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Organizing & Operating Businesses for 55 Years; Chris Has Got Some Thoughts (1Q19 Newsletter)

January 15, 2019

To: Customers & Friends

From: Christopher Weil & Company, Inc.

Thousands of books and articles have been written about how best to organize and operate a business. And while the volume of publications might suggest to some that the subject must by now be exhaustively understood, in reality there is no end in sight, for this is an open-ended subject. Why? The environment (natural, economic, regulatory, political, social, etc.) is not static and so requires institutions of all kinds (businesses included) to be organizationally nimble and responsive to whatever new demands the environment may present them (at least if they’d expect to prosper going forward). And then there is the reality that the attitudes, expectations and tolerances of the labor force (from low-wage to highly paid) are not static either. We simplify the dynamics of demographic changes with broad-brush generational labels (The Silent Generation, Baby Boomers, Gen Xers, Millennials, Centennials), but these labels disguise the often profound differences among members of these cohorts as well as the similarities between people of very different ages and experiences. All this, therefore, will be the basis for a continuing supply of ideas, recommendations, proposals, analyses, “best practices” and treatises --each seeking to consider both that which is perennial and that which is new (or evolving) in institutional life.

Having been involved in organizing and operating businesses for fifty-five years --starting as a one-man band commission salesman who thought he had a salary (which actually was a draw) and thought he was an employee (when actually he was a contractor) --I have evolved my own set of ideas about how businesses should be organized and operated, some of which I am going to share with you here. I want to make it clear at the outset, however, that “I have evolved…” is a gross simplification. The “evolution” was rarely smooth and often involved battles with other interested parties, usually CWC staff. Like a lot of people, I tend to believe my way is the right way and it sometimes takes the equivalent of a two-by-four banged across the back of my head just to get my attention, much less my assent, particularly if a change in a dearly held belief is involved. It is due to the persistence and good sense of many CWC staff people that I can now speak with confidence about business organization and operations.

First, two qualifications.

While I believe that there are certain perennial management principles (“commend in public, criticize in private” is a simple example) it turns out that, for every such “perennial,” someone with the appropriate credentials has a telling counterexample. There are enough of these counterexamples to put into question the idea that there really are perennial management principles and that what we describe as “perennial” should more properly be described as “situational.” I don’t care. Whether the right way to organize and operate a business is based on some set of Platonic ideals or some set of pragmatic rules-of-thumb is of no moment to me. I am satisfied that there in fact is a right way (not “my way,” for I have augmented staff-enabled on-the-job training with the work of a hundred commentators, not the least of whom is Peter Drucker) to organize and operate a business, whatever the mission, history, culture, leadership, clientele, regulatory regime and ownership structure (or non-ownership structure, in the case of non-profits) of that business may be.

And second, someone may care to argue that as my business experience has been largely with small enterprises, my “principles,” at least to the extent they are based on my experience, do not have the same force when applied to large enterprises. Maybe. But I have had two large-company experiences: one (1968 - 69) as the CEO of a new broker dealer owned by a financial services holding company; and one (1985 - 88) as the Chairman (a title more ceremonial than substantive) of my old broker-dealer, at that point newly acquired by a big REIT, which didn’t know what to do with me (thus my ceremonial title). It turned out that, in both cases, there were operational problems of such magnitude that matters of firm governance were swamped by a series of short-term crises that took all the time and attention of senior management. One big “principle” did emerge from these adventures: budgeting positive cash flow and its related cost applications in the early months of a newly organized or reorganized business, no matter how optimistic the scenarios, is madness (unless the cash flow is irrevocably locked in, which ours wasn’t). As it happens, there was another consequence of my big company experiences: I concluded that big companies were not where my skills, such as they were, could best be deployed.

With those two qualifications, here is a partial list of my management principles. Obviously, it is not comprehensive; it is subject to modification (at least to some extent; see paragraph one, above); it is open to counterexamples (with which I am familiar and by which I am unmoved).

1. Most business problems are the consequences of systemic failures, not individual ones. However, identifying the source of a systemic failure can be difficult and time-consuming. It is easier to blame individuals -- and blame is consistent with the human propensity to look for individual culprits when something goes wrong. “Someone must be to blame.” However, it is far more creative and productive to treat the “culprit” as a messenger bringing news of a systems failure. Suspend blame. Seek systemic explanations. Don’t shoot the messenger.

2. The individual “rainmaker” phenomenon is real enough but not as common as the world supposes. Significant production/productivity usually arises as the result of team effort and collaboration. This is particularly true when the initial sale involves a material product/service installation process and a long-term commitment to intensive customer service. Nevertheless, it is all too common to allocate outsized compensation to the visible, public-facing “producers” at the expense of other team members, the very team members whose collective contributions made the “installation” and promise of “intensive service” possible in the first place (and who are then responsible for ongoing customer satisfaction). All members of successful sales and service teams are critical to business success. Compensate accordingly.

