.” Unlike corporations, LLCs are generally not required to hold meetings; however, they may if so desired. LLCs can have one or more Members and can be managed either by the Members or by one or more Managers.

Whether you operate as a corporation, partnership or limited liability company, you can strengthen your business relationship with well thought out and properly drafted “core internal documents.” These are referred to as internal documents, because they are designed to address the relationship of existing owners, former owners and potential owners of the company. The key is to define your relationship and develop core documents prior to the occurrence of any event that will trigger emotional or irrational response and result in acrimony.  A well drafted "operating agreement" will address many issues concerning the LLC.

• Business purpose:  The agreement will define the particular business purpose of the company and any ancillary purpose.
  
• Members: The agreement will discuss membership qualification to be a Member, the rights and responsibilities of a Member, differentiation in the classes of membership (if any), voting rights of the Members, and a reference to the limitations, if any, to be placed on Members.
• Management: Another section should discuss management – whether the company will be member managed like a partnership or manager managed with a strong central manager. The major duties and authority of the manager should be included. The process for choosing or terminating a manager should be spelled out.
• Capital Funding: The document should clearly define the contribution obligations of the Members (mandatory and voluntary). There should be clear guidance on any penalties for failure to make a contribution when required, as well as limitations on funding if the intent is to avoid an unwanted shift in investment.
• Allocation of Profits and Loss: This is a function of the tax election made by the company. If the LLC elects corporate taxation, this section is unnecessary. If partnership treatment is used, the allocations should be as explicit as necessary to accomplish the objectives of the partners. It is recommended that a tax professional be consulted for this section because there are many technical points in the tax code that should be included.
• Distribution of Cash and Property: Provide the necessary guidance for the distribution of excess or available cash to the Members to avoid confrontation or “renegotiation” at an inopportune moment.
• Transfer of Interest: This section should cover the rights of the Members to transfer interests including any restrictions. If there are restrictions, this section should provide the framework for notice to the LLC and other Members as well as the procedure for purchasing those shares internally. This section should also discuss issues of death, disability, retirement, termination for cause, and disqualification. Pricing and terms should be established as noted above under shareholder agreements.
• Winding Up and Dissolution: The Agreement should address the ultimate end of the entity including the procedure to be followed and criteria for selecting a liquidating manager.

A well drafted agreement will also provide, in detail, a method for resolving disputes and the venue for any dispute resolution. Consideration should be given to “alternative dispute resolution,” including mediation and arbitration. Local legal counsel should be consulted on this point, because there are many ways to conduct mediation or arbitration. You shouldn’t automatically choose to arbitrate under the rules of any particular organization. First, you may find that those procedures are more expensive than you thought. Second, as long as you are in compliance with local law, you may find that creating your own dispute resolution structure is more beneficial.

Conclusion
While it is impossible to address all of the items that should be considered in core internal documents in a short article, this presentation gives the basic elements to be considered. It is often helpful to have the parties begin by working though a “plain language” agreement covering the critical issues. The plain language document could even use “bullet points” covering the areas of concern. However, do not overestimate the legal sufficiency of a plain language document or underestimate the value of a well drafted agreement prepared by a competent attorney. Remember, if things go badly, it is lawyers and judges who will decipher your document. Their experience is with well drafted legal documents.

Finally, when interviewing an attorney to assist you with your documents, don’t be afraid to ask how many core documents he or she has prepared, and ask if they could provide a redacted sample for your review before you engage their services. Another important factor in choosing an attorney is determining the portion of their practice dedicated to entity formation and contract preparation. You deserve an attorney well experienced with the preparation of core documents. You don’t want to find that your documents are deficient when it is too late to fix them.

Donald J. Gary, Jr. is an inactive CPA as well as an attorney. His practice focuses on tax and transactional issues. He can be reached at (509) 838-6153 or www.winstoncashatt.com.

 Ask Coach Melissa

By Melissa S. Kelly-McCabe, MS, GPCC, Clear Intent Strategy, Inc, Galliard Group Advisory Board

Question: My father is a workaholic. He expects me to run our business the same way he has for 40 years. I keep telling him that it is different for my generation – we want to work hard and play hard. It’s not all about work for me – work is important, but so is being with my family, exercise, taking a vacation every once in a while... Any ideas about how to get my point across?

