In the legal field (not historical), "life and all its fullness" is a phrase sometimes used by judges when they struggle to explain the facts and circumstances of a case. 2019 seems to be starting off as one of those cases. So to help you navigate your way in 2019, here are three (3) key risk areas, generally speaking, that you need to know if you are operating your business as a corporation.
1. FIDUCIARY DUTIES * GOOD NEWS: The MBCA defines the standard a Director must comply with. It states, in pertinent part, that a director must, generally speaking, act (i) in good faith, (ii) with the care that a person in a like position would reasonably believe appropriate under similar circumstances; and (iii) in a manner the director reasonably believes to be in the best interest of the corporation. So how does a director comply with this standard? It goes on to state that: "The process by which a director informs himself will vary, but the duty of care requires every director to take steps to become informed about the background facts and circumstances before taking action on the matter at hand. A director may rely on information, opinions, reports, and statements prepared or presented by others, PROVIDED (1) a director so relying must be without knowledge concerning the matter in question that would cause his reliance to be unwarranted", and (2) in order to rely on a report, statement, opinion, or other matter, "the Director must have read the report or statement in question, or have taken other steps to become familiar with its contents." Simply put, the Director must become familiar with the information presented and then ask themselves the timehonored question, "does the information pass muster"? Lastly, Directors also have a duty of loyalty to their company as well in order to avoid a conflict of interest or selfdealing.
* BAD NEWS: There are many activities that may cause personal liability such as lack of authority, torts (e.g. intellectual property violations), improper distributions, criminal acts, false documents, misrepresentation, improperly signed documents, and various other statutes, so keep this in mind. To reduce your personal risk, a key tool, pursuant to the Massachusetts Corporations Act, is a contract or organizational document's specifying a different duty of care to the extent legal. Make sure your documents and corporate minutebook are legally reviewed to see if they need updating to reduce your risks.
2. LIMITED LIABILITY & INDEMNIFICATION * GOOD NEWS: As mentioned above, generally under the Massachusetts Corporations Act, the general rule is that business owners (shareholders) have limited personal liability from the debts, obligations and liabilities of a corporation per the MBCA. The key exception is that creditors can disregard the entity & make Shareholders, Directors, or Officers liable if the entity is treated as the "alter ego" of same. Secondly, Shareholders, Directors, and Officers can be liable for intentional or negligent torts, such as trademark or copyright infringement or trade secrets thefts. Directors can also be personally liable for improper distributions, and wages and payroll taxes, etc. A key tool to prevent some types of liability is per contract or organizational indemnification clauses, so your corporate documents should be reviewed to see if they need legal updating. * BAD NEWS: Examples of personal liability for Directors include lack of authority, tort claims, intellectual property violations, improper distributions, crime, false documents, misrepresentation claims, improperly signed contracts, and the return of litigation advances. So HOW you operate your entity is critical legal risk management. To reduce your personal risk, your contracts and organizational indemnification clauses, and maintaining an up-to-date corporate minutebook, is critical to limit liability, so you should have your documents and corporate minutebook reviewed and updated.
3. 2019 TRENDS *GOOD NEWS: There are increasing case law trends towards peeling away some historic fiduciary obligations with contract based liability risk shifting devices, under the theory of "freedom of contract". I expect to see more of this trend in the future. There is also an increasing trend towards Corporate Social Responsibility ("CSR") where past "externalities" are becoming "internalities". I submit that the more metrics become normalized, viz.; Environmental (such as biodiversity, climate change, water resources, etc.), Social (such as human rights, labor and health standards, customer responsibility, etc.) , and Governance (anti-corruption, risk management, transparency, etc.) (collectively "ESG"), the more qualitative matters can now be measured & therefore managed.
In summation, whereas the 20th century was considered the century of MANAGEMENT, the 21st century is shaping up to be the century of GOVERNANCE. The various tools above to measure ESG are being put in place to level the playing field. Today, companies are looking at not just three types of capital, (i.e., financial, manufactured, and intellectual), but also human, social, and natural capital. Using these 6 capitals creates a truer picture of the long-term value of a sustainable company.
We can help you with your long-term strategic legal risk decision-making, so let us know if you want to embrace "life in all its fullness".
(For discussion purposes only.)
