Vistage best of leadership whitepapers

Select Whitepapers
by
Vistage International’s Experts

Insights
on
Leadership

Summer 2012

© Vistage New York, 2012

Vistage New York * 31 East 32 Street (3rd Floor) * New York, NY 10016 * 646-290-7664
www.vistagenewyork.com

VISTAGE SELECT: LEADERSHIP

INTRODUCTION

Welcome to Vistage Select, a collection of topic-specific whitepapers which were published by
Vistage International and curated for your convenience. This volume focuses on Leadership.

Vistage International is the worlds’ leading Chief Executive Organization which focuses on leader
development. Its mission is to produce better leaders, making better decisions and produce better
results. Vistage services 15,000 members, mostly CEOs, Presidents and business owners of
companies with $5 -$500 Million in revenues in the USA and 15 other countries.

Vistage’s service program includes:
• Peer Advisory Groups that meet monthly to gain fresh perspective and new insights, learn new
skills, and hold each other accountable
• 1000 business experts, who speak, consult and provide thousands of whitepapers and webinars
• 1000 chairpersons – seasoned business professionals who facilitate the groups
• Vistage Village – an extranet which allows members to connect with one another and resources.

Vistage Select is an outgrowth of two ideas from Vistage members: how to save time sifting through
thousands of Vistage International’s documents to find some of the best articles and how to give
prospective members a taste for Vistage’s top-quality offerings.

Harvard Business Review periodically compiles a “Best of HBR” edition to share some of its favorite
articles on a specific topic. Now, we are doing the same for Vistage members around the world, who
introduce prospective members for Vistage New York.

The articles included in the Vistage Select series are available to Vistage International members on
Vistage Village™; their copyrights are reserved by Vistage International and their respective authors.

For information on other volumes in the Vistage Select series, inquire at www.vistagenewyork.com.

2


TABLE OF CONTENTS

1. The 21st Century Organization: Being Competitive and Leading Edge

2. Leaders Building Leaders

3. How to Build a Strong Team

4. Creating Business Value

5. Turnaround Time: What to Do When the Wheels Come Off

6. Mastering the Fear of Change

7. Five Foolish Faux Pas of CEOs in Crisis

8. Ten Leadership Lessons from Lincoln’s Life

9. The Changing Role of Board Involvement in Corporate Strategy

10. Ten Strategies to Make Your Board of Directors More Effective

11. Three Common Exit Planning Mistakes (and Solutions)

12. Leadership Habits: Pick your Top Three to Work On

13. Twenty Years and Going Strong: An Interview

14. About Vistage New York

3


The 21st Century Organization: Being Competitive and Leading Edge
by Pontish Yeramyan
President and CEO of Gap International,

Today’s business environment can be characterized by two primary influences. The first is the
accelerating pull towards commoditization, which requires organizations to continuously stretch
and maneuver for differentiation. Almost anything an organization produces can be quickly imitated
or improved, and first-to-market advantages have short life-cycles if any at all. Digitalization,
information sharing and vast productivity increases have evened the playing-field in many markets.
Business leaders find themselves under pressure to compete purely on price as competitors begin
to capture customers using different business models and innovative ways to create new value.

The second influence is the continuous uncertainty in markets, along with the day-to-day game to
survive in changing and unknown environments. The interconnected nature of countries, continents
and global markets underlies a delicate domino effect where local success or failure impacts the
whole system. Markets, competitors and customers all change quickly, and these changes continue
to accelerate faster than organizations are able to formulate a response. Strategic plans quickly
become stale or outdated. Decisions must be made with incomplete information. Furthermore,
complexity makes it harder to discern what is truly critical. Successful firms face wholesale shifts in
their markets, where the entire reality has seemingly changed overnight and previously successful
activities have to be completely reframed.

Along with these macro-changes, the internal dynamics of most organizations have completely
changed as well. The modern employee no longer seeks one organization to sustain their career.
The search for stability and longevity has been replaced with a hunger for interesting projects and a
thirst for meaning and fulfillment of far more importance than the reward of a paycheck. The
shorter attention span, fickle pursuits and self-interest of employees all compete with their ability
to focus their full energy on the success of the organization. In addition, leaders must manage
generational differences, the need to constantly build a variety of skill sets, diverse personal
concerns and the appeal of greener pastures. Therefore, competition for employee attention and
full engagement can be as intense as the competition for the best and most profitable customers.

