Monthly Archives: February 2017

Emergency Exercises Like Just Another Drill

It’s no secret that the world can be volatile and violent. Shootings and bombings in public places. Floods, fires, droughts, and other dangers amid an uptick in severe-weather events. Any of these could be a threat to your organization, its people, its customers, and its suppliers. And although senior executives contemplate the likely impact of these phenomena in risk-analysis meetings, far fewer take the time to participate in real drills, instead designating someone else as a stand-in. After all, it’s tough to get an operational dry run on the calendar of a CEO, CFO, or other executive.

That is an enormous mistake. Executives who let someone stand in during practice set themselves and their teams up for failure when the worst happens: The first crisis may be beyond your control, but that is not the case with the second, highly avoidable crisis that results from a fumbled response. Participating in a rigorous, well-crafted, scenario-based drill is the closest you’ll get to experiencing the emotional tension and challenging ambiguity of an actual event that may involve fatalities, skittish investors, and intense media scrutiny. I’ve seen many occasions in which seasoned executives who start an exercise confident, even joking, wind up sweating amid the flurry of high-stakes decisions to be made in a response drill.

If you are a senior leader, you don’t need to attend every exercise, but you should make time for at least one in your calendar each year. It is the only way you’ll know what to expect in a true emergency — and the only way you’ll be able to judge whether those engaged in the nitty-gritty of the response are capable of succeeding.

An exercise is your chance get to know your emergency team, how it works, and where you fit in. It is also a chance to ask seemingly naive questions. If you are wondering about something, chances are someone else is, too. A drill will likely trigger important realizations or gaps you wouldn’t have known needed to be addressed had you not been in attendance. It will provide a real window into not only what a crisis might look like, but what the recovery will be in the weeks after.

Here are three frames to help you get the most from your investment of time.

Understand the operational rhythm (and how not to impede it). The first 20 to 30 minutes of any response will be chaos. Incomplete and sometimes conflicting information will be flying around. Resist the temptation to try to assert control — the easiest way to create chaos is to take command when you aren’t fully versed in the plans and protocols the response team members are using. Instead, watch to see how long it takes for the team to get into an operational “battle rhythm” in which the team members are effectively processing information, making or elevating decisions, and taking appropriate actions. What you can do at this point is ask how you can be useful.

A critical benefit of taking part in an exercise is trust building with security and safety managers with whom you might otherwise not have much chance to interact. In an actual incident, you’ll need to count on them, and they’ll need to be comfortable with you.

Learn what questions you’ll want answered. A good drill exposes gaps that lead to learning. For example, in the Deepwater Horizon oil spill response, where I did several days of field research, responders were prepared to provide Gulf-wide information on resource allocation — but elected officials wanted those details on a state-by-state and parish-by-parish level. An enormous effort was required to retool the mechanisms for more detailed reporting on resource allocation. That need could have been learned of and addressed ahead of time had those officials attended more drills.

Returnships for Retaining Women

It started as a whisper. Back in 2008, Goldman Sachs, which originally coined the term returnships, began a high-level, paid internship program for professionals returning to the workforce after an extended absence, with the opportunity for a permanent role. The participants were mostly women who had dropped out to raise children and now wanted to restart their careers.

That whisper is now growing louder. Returnships have become more common; they are a part of the conversation in business and media circles. The U.K. prime minister is even getting in on the act: The day of the country’s 2017 budget announcement, Theresa May unveiled a £5 million (US$6.2 million) fund to identify opportunities for — guess what? — returnships.

iRelaunch, a U.S.-based business specializing in returnships, has identified more than 100 active programs globally, in sectors as diverse as construction, advertising, and financial services. They’re clearly making a mark: Many corporate heads of diversity, when asked what they’re doing to create senior-level opportunities for women, will reply, “We’ve got this covered — we have a returnship program.” But the situation is not that simple. Both organizations and women seeking to return to the workforce should be aware that these programs aren’t a panacea.

The function that knows your company best

Tax discussions have the rare power to put senior executives to sleep yet keep them up at night worrying.

Business leaders have traditionally compartmentalized tax management as a compliance function, a complex specialty ceded to the experts. Although some C-suite executives have begun to realize that the tax function plays an important role in their overall strategy, it tends to operate relatively independently. When taxes do force their way onto the agenda of the CEO or the board, it is often in the context of bad news. Consider the uproar in the U.S. in recent years over corporate inversions, in which a U.S. company avoids paying U.S. taxes by buying a foreign company and moving its own headquarters overseas. And with the promise of some kind of tax reform under the Trump administration, the only certainty is that corporate taxes will continue to be headline fodder. On the other side of the Atlantic, the European Commission’s rulings against perceived cases of “state aid” in the form of favored tax treatment of certain companies can be costly to companies that are required to pay back their tax savings, as well as damaging to their reputation.

But to assign tax management entirely to a compliance role is to miss an important opportunity. In fact, executives should move quickly in the opposite direction: They should pull the tax function out of its silo and integrate it into the company’s daily operations. This function gathers data on every part of the business, including employees, assets, and intellectual property, in all territories. It’s one part of the organization where, at least once a year, you can be certain to find a comprehensive accounting of the entirety of the business.

This overarching perspective, of course, isn’t just “nice to have”; it’s increasingly necessary if companies are to communicate effectively with regulators and tax authorities. For example, multinational organizations are facing unprecedented challenges in the global tax environment as governments require greater tax transparency in the countries where they operate. Moves toward digitization of the tax system in a number of countries — Russia, Mexico, and Brazil are among those at the forefront — are also giving government tax authorities unprecedented amounts of transactional data about companies, often in real time. Since the tax function is gathering all this information together for regulators, it behooves the organization to use it more effectively in its own right. Thus, it is becoming a best practice to view the tax function as a strategic partner, one helping to set business priorities and giving the company a competitive edge. Otherwise, the tax authorities might have more insight about your company’s data than you do.

Giving Up Control Is Key to Creating Value

In the two years after Lew Cirne founded Wily Technology in 1997, he assembled an experienced executive team, hired 50 employees, and raised two rounds of VC funding. But he also had to relinquish three of five board seats to his investors, who promptly decided that Cirne should be replaced by a CEO with a stronger business background. CA eventually bought the firm for US$375 million — a far larger haul than Cirne could have brought in, as he admitted. But the founder was still chagrined about the early decisions he made that led to his ouster.

Whether in Silicon Valley or any of the other startup hubs around the world, Cirne’s dilemma is all too familiar. To grow their firms, founders desperately need financing, skilled employees, and the kind of “social buzz” that makes investors reach for their checkbooks. But the more investors or key hires who come aboard to provide much-needed resources, the more autonomy the company founder must surrender. Founders face a trade-off between retaining control and increasing the value of a young firm.

According to a new study of more than 6,000 high-potential U.S. startups that launched between 2005 and 2012, how one navigates this early-stage founder’s dilemma has a profound impact on the firm’s long-term value. The more power retained by founders, the author discovered, the less valuable their companies are.

For every additional position of power a founder occupies (being both CEO and chairman, for example, as opposed to controlling just one of those roles), the company’s value decreases by between 17.1 percent and 22 percent. The author also found that startups whose founders retain an additional level of power see a 35.8 percent to 51.4 percent decrease in the amount of financing they raise, depending on which variables he used to measure a founder’s control.

But this trade-off effect kicks in only after three years, at that delicate stage in which founders’ technical expertise or visionary outlook typically become less crucial to growth than the resources a firm has attracted.