In the legal field (not historical), "life in all its fullness" is a phrase sometimes used by judges when they struggle to explain the facts and circumstances of a case. 2019 seems to be starting off as one of those cases. So to help you navigate your way in 2019, here are three (3) key risk areas, generally speaking, that you need to know if you are operating your business as an LLC.
1. FIDUCIARY DUTIES
* GOOD NEWS: The Massachusetts LLC Act generally states that Members and Managers have limited liability from the debts, obligations, and liabilities of the LLC. The LLC Act also generally states that a Member or Manager shall be fully protected in relying in good faith upon the provisions of a written Operating Agreement and the records of the LLC and upon such information, opinions, reports and statements presented to the LLC by any of its Managers, members, officers, employees, or committees, or by any other person, as to matters (1) the LLC member/manager requesting same "reasonably believes" it's within the provider's expertise, and (2) the information provider has been selected with "reasonable care" by or on behalf of your LLC.
* BAD NEWS: There are many activities that may cause personal liability such as lack of authority, torts (e.g. intellectual property violations), improper distributions, criminal acts, false documents, misrepresentation, improperly signed documents, and various other statutes, so keep this in mind.
To reduce your personal risk, a key tool pursuant to the LLC Act is contract or organizational documents specifying a different duty of care. Make sure your documents are legally reviewed to see if they need updating to reduce your risks.
2. LIMITED LIABILITY & INDEMNIFICATION
* GOOD NEWS: As mentioned above, generally under the Massachusetts LLC Act, the debts, obligations, or liabilities of an LLC are the LLCs alone, and none of its Members or Managers are personally liable solely by being a Member or Manager. However, this rule can be altered by the following:
(1) a fiduciary requirement specifically listed in the LLC Act itself (or by common law), or
(2) contract obligations agreed to in the Operating Agreement (if the Manager or Member acted in "good faith" reliance on same), or
(3) by way of common law piercing the LLC veil (like the corporate PCV version thereof). So personal liability is limited.
* BAD NEWS: Examples of personal liability for Managers include lack of authority, tort claims, intellectual property violations, improper distributions, crime, false documents, misrepresentation claims, improperly signed contracts, and the return of litigation advances. HOW you operate your entity is critical and the LLC Operating Agreement is a great way to limit liability by indemnifying Members and Managers. So make sure your document is reviewed and updated.
3. 2019 TRENDS
* GOOD NEWS: There are increasing case law trends towards peeling away some historic fiduciary obligations and replacing same with contract-based liability risk-shifting devices, under the theory of "freedom of contract". I expect to see more of this trend in the future. There is also an increasing trend towards Social Responsibility ("SR") where past "externalities" are becoming "internalities". I submit that the more ESG type metrics become normalized, viz.; Environmental (i.e., biodiversity, climate change, water resources, etc.), Social (i.e., human rights, labor and health standards, customer responsibility, etc.), and Governance (i.e., anti-corruption, risk management, transparency, etc.), collectively "ESG" factors, the more qualitative matters can be measured & therefore managed.
In summation, whereas the 20th century was considered the century of MANAGEMENT, the 21st century is shaping up to be the century of GOVERNANCE. The various tools above to measure ESG are being put in place to level the playing field. Today, companies are looking at not just three types of capital, (i.e., financial, manufactured, and intellectual), but also human, social, and natural capital. These 6 capitals create a truer picture of the real value of a sustainable company.
We can help you with your legal risk decision-making for sustainable solutions, so let us know if you want to embrace "life in all its fullness".
When making critical legal decisions for an organization, two major pitfalls to be especially aware of are the concepts of “intentional ignorance” and “practical drift”.
Generally speaking, “intentional ignorance” [originally referenced as “willful ignorance” by Noam Chomsky] is the theory of “truth shrouding” or myth-making. The unwillingness, in an organizational setting, to address an organizations senior level knowledge gap over time can have serious consequences. Running contrary to the model of “life long learning”, intentional ignorance can often simply start with the inability or unwillingness to ask strategic questions on long term goals. A simple example we are all familiar with, when confronted with a new idea or construct, is when someone responds with the time honored rejection by simply saying “but that’s not the way we have always done it”. They then use that way of thinking to not pivot towards a better understanding of the current facts and circumstances in order to reconsider the situation. It is also referred to as “informational denial”. By analogy in policy matters, in the FOREIGN AFFAIRS article [March/April 2017] entitled “How America Lost Faith in Expertise”, Professor Tom Nichols of the U.S. Naval College wrote that the lack of “metacognition” [i.e. the ability to think about the way you think] results in “ignorance – at least regarding what is generally considered established knowledge in public policy – is seen as a virtue”.
