CEO Magazine (Australia) allows me to share my article with you, as long as the PDF I share is their original with its high quality artwork.
Warren Buffet, Forbes et al talk about the dramatic value of capital allocation as the most crucial role for any CEO. Think of this as who gets the best money, best people and top management time, focus and sponsorship
You and I both have been there when politics, bluffs or gross exaggerations carry the day to misallocate scarce resources of money, key people and focus. If this sounds familiar, where are your key leaders putting their hand on your decision scale? What is the cost if that is happening in you your capital expenditure planning (CAPEX), budget, strategy or day-to-day leadership process?
Some may ask, does this really matter in the grand scheme of things.
Before answering, read What the Hell Happened? a featured Fortune article. It describes in cathartic detail the 18-month General Electric corporate meltdown. Buried in the middle of the article are off the record statements saying the biggest factor in this historic catastrophic destruction of shareholder value was “capital allocation” strategic decisions under Immelt.
Questions asked imply:
- Will GE survive in its recent form?
- Will it be broken up?
- If so, what are the pieces taken out?
- What will happen to its fabled leadership development process?
- How will the form its main businesses carry on look like?
Hardly the kind of legacy anyone wants to happen under their watch. With that reminder, where do you see some of these issues growing inside your organization?
Are you ready to realistically self-examine and consider options for how and where can you and your organization do even better?
Consider the proverbial scale from 1 to 10. 1 is “you may see us written about in our business journal, unless something changes.” 10 is, Harvard and Stanford etc. will write us up as the best example of capital allocation.
- What is your real score?
- What score do you want?
- Which CAPEX projects and opportunities could you pursue if you unlocked cash or financing?
- Now answer, are you even talking to your top people about this today, and regularly?
- Which of these same things creeping into your business?
Why not seize some near-term benefits as part of this process? Unlock cashflow to fund those deserving operational, IT and systems needs which just missed funding under the prior strategies and budgeting processes.
Let’s free up and accelerate some cashflow for more of your CAPEX projects as part of your review and improvements of however good (or weak) your capital allocation process is.
You can do even better by addressing these questions. Spotlight just one action to start immediately with a potentially lucrative ROI. Use that success and savings for the next item on your list.
READY TO TALK?
I’d love the opportunity to connect and learn how I can help you today! Email me at gary@FiscalDoctor.com or call 678-319-4739. Imagine how much you can benefit.
About Gary W. Patterson
Gary W. Patterson, president & CEO of FiscalDoctor®, works with leaders who want to make better decisions. He can also help increase your profitability, providing access to 100 best-of-the-best experts who are often better and cheaper than incumbents. Gary can be reached at 678-319-4739 or gary@FiscalDoctor.com
Your will enjoy and benefit from my cyber / risk six page “How Safe Is Your Business? “
Before you start spending any money for an external assessment of your cyber exposure, start with Three-Minute Self-Scoring Review to suggest your Cyber Job Security category and the article’s accompanying 5-step remedy.
How Safe Is Your Business? Why Cybersecurity Equals Job Security for CEOs, CFOs and Others was originally published by Corporate Compliance Insights.
For more value from applying this overview to your cyber situation, use the final one or two minutes to briefly note, your one to three key take away points, one next step action note and whose help you would benefit from as you make your action step.
Consider sharing this with colleagues in IT, risk management, strategic planning, internal audit, business continuity, supply chain management, safety or financial planning and analysis. You all are kindred spirits on making others more aware of major potential risks, of which cyber probably is one.
The job you save by considering this may be that of a colleague, friend, or your own.
How open minded are you to a brief strategic overview of your findings. Just imagine the value if you call Gary Patterson at 678-319-4739 or Gary@FiscalDoctor.com to discuss your unique situation.
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This article was first published in Corporate Compliance Insights
What do basketball recruiting and procurement fraud have in common? Part 2
Leaders rightly get aggravated with their staff when someone brings them a problem without a suggested path forward, or even better, a potential resolution.
My prior article “What do basketball recruiting and procurement fraud have in common?” (http://www.corporatecomplianceinsights.com/) presented the problem of business and personal procurement-fraud exposure, using five strategic questions to evaluate potential risk. As promised, Part 2 now offers 12 steps for improvement.