Every modern business leader is experiencing a higher level of ambiguity and uncertainty than
leaders of the past have faced, with the probability that this complexity will only continue to
increase. Consequently, organizations will need to bring a fresh approach to their markets, with
unprecedented creativity and resilience to attract customers and talent in order to thrive.

As a leader committed to creating and growing a successful 21st Century Organization, the
important question becomes: What do you focus on now to be competitive and leading-edge? We
have found that the following six pillars provide a useful framework to think about this question.

Relentless Innovation
Product innovation alone will create insufficient competitive advantage. In looking at this, we are
discovering that leaders can substantially differentiate their organizations by developing an
expanded platform for relentless innovation. Rather than relying only on innovation departments to

4

improve product cycles, companies focused on relentless innovation foster this kind of thinking in
all areas of the business. We have seen that unless leaders systematically innovate in every corner
of the business, including supply chain, talent development, sales process, strategic planning and
customer engagement, the organization will not be able to keep up with market demands and
competitive pressures.

Relentless Innovation requires a new mindset – one that liberates everyone in the organization to
become innovators and create differentiation, regardless of position or function. This includes
moving away from the idea that only a few creative types possess the special capability to innovate.
Rather, consider that everyone can learn to be innovative in all aspects of the organization. An eye
on having everyone innovate everywhere opens the door for remarkable edge in the marketplace.

Being Purposeful
The 21st Century Organization can also differentiate itself by operating within a bigger context than
a vision or a mission, something more expansive. It’s not enough anymore to simply have a clear
direction – people must be able to throw their entire selves into the game to be successful, with full
engagement of heart and mind. We have found that when leaders leverage Purpose, it creates a
competitive advantage that’s difficult or even impossible to replicate. Purpose creates the ability for
people to care about something much bigger than their personal concerns and fully apply their
talent to meaningful endeavors.

If you think about it, Being Purposeful creates the platform for organizational success, because it
taps into a reservoir of potential energy latent within the organization. When people’s orientation
to their job transforms from performing work to that of making a difference, they become
exponentially more effective at coming together to produce extraordinary results. It becomes
possible to consistently produce results beyond what is predictable in the normal flow of business.
Powerful strategies can be created and re-created when purpose is present.

Purpose gives people a far more expansive space to create and grow, where creative, purpose-
based thinking replaces crisis-based, firefighting thinking. An organization of people who have
connected themselves to something bigger can thrive rather than simply survive – they can move
fast together and nimbly adjust strategies and tactics to succeed.

21st Century Leader
We have seen that Relentless Innovation and Purpose position the organization for increased
success, yet uncertainty and accelerating competition have also shaped the need for a new kind of
leader. It seems that past paradigms of leadership have begun to dissolve away, and the
hierarchical, command-and-control boss who directs an organization’s activities from a point of
authority will no longer be acceptable. In addition, merely building consensus also seems to be
losing its effectiveness. A good question to ask then is what kind of leadership does my organization
need from me?

5

We see the 21st Century Leader as someone who regularly takes bold stands and delivers
extraordinary results, bringing everyone around them to a higher level of performance. They focus
on connecting people to purpose and aligning multiple groups from every direction. They are
authentic and open. Leaders like this bring out the best performance, creativity and expression in
everyone.

21st Century Leaders inspire their people and organizations to confidently take on the biggest
challenges in the marketplace, even when it’s not yet obvious how to win. They commit to goals
they don’t know how to accomplish, which challenges people to change their thinking in order to
grow and deliver. They see how their own growth connects to performance, and they demonstrate
humility in knowing that they, just as everyone else, must constantly grow and expand themselves
to develop the next level of competitive edge.

To thrive in the uncertainty, these leaders cultivate the capability to create amazing relationships
with anyone, including customers, employees, regulatory institutions and shareholders. It’s exciting
to be around this kind of leader and it’s just what the world needs – a leader who combines a
resolve for amazing results with heart and humanity. These leaders attract the best people who
want to make a remarkable impact in the marketplace.