On the other hand, “practical drift”, was a theory originally coined by Lt. Colonel S.A. Snook in his seminal book “Friendly Fire – The Accidental Shootdown of U.S. Black Hawks over Northern Iraq”, to describe the gradual decoupling of practice from written protocols and procedures that can result in catastrophic disaster in a military setting and other complex environments. Simply put, over time an organization’s actual practices begin to “drift” from its written procedures. When reviewing the root cause of the drift, it is too often discovered that, what some in the organization have considered an “efficient adaptation”, or a pragmatic fix, too often is simply an oversimplified adaptation of a standard protocol, based on a misunderstanding of how one’s actions impact other units.
From a legal strategic perspective, an unwillingness to learn new legal compliance requirements, or creating short-cuts to existing legal compliance procedures, may appear to be “efficient” in getting a project done short term, but it is ultimately “ineffective” or even disastrous long term. As we all witnessed in the Deepwater Horizon drilling rig explosion in 2010, poor decision-making comes about in many ways, including intentional ignorance and practical drift. An organizational meta-dialogue on both theories, and how they impact your company, is important to avoid the catastrophic results of such decision-making errors. Are you drifting, or simply ignoring new data points? Good corporate governance requires addressing both these important decision-making constructs. As a member of a company’s outside team of professional advisors, we are both willing and able to help you navigate these risk matters.
This entry was posted in Corporate Governance on November 6, 2017 by mjgpc.
In the seminal book, “The Hedgehog and the Fox”, the author Isaiah Berlin writes about the tension in Tolstoy’s life between his philosophy of a unitary defining concept (i.e. the hedgehog) but in real life embraced his many relational experiences (i.e. the fox). Tolstoy, the author submits, had limited success in reconciling the two views. The author then expounded on this theme to divide famous writers and thinkers into these two groups. Quoting the Greek poet Archilochus, “The fox knows many things, but the hedgehog knows one big thing.”
So how would this paradigm apply to, say, a company contracts management process? Contracts administrators learn quickly that, regardless of whatever “system” is in place in their company, there is no “one size fits all” when it comes to the contract process. Instead, its a “one size fits one” in many situations, and rightfully so. Contracts officers learn that, whenever contract management decisions are made “top down”, they need to eventually revise and rethink the process as real facts evolve. So how should a company reconcile the hedgehog and the fox dilemma? The answer is by implementing a strategic contract system.
How do you start a strategic contract system? First, you need to go beyond the top down contract model system of drafting and negotiations, approval and execution, performance, pricing, renewal or termination, and dispute resolution, inter alia, type contract clause review. All are very important, and must be done correctly, but such a contract review should be looked as only the start of a strategic contract analysis. How? You need to begin by asking strategic questions such as the following: Does the risk shifting in the agreement reflect the current business environment? Does the agreement advance the company’s reputation, values, and culture? Does the agreement embrace collaboration? Is the agreement process flow both efficient and effective? What are the current trends in the relevant market sector that impact the success of the company’s service or product? How does the agreement fit into the long-term growth strategy of the company?
Some may say “but we already do that”. If so, then ask yourself how often does senior management meet with the “front line” contracts team to find out what is really happening in the trenches? Why? Andy Grove, CEO and legendary deceased leader of Intel, once said: “when spring rain comes, snow melts at the periphery”. The contracts administrators are on the periphery, and like a fox, they are adapting to market forces weekly. The hedgehog contracts officers need to meet regularly and learn to adapt from them.
More recently, Clay Christensen, the author, and HBS educator, wrote the popular book “How Will You Measure Your Life”. In it, he talks about “deliberate” and “emergent” strategies to be applied to both your work and your life. To evolve you need to find their nexus. We can all learn from Tolstoy’s struggles by embracing the hedgehog and fox as positive sum strategies.
This entry was posted in Corporate Governance on September 19, 2017 by mjgpc.
Henry David Thoreau once wrote, “In the long run, men hit only what they aim at. Therefore, though they should fail immediately, they had better aim at something high” (from the Henry David Thoreau book, Where I Lived and What I Lived For”). Not all of us can, or even want to, live in the woods, but we can strive to live modern daily life “deliberately”. To do so, the three (3) core concepts of business that you need to get control of, and thereby not let them control your personal life, are as follows: (1) ASSET PROTECTION LAW (2) FINANCE, and (3) ACCOUNTING.