This 12-step process was gathered anonymously from highly experienced attendees at the 2017 NACD (National Association of Corporate Directors) Global Board Leaders’ Summit. They confidentially offered new insights and suggested actions, which have been aggregated into 12 highly focused steps of improved checks and balances. In a world where far too many people enjoy second-guessing well after the fact, potential million-dollar blind spots are better found and resolved as part of enterprise risk management (ERM), compliance or governance processes.
These 12 steps enable organizations in various phases of addressing procurement fraud, across a wide range of industries and sizes, to transform risks and attitudes. This process requires only prudent additional investments of money, people and time. For best results, tailor the timing or application of these steps to your industry, size and current risk profile.
12 steps for improvement based on current potential risk
The two highest levels of risk in Part 1 of this article were “Train wrecks occur every day” and “You may only be investing the minimum.” Think of these as a D and F grade, respectively. If you scored your organization in either of these categories, just verbalizing that your business may have procurement fraud exposure can be a reasonable first step toward improvement. Then use these top three suggestions as foundational steps to move forward:
- Obtain C-Suite (or at least CEO) buy-in to champion change and drive accountability. The tone at the top is crucial.
- Select a cross functional group to create an agenda based on what they feel are the organization’s top procurement fraud exposures and opportunities.
- Engage an external procurement-fraud or forensics expert to better verify, prioritize and supplement your internally generated list of exposures.
With a better understanding of potential risks and areas for improvement, you can move into the category “You didn’t get here overnight, and you won’t get out overnight.” Think of this as a grade of C, and use the next three top suggestions from attendees to improve:
- Better align compensation to incentivize gross margin and profitability, ethical behavior, and greater conformance with culture.
- Involve Internal Audit in targeted key areas identified in the prior sections, and bring in the Board of Directors to make focused deep dives.
- Use this new level of understanding to determine whether you need to make an example of someone. Depending on the severity of what you’ve now found, consider firing someone — from as high as the external auditors to as focused as a very flagrant offender.
With these specific tools and tactics employed, your organization moves into the category “Life is good, until it isn’t” — or a B in school. You’re now ready to use the following three top suggestions to progress toward more of a return-on-investment (ROI) level:
- Revise and automate procedures, drawing upon external best practices, as part of re-evaluating the financial and people resources required.
- Determine whether it is necessary for your company to move up to the top category at this time.
- Support these actions with specialized training for both procurement and other appropriate personnel throughout your organization.
If your organization moved up to or was originally rated in the top category “Ongoing diligence and vigilance make a good combination” — an A grade — well done! Take a brief victory lap. Then consider how to further improve and expand your lead over competitors. Use these three top suggestions to maintain your outstanding status:
- Review the alignment of strategy, procurement and your overall supply chain.
- Create appropriate metrics for ongoing monitoring.
- Bring back or engage another external expert for a “booster-shot” type of overview.
In conclusion, consider these 12 proven suggestions and apply those that make the most sense at this point in your organization’s life cycle. Taking any of these actions will help reduce your exposure to procurement fraud and strengthen the related areas of ERM, compliance and governance.
The consensus of NACD Summit attendees was that your business should be able to quantify its status before and after it follows these field-tested steps. Use those hard numbers and results to clearly demonstrate that this is one more area where better compliance and governance is not just a cost — it is an investment with a clear ROI.
About Gary W. Patterson
Gary W. Patterson, president & CEO of FiscalDoctor®, works with leaders who want to uncover their blind spot before it finds them, so they can make better decisions. He also helps increase profitability, providing access to 100 best-of-breed experts who are often better and cheaper than incumbents. Gary can be reached at 678-319-4739 or gary@FiscalDoctor.com.
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This article was first published in Corporate Compliance Insights
Consider the initial fallout from the basketball recruiting sandal. Six major universities and a coach or athletic director from each are immediately tarnished, possibly forever. Their defenders ask if these really are criminal acts. After all, the NCAA is supposed to be the protector of honesty, integrity and professionalism of prominent universities (i.e. reputational risk). Yet when the FBI gets involved with all its powers including subpoenas and threat of prosecution and jailtime, risk and reward change dramatically. Maybe this truthfully is a black swan event which no one could have imagined.