Passion for Growth
In our way of looking at it, truly everything can grow, and for a 21ST Century Organization, leaders
can benefit from attending to a wider view of what must grow. A mindset that we have found to be
critical is what we call Passion for Growth, where everyone growing and breaking through limits
becomes just as essential as growing the top and bottom line. In uncertain and changing markets,
predictable sources of growth can instantly become unpredictable, so it is important for
organizations to find ways to stretch into uncharted territories for growth and bring a willingness to
take on even the most hopeless challenges. If you think about it, at any moment an organization is
either growing or declining – there is no middle ground.

Having a Passion for Growth opens the eyes of the organization to a vibrant view of the marketplace
– seeing realities that need to be dismantled and re-created in order to compete. Instead of waiting
for current success to dwindle, leaders and organizations with Passion for Growth seek out
opportunity everywhere, applying creativity and curiosity to all aspects of the business. Creating a
Passion for Growth connects people to an exciting future – one that has endless possibilities to
pursue. In this environment, it becomes important for everyone to contribute to and grow each
other, having tapped into the inherent pride of being part of something amazing.

This mindset of Passion for Growth underlies the mindset for being a leading-edge organization.

6

Customer Oneness
Along with leadership and growth, we are seeing that an entirely new mindset about customer
relationships is necessary for the 21st Century Organization – that of being one with the customer.
Historically, the customer framework has mostly focused on customer service, fulfillment or even
obsession, where the company takes care of determining and fulfilling customer needs in the best
way possible. This frame of mind is limited by the ability of one entity to serve another. We suggest
that being one with the customer initiates a connection where no separation exists, and therefore
everything consistently begins and ends with the customer.

What’s different about Customer Oneness is it significantly expands the typical appreciation and
understanding of the customer. Being the customer gives an organization a precise perspective, one
that is needed to create amazing products and services over and over. When an organization thinks
and operates as its customer, the future is shaped as the customer, not just for the customer. It is
possible for any organization to create this kind of relationship – where customers naturally become
part of creating new and desirable offerings, therefore accelerating innovation.

Customers become drawn to and will stand for the success of organizations that operate with
Customer Oneness. Why wouldn’t you absolutely support an organization whose people think from
your perspective and are so keenly in tune with your wants and needs? Embraced & institutionalized
throughout the organization, this mindset generates a constant edge in the marketplace.

Breakthrough Environment
Finally, successful 21st Century Organizations can reformulate their work environments into
Breakthrough Environments – environments which flex to support the rapid movement, speedy
decision-making and alignment required to outperform competitors and regularly achieve
extraordinary outcomes. We have seen that once leaders develop new access to creating alignment
among leaders and teams, they can successfully navigate ambiguity at all levels and pursue the
biggest possibilities for the organization.

The normal organizational approach focuses on generating outputs, such as profit and productivity
from the environment. The intention to create a Breakthrough Environment expands the mindset to
focus on very specific inputs for the environment that result in extraordinary outputs.

Well-nurtured internal interactions between leader and teams give a precious advantage with
speed, reliability, quality, engagement and innovation. The inputs to these are affinity, ownership,
interdependence, purpose and risk. Any organization that measures and attends to these specific
inputs over time can create a competitive platform for sustainable growth and performance.

Having an environment where people can achieve their best performance, and challenge themselves
to grow, allows for an organization to be successful, attractive and edgy in the marketplace.

7

Where do we go from here?
The competitive requirements of the 21ST Century will only continue to change and evolve into
challenges we aren’t necessarily ready for. We must consider together that what has made us
successful to this point will likely be insufficient for future success. The willingness to question the
assumptions that have made us great will allow us to create greatness in the years to come.
Incorporating the mindset of all Six Pillars as expressed above gives leaders access to generating
extraordinary performance in a changing world. Even the most daunting of circumstances give us
all the opportunity to grow and perform at higher levels, and these pillars outline a pathway to
approach such challenges and building an amazing edge to compete and succeed in the marketplace.