Many people think that finance and accounting are similar, but that is a myth. Accounting works with balance sheets and income statements, so it deals primarily with the past. When you do your accounting you are “looking back” [e.g. tax returns]. Finance, on the other hand, is primarily “looking forward”. It starts where accounting ends – then projects forward to what your worth will be in the future. That leaves the third leg – Asset Protection law planning. Like finance – it looks forward and addresses risk. But whereas finance focuses on creating and measuring future value, asset protection law focuses on managing risk, and preserving ownership interests, in all your assets for future generations. All three (3) plans overlap, but they all have discrete functions. So even if you have a good current balance sheet, and a good future financial plan, the question is, do you have a good asset protection plan, including a business exit strategy? If not, all you have is a shaky two-legged cabin stool.
In his book, Henry David Thoreau quotes Confucius by writing, “To know that we know, what we know, and that we do not know what we do not know, that is true knowledge“. Creating your own business legacy takes various trusted advisors, with the knowledge to help you plan what is really important in your personal life. Even Thoreau entrusted Emerson for stability along his journey. Who is helping you live deliberately?
This entry was posted in Corporate Governance on September 19, 2017 by mjgpc.
The famous psychologist Carl Jung once said that, “enlightenment is not imagining figures of light but making the darkness conscious”. So how can business people do that? Every business decision is based on a model of projected facts and circumstances and then ultimately a strategy to resolve the matter. But to create a great strategy requires a great decision-making model. Simply stated, decision models are designed to create a structure of thinking and dialogue so that you are better prepared to create a sustainable competitive strategy. Have you ever heard of the expression “that’s a solution in search of a problem” or “we’re climbing the right ladder but up the wrong wall”? These expressions come about because too often the decision-making model is not known, much less ever discussed. So a critical decision model is replaced sometimes with such a superficial approach such as the “traditional” model of “that is the way we have always done it” to the “different” model of “its new and improved” – and every construct in between. Yet, looking back, it’s the decision-making model itself that sets the course for the ensuing disastrous results [i.e. think Titanic].
So what are some of these key decision models. Some of my preferred decision-models are the following:
It is important to know is that these are key tools to help you make decisions beyond what you are perhaps unconsciously using now. So if you don’t know, don’t use, or don’t KNOW HOW to use, these various models, then you are perhaps accepting more risk by not taking advantage of some key tools that will allow you to make better decisions. ”So what” you may say? Have you ever said to yourself “What happened”? The more tools you have at your disposal, the less often you will need to ask the question.
Carl Jung would concur that decision-making requires one to shine the light on the darkness of the way you think.
This entry was posted in Corporate Governance, Estate Planning, Strategic Planning on September 18, 2017 by mjgpc.
In his most recent National Geographic magazine article [September edition] entitled “Kinshasa, Urban Pulse of the Congo“, the author and photographer, Robert Draper, wrote that Kinshasa, the capital city of the Democratic Republic of the Congo, is a “marvel of dysfunction”. A local author Lye Yoka that he interviewed quipped that “Kinshasa is a city where students do not study, workers do not work, and ministers do not administrate”. Bribery and extortion are the key government funding mechanisms of choice. In summation, Kinshasa governance is basically controlled chaos for a population of ten million residents.
So what does work in this mind-boggling dysfunctional system? Mr. Draper concludes that the “miracle’ of Kinshasa is that it is full of “compulsive entrepreneurs” who make it work despite little government or authority to govern. How do they do it? According to those he interviewed, the underlying strengths of Kinshasa entrepreneurs are their “creativity, improvisation, and passion”. He concludes that “this is a city of frenzied entrepreneurship, where everyone is a salesman of whatever merchandise comes along, an uncertified specialist – self employed, self styled – a creator amid chaos, an artist in a shed”.