Louisville, Auburn, Oklahoma State, the University of Southern California, Miami and Alabama are getting publicity their chancellor, board of directors and alumni never wanted. As this investigation rolls out and expands to others, the game has changed – for basketball, college sports and the ability of leadership at the top and boards to proclaim, “they had no idea this could or was happening, at their organization.”
Many people point out that despite protestations of innocence, many of the coaches (leaders) involved are hardly as pure as “driven snow” with prior violations, sometimes multiple times.
Just as in business, when athletic directors and their boards of directors make coaching decisions, they balance reward and risk. Potential rewards of better athletic results and enormous bottom line cashflow increases seemingly with minimal risk of being caught if, or when, front line leaders (read coaches) get caught. But sooner or later, they always do get caught.
Now turn the bright spotlight onto business.
How does the exciting world of sports and athletics even compare to the murky, dull sounding business aspects of procurement aspects of a business supply chain?
The 2016 Certified Fraud Examiners Report to the Nation shows estimated losses due to all categories of fraud at 5% of a company’s revenues. With people so focused on foreign corrupt practices, have we forgotten fundamentals of major potential frauds like procurement? Bribery acts in other countries are becoming even tougher and financial exposures determined without regard to the country it occurs.
In most cases, procurement fraud takes place in the organizational procurement process, not the financial area, where most consultancies audit.
Consider this simple test below to evaluate your level of procurement fraud exposure. On a scale of 1 to 10, where 1 is “Completely Unsure of the answer” and 10 is “You Absolutely have this under control”, how do you rate each of the following statements?
- Audit processes have procurement fraud well under control and minimized.
- All aspects of procurement major fraud risk areas are documented, identified and defined. These risks are reviewed and updated periodically and separately from the annual risk assessment.
- Organizational internal and external auditors have deep (a) Strategic, (b) Financial, and/or Operational expertise to support focus on their work for you.
- The min/max estimate of potential organizational fraud is thoroughly documented and regularly updated.
- Reputational risk from procurement fraud for your organization and senior leadership is minimal.
After totaling your points, consider your rank below:
41 to 50 – Ongoing diligence and vigilance make a good combination.
31 to 40 – Life is good, until it isn’t.
21 to 30 – You didn’t get here overnight and you won’t get out overnight.
11 to 20 – You may only be investing the minimum.
1 to 10 – Train wrecks happen every day.
Foundational wisdom says that the first step to recovery or improvement is to admit you have a problem. Change the categories above into the letter grades of A, B, C, D, and F which we received in school. Use D and F as failing to simplify this strategic overview of your personal and corporate risk exposure.
- What letter grade does your business receive?
- What grade do you want?
- Where can you quickly and reasonably start the path to recovery?
Now turn the bright spotlight onto the personal area.
For the risk element of your personal and business exposure, consider the total cost when others will after the fact handicapping your decisions and results by the total of:
- Start with actual hard and soft costs damages from those frauds.
- Add reputational risk from front page exposure for some of the many ways media makes leaders look unethical and sleazy when bribery, theft or failure to protect stockholder and customer interests might occur.
- Next move to the plaintiffs’ bar lawsuits alleging everything imaginable with triple damages to teach bad people like you a lesson.
- Then assume you get the attention of some fair-minded politician who finds a way to bring criminal charges, well after the fact and using 5 years from now standards of behavior, that probably few of us can even imagine today.
Your self-assessed total guesstimate exposure is ____________. How scary is your back of the napkin exposure total?
For those admitting they may have a problem, your next step can be as simple as looking at your lowest score on the five-question quiz and creating a path to solve the risk area now spotlighted.
Like some insights from others who have lived through making changes to reduce these type exposures? Stay tuned for part of two of this article where you can learn what attendees at the National Association of Corporate Directors Global Board Leaders’ Summit, generously and anonymously shared about helping navigate from where your business may be to a more desirable less risky level.