Knowledge emerges and alters, trends suddenly change, attitudes completely reverse and market
realities give way to new realities. In all of this constant turmoil, the best organizations will continue
to nurture their most precious asset – their people – with the unrelenting commitment
for exceptional performance. Over time, the brilliance of the organization becomes increasingly
expressed through new mindsets, environments and leadership.
Understanding and integrating the next generation principles of Relentless Innovation, Being
Purposeful, 21st Century Leader, Passion for Growth, Customer Oneness and Breakthrough
Environment will give 21st Century Organizations committed to producing amazing results the
platform to thrive into the future.
It all starts with a leader taking a stand for an extraordinary organization, a choice that any leader
can make.

8


Leaders Building Leaders
by Vistage Librarian

"I think it's very difficult to lead today when people are not really truly participating in the decision.
You won't be able to attract and retain great people if they don't feel like they are part of the
authorship of the strategy and the authorship of the really critical issues. If you don't give people an
opportunity to really be engaged, they won't stay."

Howard Schultz, Chairman and CEO, Starbucks Corporation
Lessons from the Top: The Search for America's Best Business Leaders

The Next Generation of Leaders
In addition to style, vision, communication and motivating others, one sure sign of strong leadership
is the desire to instill leadership traits in your executive management team. According to our
Vistage Speakers, CEOs committed to building the next generation of leaders must develop and
refine their own skills while encouraging others to expand their leadership skills.

Effective leaders promote an atmosphere that supports the efforts of others to broaden their skills
base. "Enlist trusted employees to coordinate special projects or serve on problem-solving task
forces," advises Vistage Chair and Speaker Don Schmincke. "Help them learn more about steering
the organization and reward the kind of behavior you want repeated."

According to Vistage Speaker Ben Gill, certain factors make a leader-mentor credible to his or her
subordinates:
• A demonstrated track record of success in a leadership role
• Mentoring or coaching others to succeed

What does a true mentor do? According to Vistage Speaker Lee Thayer, they:
• Focus on the person's strengths and potential
• Convince that person that he or she has greatness within
• Put aside their own agendas to help this person express a unique talent
• Understand they can't motivate the person, only help him or her motivate themselves

"Leaders who want to instill the spirit of leadership in others must actively observe and listen," says
Schmincke. "They must be committed to praising and rewarding individuals for a job well done and
helping them over rough spots with understanding and patience."

General guidelines to effective mentoring include:
• A truly effective mentor relationship involves two people learning from each other - the
apprentice from the leader and the other way around.
• Mentoring relationships develop out of the unique personalities of the people involved.
A formal structure isn't necessary for this relationship to succeed.
• Depending on how the mentoring relationship evolves, the experience may be relatively
short-term, but with long-lasting benefits. It's up to the individuals involved to make that
determination.
9

The Benefits of Mentoring
The benefits of mentoring for the individual depend on his or her particular needs and ambitions.
There are tangible benefits for the organization as well. Here are some of these benefits, as outlined
by our Vistage Speakers:

For the individual
• Enhanced people management skills
• Improved listening and empathizing skills
• Ability to set and achieve performance-stretching goals
• Gaining a broader perspective on one's own management style
• The confidence to lead others and serve as an advocate for change

For the organization
• Greater resources for accelerating companywide change
• Enlisting greater commitment to the CEO's vision
• Assistance in managing any downside effects of change management
• Assistance in maintaining performance during times of transition
• Promoting organizational stability during periods of restructuring

"In our time and for many years to come, organizations will be obliged to constantly reinvent
themselves," Schmincke notes. "The effective leader understands that instilling leadership traits in
others is an essential part of making that reinvention successful."