So is this true entrepreneurship in Kinshasa – or rather desperate people doing desperate things, in a desperate place, and what can we learn from it? In the book “The Illusions of Entrepreneurship”, the author – Professor Scott Shane – provides significant entrepreneurship research in America that debunks many commonly held myths that are important to correct first. Some highlights, generally speaking, are as follows:
Many entrepreneurs in America tend to lament that “if I just had more funding, I could be successful”. But taking a page out of the Kinshasa entrepreneurs book, they may be better served by starting with their own “creativity, improvisation, and passion” skills to drive their business growth. Why? Creativity, improvisation, and passion are start-up resources that you don’t need to reach for outside, you simply need to reach inside yourself. How? As the old adage goes, “if you change the way you look at things, the things you look at change”.
This entry was posted in Strategic Planning and tagged business, entrepreneurship, leadership on September 5, 2013 by mjgpc.
In his most recent article entitled “SLOW IDEAS”, the author and famous physician Atul Gawande addressed the issue of why some medical innovations were implemented quickly – and other innovations implemented only very slowly. He looked at it in the context of several medical discoveries, all had phenomenal upside potential, but not all had quick implementation. Briefly, the simple question he asked was whether there was a common thread to those ideas that did not gain quick traction. He researched the “barriers to change” and then looked at possible solutions. He eliminated traditional strategies [i.e. penalties versus incentives] as less than satisfactory for various reasons. He then analogized the solution to the time honored salesperson touch mantra of the “rule of seven” [i.e. reaching out to a person at least seven times]. He then created a “mentoring” program as the antidote to the less effective “turnkey” approach that he believes is the cultural norm today in America.
So how may the SLOW IDEAS model apply to family estate planning by analogy? Let’s start by identifying the “barriers to change”. Allow to me to suggest some recent empirical data from two brief. First, I met a Fulbright scholar from India that was studying at MIT last year. In our conversation I asked her what was a key difference between the culture of her country and the U.S.A. She told me that since she has lived here she observed how much Americans were preoccupied with “ownership” [i.e. accumulation of wealth]. She said, aside from basic necessities, she owned practically nothing – nor did she feel a need to own anything. She did not understand why our culture was so focused on ownership. The second conversation I had was with a very distinguished expert on the Democratic Republic of the Congo. When discussing health care issues he stated to me that a big barrier to improving health care conditions was that many citizens of the DRC did not wish to discuss death. For whatever reason, even though there was a prevalence of death due to war, disease, famine, etc., death was not a subject that a conversation would lend itself to even for the purpose of promoting health care. Why?
Statistics show that, despite very important reasons to do an estate plan, more families elect to not do so? Could it be that we are all so focused on owning more stuff, as George Carlin’s skit “The Importance of Stuff” would suggest? Could it be that we simply do not want to speak about the “D” word? Or could be some other explanation, viz.; too expensive, too time consuming, or too complex? No matter what reason we have for not wanting to deal with estate planning, what is a better framework to have a reasonable dialogue on the subject matter?
I think that the best way to start the conversation is to simply ask why you are not having the conversation. Why? As Dr. Atul Gawande, wrote in his article “[t]o create new norms you have to understand people’s existing norms and barriers to change. You have to understand what is getting in their way. . . . Human interaction is the key force in overcoming resistance and speeding change”. So if you have not asked – ask! And if you have asked, and not had a satisfactory conversation, ask again until you understand the solution to the problem, or at the least the barriers that keep your family from creating an estate plan.
This entry was posted in Estate Planning and tagged estate planning, slow idea, wills and trusts on August 7, 2013 by mjgpc.
In his seminal book the author Mark Nepo quotes a well-known African saying “If you don’t know where you’re going, turn around and make sure you know where you’re coming from.” So where is your business coming from the last 6 months? Here is a simple “look back” test that I call the “bad news test”. Take some recent bad news at your company and carefully analyze how it was addressed at all levels. From the minute the bad news was learned ask the following questions: How did you get the bad news in the first place [e.g. customer, an employee, a report]? How did your organization handle the bad news initially? After more information was uncovered, what bottom up system was enabled to address it specifically? Was there also a top-down, high-level strategy to address this particular bad news in relation to other bad news throughout the year? Who was invited to those strategy sessions? What was the follow-up to see if the specific fix was accomplished? Finally, what overall new organizational system [“lesson learned”] was instituted to avoid a similar pattern. Bad news is possibly the single most important front-line means to improve your company. Why? You really can’t do quality strategic planning without looking back at your bad news data.