3. Interests matter, a lot. Every business has several constituencies (stockholders, lenders, customers, employees, regulators, the communities in which the business is located, vendors, the taxing authorities, and so on), each with its own set of interests, priorities and claims. It is crucial, therefore, that those responsible for business leadership have clear in their heads (and publish, as appropriate) the firm’s priorities (that is, how the interests of the various constituencies are to be ordered). My own view is that it is an oversimplification to think in linear terms (constituency A first, constituency B second, and so on). More realistically, there are two sets of constituencies. The first set of constituencies -- customers, lenders, taxing authorities and regulators -- constitutes a context within which the business operates; and their requirements (and thus their interests) are well defined, relatively inviolate, and not subject to (much) modification, except in extreme circumstances. The interests of the other set of constituencies, including employees (founders, leaders, managers and implementers), communities, stockholders and vendors, are well understood but, unlike the constituencies that comprise the business context, are more malleable (or, if you prefer, more negotiable) by management. How these interests are prioritized will differ from firm to firm, but my own view is that the interest of stockholders should be last. I am as interested in the wellbeing of ownership as anyone is likely to be, but I recognize that only if all constituencies are satisfied is the firm itself likely to survive and prosper. (“Satisfied” does not mean satisfied always and in every way. It does mean that the business recognizes the interests of each constituency, communicates that recognition to same, and then is steadfast in its intent to honor its obligations in a consistent and transparent way.)

4. Put service-oriented people in service-oriented jobs. Sounds simple and makes perfect sense, right? And yet, hardly a day goes by for any of us without a service “experience” that leaves a bad taste in our mouths and (no small thing) a negative impression of the company the service-provider represents. No matter how good a particular product or service may be, companies lose business because prospective customers are turned off by “service” people who are cold, indifferent and/or unhelpful. In most businesses, margins are thin. It doesn’t take a whole lot of lost business to move return on investment from positive to negative. Everyone knows what it is like to be served by a particularly capable waiter or waitress, someone you would remember with pleasure. Put people in public contact positions who measure up to that level of engagement. I believe the hallmark of any 21st century business will be the recognition -- by everyone from the mailroom (do they have those anymore?) to the boardroom -- that there is no such thing as an employee who is not in a customer service position, no matter what his or her title happens to be; but I will defer a discussion of that to another day.

5. A flattened organization chart is generally held to be a sign of enlightened management. And so it is. One of the lesser recognized virtues of a flattened structure is that it constitutes an enforced form of delegation. It is a truism of management theory that delegation is a “good thing,” and the more the better. But the truism “is more honored in the breach than in the observance” (Hamlet). In “flat” organizations there is no issue regarding delegation. It happens automatically … which means that employees who might not normally be expected to assume responsibilities for decisions and actions “above their pay grade” will be asked to do just that or, if unprepared, to get prepared. This can only be healthy for the organization (not to mention for the employees involved). It also puts, I would note, a particular burden on those responsible for hiring. “Does the person being considered have the capacity to perform above his/her head?” is a question HR people don’t normally need to ask. Hierarchical organizations have their virtues but tend to be over structured and dependent on the “brilliance” of superstar leaders. This often translates into current success; but when present leadership moves on, issues with sustainability are revealed. Think (fairly or otherwise) General Electric.

6. Stop distinguishing between “soft” and “hard” skills. There is no way that one set of skills (“soft”) is somehow inferior or subordinate to another set of skills (“hard”). To believe that is so 20th century. Why? Competence in a task (a “hard skill’) was what once defined hire-ability. You were either a good accountant/engineer/carpenter/gardener/architect/teacher (or were seen to be capable of becoming one) or you were not. But even in the old days, there was a recognition that soft skills matter. A rough-andready metaphor for this is the notion of “bedside manner.” There were doctors who had it and doctors who didn’t, and generally people were drawn to doctors who had it. But “bedside manner” doesn’t really do justice to what is meant by “soft skills.” In the 21st century, such skills include flexibility (“I’ve never done that before but I’ll give it a try”), curiosity (“I wonder why we do it that way”), learn-ability (someone who learned Latin in school can learn anything), ambition (not so much for wealth, although that is certainly an ingredient, but for mastery), collaborative instincts (lone wolves tend to be restless and impatient and make poor team players, in an age when team rather than individual contribution will be the distinguishing characteristic of successful enterprises), integrity (without which all the rest is in vain) and a service orientation. One of the implications of ceasing to distinguish between soft and hard skills is a lessening dependence on credentials as the sole or primary indicator of hire-ability. Going forward, assessment of hard skill competencies will be no less important; but assessment of soft skills “competencies” will enjoy a new pride of place.

There are 168 hours in a week. For most adults, anywhere from 40 to 50 or even 60 hours (depending on workloads, financial needs, responsibilities, occasional work-related crises and so on) are devoted to work. So, if the average work week is 50 hours, with an additional five hours per week (conservatively) for commuting, and 56 hours per week for sleeping (a healthy 8 hours a night), we are left with 57 hours a week for our non-work lives. This means that about half of our waking lives (for perhaps 35 to 40 years) are committed to work. Isn’t it screamingly obvious that everyone should enjoy a workplace as congenial as their home? Happily, among the many benefits that inure to enterprises operated consistent with the above six “principles” (among which is ours), people want to be there.

Much more could be said on this whole subject, disadvantages as well as advantages, and whether and to what extent it is an appropriate way for any particular institution (coal miner? call center? ballet company? army? family?) to operate. It’s a provocative subject, and I would appreciate hearing from you with any thoughts you might have.

The team at CWC joins me in wishing you all a safe and happy 2019.

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