10


How to Build a Strong Team
by Vistage Librarian

Characteristics of High-Performing Teams
As a key executive, one of the best ways to exercise leadership in your company is to put together a
top-notch team of people working underneath you. According to Vistage speaker Lawrence King,
high-performing teams share a number of important characteristics:
• Clarity. Team members have total alignment around what you are trying to create and
accomplish together.
• Commitment. Everyone believes in and supports the goal.
• Communication. Great teams openly discuss all the issues affecting the team. They don't
hold back when it comes to putting sensitive issues on the table.
• Absence of cynicism. Cynicism is a cancer that spreads throughout the organization and kills
the team.
• Diversity. Creativity does not come from sameness. Your team should reflect the customer
base you are trying to serve.
• Conflict. When people are committed & passionate about what you're trying to accomplish,
they won't always agree. Your challenge as a leader is to turn the conflict into creativity.
• Project-orientation. According to King, projects have a beginning, middle and end. Most
important, they have a score card. As a leader, you constantly have to battle the feeling
among employees that many things get started but nothing ever gets completed. Drive
home the notion that you do complete projects and tasks. Out of that sense of completion
comes the confidence to take on new tasks.
• Scorecards. People need to know how they are doing. Make sure everyone is working off the
same scorecard.
"When building your team, strive to create an environment of 'high-level adult play,'" advises King.
"Give people challenges, recognize their efforts and celebrate the wins. Talented people flock to
that kind of environment."

Building a High-Performing Team
To build a high-performing team, King recommends the following steps:
1. Using a scale of one to 10, assess the individuals on your current team according to their
technical contribution, team playing ability, communication skills, hustle factor and
interpersonal relationships.
2. Conduct a global rating of the team as a whole, using the same one to 10 scale.
3. List the strengths and weaknesses of each individual and your team.
4. Identify ways to build on the strengths and improve the weaknesses.
5. Set a goal of having a "9+" team and coach the players to improved performance.

"As the coach, you have two primary functions," explains King, "recognition and correction." Let
your top performers know -- specifically -- what they're doing that makes such a positive difference
for the company and how much you appreciate it. Do the same with your good performers, but also
let them know what they need to do to become truly excellent performers. Keep in mind that you
can never give too much recognition.
11

"To correct mediocre performance, sit down with each under-achiever and create a written 90-day
plan that states what they must do to improve. Review the plan on a weekly basis and document
progress (or lack of) toward the goal. Before judging competency and commitment, however,
always make sure you have clarity on the goals and objectives. People can't perform if they don't
know what you expect."

Communicating with the Team
According to Vistage speaker Walter Sutton, one of the best ways to build relationships with team
members is to communicate with them on an individual basis. He recommends monthly one-to-
ones with the people who work for you, using the following guidelines:
• Schedule each one-to-one in ink and stick to your commitments.
• Each one-to-one should last 30 to 60 minutes.
• Make it their one-to-one, not yours. This is an opportunity for the people who report to you
to talk about anything they want.
• Guarantee confidentiality.
• Ask a lot of questions and listen carefully.

"Great one-to-ones do not consist of lectures from you," explains Sutton. "Instead, they involve
asking a lot of open-ended questions and listening carefully to the answers. Be prepared to ask
appropriate personal open-ended questions. By doing so, you will have an engaging personal
conversation and will build the relationship. More important, your people will work very hard for
you because you listen to them."

Managing the Team
To keep your team functioning like a precision instrument, King offers the following suggestions:
• Conduct a team-centered strategic planning session. As the team leader, take your team
away for a half-day, once a year. Conduct a SWOT (strengths, weaknesses, opportunities,
threats) analysis and ask, "Where do we need to be as a team 12 months from today?" One
by one, have your people stand up and declare their vision for the team, then post their
visions on flip charts around the room.
"Rather than dictating what they should do for the next 12 months, get your people to
create the tactical plan to support the company's strategic plan," advises King. "Each person
should leave the meeting with three to five major goals that they have publicly committed
to. Remember that people will commit to implementing that which they help to create."

• Conduct quarterly reviews of your annual plan. Bring the team together once a quarter to
ask (relative to the plan):
o What goals have we accomplished?
o What goals are in progress?
o What goals are no longer relevant?
o What goals should we attack next?

"Never do planning without regular reviews," cautions King. "Otherwise you create deadly
cynicism."