Fourth of July holiday is an important holiday for many reasons. Time to celebrate and recalibrate. As Ron Heifetz and Marty Linsky say in their book “Leadership on the Line”, make time to get off the dance floor, and instead get on the balcony. Put another way, having just spent half a year working IN your company, you need to spend some time working ON your company. A serious mid-year review provides the opportunity to look at your operational, organizational, financial, asset protection/estate and strategic/risk management plan. How are doing so far this year?
So celebrate your successes, and search for objectives that have not tracked your mid-year goals. The good news is that there is still half a year left to make the corrections you need to achieve your annual goals. The bad news is that you realistically can’t delay any longer. So really declare your independence by taking stock of where you are – and compare that data to where you want to be by year-end. Ask “What are your mid-year top three  challenges”? Then really make them a top priority by meeting with your team of trusted advisors. Why? Your greatest risk is simply what you don’t know. So start by simply asking strategic questions to your strategic teammates.
This entry was posted in Corporate Governance, Estate Planning, Strategic Planning and tagged legal review, mid-year review, risk management, strategic solutions on June 19, 2013 by mjgpc.
You need to make a critical decision so you call a meeting. Why? Organizational behavior expert Chris Argys wrote that, at its fundamental level, “the value of a group is to maximize individual contribution”. Fair enough. The meeting has an agenda but it then devolves into what is called “rational ritualism” where everyone does a data and interpretation dance. Decisions are made using the critical thinking methodology of deductive and inductive arguments. Why? “Because that is the only way we know how to do it [or have done it]” is the usual answer. You still have big problems but you still meet the same way over and over again. So what is the solution?
The well-known author and professor, Michael A. Roberto, in his Great Courses lecture series, presented a lecture entitled “Deciding How to Decide” on how to avoid making big mistakes by simply deciding first how to make a key decision. He calls it simply “deciding how to decide”. He used as a historical example what President John F. Kennedy learned from the failure of his Bay of Pigs disastrous decision to avoid it happening twice when he made his decision in the subsequent Cuban missile crisis. It worked. So how did the successful later decision making process work? Professor Roberto’s research disclosed 4 key elements that he believes made the difference. They are:  Composition: decide WHO should be involved in the decision-making process,  Context: decide WHAT type of environment in which to make the decision,  Communication: selecting the MEANS of dialogue amongst the participants, and  Control: deciding HOW to control the process.
The purpose of addressing the four points above is to avoid group-think which is the result of the failure to create “process-centric learning”. Too often leaders focus only on “content-centric learning” of gathering all the information available on the issue, but wholly fail to address creating a balanced approach to weighing the information. The Bay of Pigs decision-making process was fatally flawed due to lack of candid debate, vested interests, and not inviting some key experts to the meetings. This fiasco was avoided in the subsequent Cuban missile crisis decision-making process by President Kennedy by deciding first how to decide.
So why do leaders routinely not create a decision-making process first? Too much time? Too much effort? Too old a habit? Whatever the reason, if you want to start making better decisions every day of the week, ask yourself, have I spent as much time on the process as I have on the content? If not, the author recommends using the four tools above to create a better model to address critical decisions. To rephrase what Albert Einstein once said, “problems cannot be solved by the same level of thinking [and meetings] that created them”.
This entry was posted in Contracts, Corporate Governance and tagged critical decisions, critical thinking, meetings on April 25, 2013 by mjgpc.
The question that Cynthia Montgomery poses at the beginning of her Harvard University Entrepreneur, Owner, & President Program [“EOP”] for business owners and senior executives is simply “Are you a strategist”? Why? Her mission is to take her class of executives and show them, through the many case studies she has written about in her book “The Strategist – Be the Leader Your Business Needs”, how to create a sustainable strategy for you company. So what is a strategist and why become one?
A strategist is not a “super manager” as the author calls it. A super manager is an “action-oriented problem solver for whom difficulties are daunting but solvable challenges”. The biggest risk of believing in the myth of the “super manager” is that super managers “tend to focus on what they can control and ignore what they cannot control”. Put another way, the Nobel Laureate Daniel Kahneman, in his book “Thinking Fast and Slow” may have called this the “inside view” – the tendency to ignore outside data to engage in independent decision-making. Super managers choose to ignore fierce competitive outside forces as not as important as their management inside capabilities to overcome them.