About Gary W. Patterson
Gary W. Patterson, president & CEO of FiscalDoctor®, works with leaders who want to uncover their blind spot; before it finds them, so that they can make better decisions. In his present role, he can also help increase profitability providing access to 100 best of breed experts often better and cheaper than incumbents. Gary can be reached at 678-319-4739 or gary@FiscalDoctor.com.
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This article was first published in Corporate Compliance Insights
Whether you’re assembling your kids’ holiday toys or learning to use the latest technology, understanding complex documents usually requires some struggle—unless, of course, someone provides a Cliff’s Notes summary geared to your situation.
That’s why I attended the NACD (National Association of Corporate Directors) 2016 Global Board Leaders’ Summit with the goal of finding value for smaller organizations that, unlike their larger counterparts, don’t have the luxury and duty to invest substantial amounts in governance and compliance. This article describes how smaller public organizations, family businesses and private businesses can leverage the recently released NACD 2016 Blue Ribbon Commission Report “Building the Strategic-Asset Board.”
Here’s how you can use this newest Blue Ribbon Commission report to benefit your organization:
- Look for the focus on how directors can be better selected, updated and evaluated to meet your organization’s unique situation and needs.
- Compare your present process for board-of-director onboarding to the suggested checklist.
- Review the series of appendixes, which can be used like off-the-shelf templates you can customize for your business.
New Evaluation for Boards of Directors
Applying the suggestions in this report can help increase the strategic level of accountability and human-capital development for your organization. Boards of directors have consistently raised their game to hold the CEO and key management groups accountable. But there has been less of a framework available for best practices to evaluate individual directors and hold them accountable for upgrading and increasing their value to the organization.
A faster-changing world is relentlessly forcing strategy revisions in ever-shorter intervals. The resources in this report make it easier to apply a greenfield, or clean-sheet, assessment of your board of directors every two to three years.
Key to this re-evaluation process is a scorecard recapping the key skills and expertise needed for the near term, middle term and longer term. Appendix D provides a Multiyear Board Succession Planning Matrix to compare to your current process of selecting and evaluating directors.
A common complaint in Summit discussions was the limited support provided to onboard directors after what is usually an expensive selection process. The concept of sink or swim until you find a kindred spirit does not work at the entry level, nor should it exist at the highest strategic levels. Appendix F is titled New-Director Onboarding Checklist. (As an aside, you might also want to compare your current merger-and-acquisition checklist to this list.)
Probably the main cost-saving gem for many readers of this report is the 14-page Appendix H: Board and Committee Evaluation Templates. Getting that first draft of any board or companywide evaluation policy normally involves far too much time and expense. Many middle-market companies will be pleasantly surprised at how little effort and time are needed to create an evaluation process when you use this as your first draft.
Into the Future: Foreseeable Consequences or Changes
An overview of speaker presentations and attendee follow-up discussions at the NACD Summit points to three likely changes:
- An increased justification for more specialized training for existing directors, which will complement their invaluable knowledge of organizational history. This should improve the company’s critical ability to spotlight potential million-dollar blind-spot opportunities and risks.
- A more visible need for outsourcing extremely specialized support. For example, small- and medium-sized organizations need access to skilled expertise in areas like cyber, digital and independent ERM (enterprise risk management). With more pressure to re-evaluate which directors should be retained, more of these specialized areas will fall under the “make-or-buy” microscope.
- Greater turnover at the director level. With more cost-effective methods and principles in place for evaluating the areas of board expertise needed, shortfalls will become increasingly more obvious.
Using the Information
This article is written from the perspective of middle-market businesses and others at an early or middle stage of their risk-and-compliance journey. Consider how you can adapt the suggestions for your own unique situation. By doing so, you will increase your organization’s ability to survive and thrive in an ever-changing and more challenging environment.
For further information, you can access the National Association of Corporate Directors’ executive summary and blog overview at http://blog.nacdonline.org/2016/09/three-ways-to-build-a-strategic-asset-board/.
Gary Patterson, the FiscalDoctor® (www.FiscalDoctor.com), helps leaders find Million Dollar Blind Spot opportunities and risks, in time. He is an experienced consultant and speaker who also authored the highly pragmatic book “Million Dollar Blind Spots: 20/20 Vision for Financial Growth.”
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