12

• Conduct an annual team review. Once a year, ask:
o What are we doing that works as a team?
o What are we doing that gets in the way?
o What should we change?
o What should we keep the same?
• Use a scorecard. Never leave a planning session without creating a scorecard. Ask, "Other
than sales and profits, what are the three most important things we measure consistently?"
Answer this question for the company as a whole and for your area of responsibility. Make
sure you have alignment around what you measure.
• Tie compensation to team performance. Create a direct, obvious and compelling correlation
between compensation and team performance.
• Celebrate success. Celebrations represent symbolic compensation. Their purpose is to
confirm completion. Look for methods to recognize, reward and reinforce performance in
non-financial ways, such as plaques, ribbons, gold stars, diplomas, cards and hand-written
letters from you. King offers three fundamental principles for celebrating:
o Use more imagination than dollars
o Get personally involved
o Turn intensity into frequency (small & frequent are more effective than a big one)

"Leadership is no longer about command and control," he explains. "To build strong teams in
today's workplace, you have to sell and enroll. You have to win people's hearts and minds. The mark
of a great team leader is the ability to sell people on the exciting vision and enroll them in their
contribution to making that vision a reality."

Making Team Decisions
Ultimately, all teams must make decisions. To improve this process, suggests Sutton, conduct
regular team decision-making meetings. Start these meetings by having each team member give a
personal update. Then ask, "What decisions do we have to make as a team this week?" Make a list,
prioritize the items and discuss them one at a time.

According to Sutton, three things can happen at this point:
1. You don't have enough information to make a decision, at which point you stop the
discussion, decide who needs to get the information and move on to the next item. Never
continue discussing an item if you don't have enough information to make a decision.
2. The team makes a consensus decision in which everyone agrees with the decision.
3. The team leader makes the decision after getting input from everybody.
Once all the items have been covered, end the meeting. Do not in bring unrelated items.

"When you do annual planning, have regular reviews of the team and individuals, and conduct one-
to-ones with your direct reports, it creates a 'clock' that literally drives the team forward,"
concludes Sutton. "By engaging in these short-, mid- and long-term activities on a regular basis, you
shift from event-driven management to process-driven management. In event-driven management,
the driving energy comes from the team leader commanding action with intensity. With process-
driven management, the energy source shifts to frequency -- everyone showing up and doing what
needs to be done day in and day out. The team performs at a much higher level and you spend far
less time managing crises and putting out fires."

13


Creating Business Value:
By Patrick Shore
President & CEO of IntelliThink LLC.

What is value? And, more important, what is business value? Entering “value” in a Google search
will return several academic definitions including, but not limited to:
• “A numerical quantity measured, assigned or computed”
• “The quality, positive or negative, that renders something desirable or valuable”
• “The amount of money, goods or services considered to be a fair equivalent for something”
• “Respect, or something one thinks highly of”

According to Wikipedia, “business value” is an informal term that includes all forms of value
that determines the health and well-being of the company in the long run. Business value expands
concepts of value of the company beyond economic value to include employee value, supplier
value, channel partner value and, most important, customer value.

So how does a business owner or leader ensure value is being realized in every part of the
business? Where do you start? How is value computed? How can it be impacted? What factors
can tell you that value is being achieved? Here are five simplified focus areas designed to help
ensure value is driven throughout your business.

1. Customer Experience and Expectations

What is customer value and how is it measured? This is the dilemma for many organizations
because they get confused between customer expectation and customer experience. Customer
expectation is measured by price, quality, quantity, durability, etc. Customer experience is
measured through ease-of-use, interaction with the company, problem management, individual
assistance, etc. Success is making sure both expectation and experience are met. When one or
the other suffers, the overall value is impacted. Here are some techniques to ensure alignment:
• Define customer value measures coupled with how value is positively or negatively impacted
• Understand customer wants and needs: conduct “I want” brainstorming sessions
• Map the “I want” and customer value measures to natural customer interaction points
• Define the desired or perceived experience at the natural customer interaction points
• Insert data capture methods at each natural customer interaction point.

2. Product/Service Performance

Nothing is more aggravating than to purchase a product, get it home and find out it cannot be used
due to missing or non-functioning parts. If it does not work or last, customer value has not been
achieved. Here are a few measures to help determine product/service performance during
development and post sale:
• Defect Detection - Product issues during the design, construction and distribution process
• Product Returns - Product return tickets with reason codes (defective, missing parts, etc.)
• Product Testing - Measuring predicted usability and quality versus actual usability and quality
• Product Sales - Trend lines associated with sales over time
• Product Scorecard - Acquire customer feedback data on product/service results

14

3. Process Performance
The business process is the engine that produces customer value in the form of a product or
service. The business process is comprised of a set of business steps or functions performed by
company employees, partners or vendors and the customer. For many organizations, the people
performing a process can be blurred; for example, taking an order versus self-serve order
placement. Here are some tips to ensure business processes are performing and adding value:
• RVA – Real Value Add - Activities to enable a customer to take action (placing order)
• BVA – Business Value Add - Activities to improve a business process or output (cycle time)
• NVA – Non-Value Add - Activities performed with little or no impact on customer value
• Process Controls - Capture of data at predetermined process steps to manage outputs
• Early Warning Signals - Systematic notification when a process/output is out of bounds.