Coach’s Comeback: I was in Modesto CA in September to interact with a large group of small business owners as they considered the payback of work/life balance practices in their businesses. And yes, generationally (and for men v. women,) we tend to look at work/life balance differently – and these differences can cause conflict! When you look at the generations new to the workforce – work/life balance expectations are even more extreme than our parent’s generation. You are not alone!

First and most important, is to begin a constructive dialogue with your father to talk about his work/life priorities and to share yours. On my website you can download a Work/Life Balance Map to figure it out. (email me at mkmccabe@ClearIntentStrategy.com if you’d like to talk through the tool). You know, people in your company know when there is conflict – so even when you think you are hiding it, chances are you are not. Having a cohesive leadership team – especially as family members - is critical for your business success.

Second, consider the payback of implementing no- and low-cost work/life balance practices in your company. In March 2010, the President’s Council of Economic Advisors published a paper called Work/Life Balance and the Economics of Workplace Flexibility (Source: http://www.whitehouse.gov/files/documents/100331-cea-economics-workplace-flexibility). By describing how “American society has changed dramatically over the past half century…causing many workers to face conflicts between their work and their personal lives,” the council emphasizes flexibility being critical for the American worker. Flexible how? By looking at:
- Where to work, for example telecommuting and/or using a hotel workspace protocol. Saves commute time, saves office space and rent, and even helps our environment.
- When to work, for example allowing flexible start and end times with core work hours and/or offering alternative work schedules, like four ten-hour days, or nine nine-hour days (tenth day off).
- The number of hours to work, for example job sharing, taking unpaid leave for training/education, and/or allowing gradual return to work after birth of a child/adoption, or gradually reducing hours prior to full retirement.
Note: 70% of working fathers and working mothers report they don’t have enough time for their children (“Can’t Get No Satisfaction,” New York Magazine, Dec. 4, 2006, Tim Ferriss source). Tim Ferriss is the best selling author of The Four Hour Work Week.

Melissa S. Kelly-McCabe, MS, GPCC, is a credentialed Executive Strategy Coach, who works with new CEOs to accelerate their business goals as they imprint their personal style on their business. She is located in the beautiful Finger Lakes Region of New York State. www.ClearIntentStrategy.com

 

Hiring Right to Build Bench Strength

By Tami Trout, Owner and Founder of Trout Business Solutions

Economic recession and cost-cutting endeavors have been a key business challenge, and finding and retaining talent is a growing concern. As the economy moves forward, more jobs will become available. With pent-up frustration from layoffs, ‘doing more with less’, and pay freezes, research is suggesting that employees will be eager to look for new opportunities outside their current employer when the economy improves and job openings become more abundant. And, companies who are hiring will have more talent to choose from.

Recent studies suggest that focusing on hiring the right person and retaining current talent must be a high priority for companies who want to build bench strength and enjoy greater success. This article highlights the costs associated with turnover, identifies potential barriers to hiring the right talent, and provides solutions to help you select the best fit for the job and your company’s culture.

A 2010 study¹ indicates that:

• 90% of companies expect their workforce to grow or remain the same, and their initiatives are focused on attracting and retaining experienced workers.
• Nearly, half of companies are challenged by attracting and retaining experienced workers.
• 62% of companies that have experienced issues in the last year report poor quality hires, and 26% experienced high worker turnover.

There is a tangible, measurable, and significant cost associated with hiring the wrong talent. The most common, and those which typically lead to termination (wanted or not), are underperformance and behavioral issues.

When companies fail to get the most from their biggest asset and greatest resource – their employees – they cannot possibly reach potential. Moreover, underperformance and behavioral issues are incredibly burdensome and time-consuming distractions. Instead of spending valuable time and resources on activities that are strategic, revenue generating, and moving the business forward, managers and business owners end up attempting to change the person they hired to fit the job. Round peg – square hole syndrome at its worst.