So how do you “become” a strategist? The author believes that you must first begin with creating a company’s “purpose . . . why it exists, the unique value it brings to the world, what sets it apart from other companies, and why and to whom it matters”? At its core it’s your sustainable competitive advantage. One way to determine if you have a core purpose is to ask yourself “if your company disappeared today, would the world be different tomorrow”? Once you ascertain your core purpose you then must plug in each component of your company and ask yourself, in a binary fashion, does the specific business activity advance your purpose or does it detract from your purpose of creating a real system of value creation. If it detracts from your purpose, stop doing it.
So how do you “own” your strategy? The author calls it the “strategy wheel”. It consists of your Products and Target Markets, Marketing and Service, Sales and Distribution, Manufacturing, Procurement, Human Resources, Information Systems, R&Ds, and Finance. Each “system” needs to be impacted by the center of the wheel – your core purpose. To digress, your “purpose” answers the question of why you exist. Your “strategy wheel” is HOW you are unique in each component. Without a core purpose tied to each component of your strategy wheel activities, you will be ineffective.
To be a strategist you must be a leader. At least once a year a company’s board of directors or LLC managers/members meet to look back at what happened over the past year, and then look forward to how it wants to operate the company next year. Too often it is a mechanical exercise that involves reviewing the financial statements and tax considerations but not much else beyond asking how you can save money. A good way to avoid this mechanical approach is to first ask yourself “are you the company strategist”? If so, then ask what is your company strategy for a different tomorrow?
This entry was posted in Corporate Governance, Strategic Planning and tagged annual meetings, strategic planning, strategy on April 4, 2013 by mjgpc.
The famous writer, business consultant, and anthropologist Angeles Arrien was quoted by Mark Nepo as saying that her grandparents told her to “never hide your green hair, they can see it anyway”. So when a company starts a new plan for the year, a new project, or a new product, the question they need to ask is how does this improve the overall unique strategy of the company – the “green hair” so to speak – that makes each company different.
The problem is many companies ask the wrong question, and therein lies the biggest mistake they will ever make every time they do so. What is it? In the book “Understanding Michael Porter” by Joan Magretta [2011 – HBR Press] Magretta interviews the famous Harvard University Professor and who responds that the “granddaddy of all mistakes” is confusing marketing plans or operational effectiveness [“OE”] plans with overall corporate strategy. Why? Simply because trying to “be the best” by definition presumes you are providing goods or services the same as your competitors which ultimately results in what he considers a “race to the bottom”. Strategy links your demand side with your supply side to create a sustainable competitive advantage. “Strategy is about the whole enterprise, not the individual pieces” as Porter explains. Put another way, “better” in strategy parlance means different or unique – your “green hair” so to speak. There is no one path to success, just many interrelated activities that make your company unique. The author cites many examples such as IKEA, Starbucks, Apple, etc. All these companies practice the concept of overall company strategy, not just marketing strategy, not just OE strategy. Porter calls it a framework, not as linear as an economic model and not as specific as a case study. Once you decide what your unique value proposition is, then you need to communicate and ultimately achieve alignment with your organization, both your inside team and your outside team.
So how do you do it? Porter states that every 12 to 24 months all companies need to have a formal strategic planning process, with quarterly reviews. But don’t confuse your business model with your business strategy. Your business model should ask the question how you will generate income and control your expenses, basically your P & L Statement that you review with your accountant [when you do your tax returns]. Your business model looks back and analyses your financial data. Conversely, your corporate strategy looks forward. It asks the question – what is your sustainable competitive advantage? How do your relative prices and relative costs compare to your competitors? What value proposition and value chain can you tailor to make you different. In a nutshell, Porter states that your business model is a basic “analyzing” step, but your strategy is the next level “forecasting” step that will make you viable.
So when do you do it? Each year the management of a company gets together to have an annual meeting to decide the strategy for that year. Each year has its own challenges and opportunities. If all that these meetings produce is budgeting and growth rate projections than Porter says all you have achieved is a business model, but you have done no debate and decision-making on your competitive strategy. Your competitive advantage is already known by your customers – that is why they picked you or not. Your failure to leverage it will ultimately result in your competitors using it against you. It’s that simple. So sit down with your trusted advisors who can facilitate a dialogue to help you create a framework for your company strategy – you know – the one that starts with “Our company’s green hair is . . . “
If you don’t, it’s the biggest mistake you will ever make, because your competitors are doing it – and they know what your green hair is.
This entry was posted in Corporate Governance, Strategic Planning and tagged strategic planning, strategy on March 28, 2013 by mjgpc.
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