4. People Performance
In a global economy with fierce competition, a strong workforce can help companies to
stand out from the crowd and differentiate themselves on a basis other than cost. The employee
base is now becoming the beacon for managing the company brand. Therefore it is vitally
important that all employees recognize and understand their roles as the brand ambassador to
deliver customer value. Here are some tips to ensure alignment between employee roles and
instilling value at every touch point:
• Brand Czars - Each employee must understand their role and impact in managing the brand
• Customer Experience Behaviors - Educate & test for desired customer interaction behaviors
• Watch For Flares - Actively observe and manage employee satisfaction and frustration levels
• Human Network - Learn to use formal and informal human networking to deliver messages
• Checks and Balances - Identify and eliminate layers of approvals and reviews
• Enable the Customer - Identify areas to get the customer more engaged in the process.

5. Partner Performance
Today’s business landscape has evolved from a point where a single company performs all
functions required to produce, sell and service a product or service into a plug-and-play set of
functions performed by several different organizations. This new business infrastructure expands
the need to manage customer and business value across complementary and sometimes
competing organizations in order to produce and distribute the product or service. Therefore,
partners and vendors must now be treated as an expansion of the company’s workforce. Here are
some tips to help ensure partners understand and deliver the appropriate customer value:
• Brand Czars - Each partner must understand their role and impact in managing the brand
• Partner Experience Behaviors - Educate and test for desired customer interaction behaviors
Information Access - Enable the partner to access all critical information to do the job
• Decision Boundaries - Define & implement preset approvals for making day-to-day decisions
• Escalation & Notification - Establish preset policies to address day-to-day issue management
• Partner Scorecard- A monthly operation review focused on quality, cost, responsiveness, etc.

We no longer live in a world where having a good business reputation guarantees success.
Customers are more business savvy and set higher demands for quality products and services at
reasonable prices that meet or exceed expectations. To be successful, a company must focus
attention on creating business process that delivers real customer value.
15


Turnaround Time: What to Do When the Wheels Come Off
By Vistage Librarian

Suppose reality exceeds your worst case scenario and you find yourself in serious financial trouble --
what happens then? Vistage speaker John Zaepfel, who has rescued several companies from the
brink of disaster, offers a 10-point plan for recovery.

How Did We Get Here?
When a company finds itself in a life-threatening situation, the management team needs to
immediately ask four critical questions:
• How did we get here?
• How serious is the situation?
• Do we have the correct leadership to fix the problem?
• How much time do we have?
According to Zaepfel, the answers to these questions will dictate how the company responds to the
crisis. "A financial crisis doesn't happen overnight," he explains. "When companies get in serious
trouble, internal and external erosion has been taking place for some time. Little problems continue
to build, and eventually everything comes to a head and the company finds itself hanging on for
dear life.

"Too often, the CEO and his or her management team downplay or deny the seriousness of the
situation. So the first step in any turnaround has to involve pulling your head out of the sand and
taking a hard look at how you got into the situation, how serious it is and what needs to be done in
order to reverse it."