The estimated cost of turnover is 150% of the employee’s annual compensation, and upwards of 250% of annual compensation for management and sales positions. Included in this cost is the hiring team’s time, advertising, paid-out unused vacation time and other benefits, new hire training, overtime for other employees who are covering the workload, and other employees’ time for cross-training, to name a few. And, there are hidden costs such as loss of intellectual property, decreased customer satisfaction due to lack of experienced talent, lost productivity, reduced employee morale where turnover is high and delays in dealing with other employee issues in a timely manner, among other things. Bottom line… under-performance, behavioral issues, and unwanted turnover is frustrating, time consuming, and a real expense to the business, which directly impacts the bottom line.

Turnover is often a result of failing to employ a thorough and systematic hiring process designed to uncover true experience, capabilities, and personal attributes. In addition to exploring a candidate’s work experience and skill set, one of the most effective tools to use in a refined process is behavioral-based interviewing.

The foundation of behavioral-based interviewing is that past behavior is a good indicator of future behavior. This foundation is real and measurable! Behavior is the core of the individual thus critical analysis of skills (the technical aspects – job competencies) and behavior (how they apply the skills – behavioral traits) is central to the hiring process. If you hire based on experience, skills, and behaviors you will have a winning combination. When employees are able to do their job while utilizing their unique behaviors, they will perform more naturally, be more productive, achieve greater success, and have more fun.

Potential barriers to hiring the right talent include:

• Hiring solely based on someone’s recommendation.
  
• Hiring solely based upon the ‘great resume’.
  
• Interviewing without using behavioral-based questions and failing to probe beyond the obvious to determine whether the response was suitable, if they would have done anything differently, and whether or not they learned from the situation.
  
• Failing to gain other perspectives about the interviewing candidate.
  
• Failing to understand and define what the job (role) requires and who best fits the company culture.
  
• Failing to use screening tools such as behavioral assessments and/or background screens.

Each of these potential barriers can be overcome. There are key tools and methods that may be applied in your hiring process. Armed with this information, you are prepared to make a better hiring decision and on your way to cultivating an environment that builds bench strength.

• Clearly understand and define what is required in terms of education, experience, competencies and behavioral traits, and articultate these needs in your candidate search.
• Screen resumes carefully, searching for the criteria you have identified.
• Ask the right questions – those that relate specifically to the role and to the company culture.
  

• Focus on behavioral-based interviewing to uncover what the candidates have demonstrably done in the past as it relates to the defined job and, most importantly, the ‘how they did it’ aspects of their experience.
  
• Employ a method of objectively rating the candidates’ fit compared to the identified job criteria.
  
• Narrow the candidate pool to the most qualified talent by conducting pre-screening (e.g. telephone interview).
  
• Include key personnel in the interviews in order to gain other perspectives about the candidates and their fit.
  
• Utilize a behavioral assessment system that will identify the candidates’ core behavioral traits. A behavioral assessment provides valuable additional information about how the candidates may fit the job and work with other team members. Many assessment systems also provide coaching tips and recommendations upon hire.
  
• Conduct background screening (e.g. reference, background, criminal, and drug screening among others as appropriate).
  

By clearly articulating required traits in terms of job competencies and personal characteristics for success in the role and in the company culture, and uncovering these traits during the hiring process, companies can achieve far greater success in selecting the right talent. Without considering behavioral traits, companies miss critical factors that detrimentally impact the result and their employees’ ability to reach full potential.

Business success and profitability are directly proportional to the talented and motivated people in the organization. To enhance your business results, and your ability to service your market segment, it’s critical to hire the right talent. It is far easier and more profitable to hire the right people from the start and employ their natural behaviors, than it is to attempt to change them. Untold time and productivity is lost in attempting to whittle the puzzle piece to fit where it was never intended.

Tami Trout has more than 20 years of experience managing people and projects, developing and facilitating training programs, optimizing business processes and operations, and extensive experience in employee communications. Contact Tami Trout, of Trout Business Solutions, at tami@troutbusiness.com or www.TroutBusiness.com for more information.

¹HireRight Employment Screening Benchmarking Report, 2010 Edition, HireRight, Inc.

Tami has more than 20 years of experience managing people and projects, developing and facilitating training programs, optimizing business processes and operations, and extensive experience in employee communications. She can be reached at http://troutbusiness.com or 208.869.4621.