Righting the Ship
One you have accurately assessed the situation, Zaepfel recommends a 10-point plan to turn the
company around.
• Go into full crisis mode. Survival -- not growth, market share, return on investment or
anything else -- must become the #1 priority for everyone in the company. This requires
daily meetings with your management team, managing short-term issues and objectives,
raising expectations and over-communicating with all stakeholders.
• Protect and manage your cash flow. Identify where the money is going and what you have
to do to stop the bleeding. The CEO should control the requisition process and sign checks.
• Develop financial discipline. Identify the current break-even point of the business and
where you need to take it. Make control of working capital (controlling receivables, payables
and inventory) an immediate priority.
• Attack the gross margins. Break down your business by product lines or services and
conduct a careful margin analysis for each segment. Look for areas that need to be improved
or can be improved, and jettison any product lines that are causing the red ink to flow.
• Work with your bank and creditors. Present a clear, focused turnaround plan that explains
in detail how you intend to restore the company to solid financial ground. Get your bank's

16

concurrence to support you through the workout. Do the same with creditors, especially
your most critical suppliers.
"In a crisis situation, honesty is always the best policy," advises Zaepfel. "Tell your creditors what
you're up against, what you intend to do about it and ask for their help and support. If you present a
sound plan and keep people in the loop, most will work with you because it's in their best interests
to have you succeed."
• Create a cost-control team. Put together a task force to analyze all SG&A costs and see
where you can trim expenses. Give the team the power and authority to make the cuts.
• Revise the organizational structure. Identify the jobs essential to the successful operation of
the business and eliminate those that aren't.
• Protect your service and current accounts. Identify what must be done to maintain current
service levels and keep from losing customers/accounts.
• Focus on the core business. Identify the growth engine for the business. Ask, "What
leverage do we have and what uniqueness can we bring to the marketplace?" Answer this
question for existing customers and for prospects currently being serviced by weak
competitors (assuming the economy has gone south).
• Identify a new model for the business. Ask, "Who should we be selling to? What should we
be selling? How should we sell it?" Compare your answers to the current model and identify
the differences. This will tell you where to take the business in order to fix it.

"More than anything, a turnaround requires having the right leadership in place," says Zaepfel. "If
necessary, bring in a workout specialist or someone from the board of directors who can take the
helm for the short-term and implement the necessary changes."

Maintaining Financial Discipline
Once the immediate crisis has passed and the company has achieved a positive cash flow for the
short-term, the next step involves practicing ongoing financial discipline to achieve long-term
profitability. According to Zaepfel, this includes the following:
• Strive to increase your cash buffer. The cash buffer (total cash on hand plus cash taken in
each day divided by how much cash you use each day) represents how many days until you
run out of cash. The smaller the number, the greater the risk of going out of business. Once
your cash flow turns positive again, work to increase your cash buffer as much as possible.
• Tighten up on accounts receivable. Put a high priority on collecting on all delinquent
accounts, especially those over 60 days. In a real cash crunch, the CEO should personally
collect on any accounts over 90 days.
• Reduce inventory. Take a hard look at inventory -- strive for just-in-time delivery from your
vendors. Turn your excess inventory into cash as fast as you can.
• Liquidate underutilized assets. Look for underutilized machinery and equipment that can be
liquidated into cash.

17

• Extend payables. Payables come in three categories: essential to the business (usually sole
suppliers), important but not essential, and commodity products you can obtain from any
number of sources Prioritize your payables and pay accordingly -- 30 to 45 days for category
one suppliers and 45 to 60 days for category two. Look for alternative sources for your most
critical supplies. Dependence on a sole-source supplier gives them a lot of power over you.
Stretch out category three suppliers to 120 days, knowing that you will lose some in the
process.
• Track key balance sheet ratios. Keep a close watch on the following ratios:
• Current ratio. Calculated by dividing total current assets by total current liabilities, the
current ratio measures your company's ability to service its current obligations.
• Quick ratio. Also known as the "acid test," the quick ratio (cash equivalents plus accounts
receivables divided by total current liabilities) measures your ability to pay short-term debt.
The quick ratio closely resembles the cash buffer, but it's a good idea to track both so you
know exactly how much cash you have.
• Debt-to-equity ratio. Calculated as total liabilities divided by total equity, debt-to-equity
measures the amount of leverage and risk in the business. Banks pay very close attention to
this number.
• Receivables aging. Watch your receivables like a hawk. If necessary, personally go out and
collect the money, starting with the largest accounts and working your way backward.
• Continually reforecast sales. In a crisis situation, reforecast sales on a monthly basis. Upon
return to health, once a quarter should suffice. "You can't control the cash unless you have a
handle on sales," notes Zaepfel. "If sales start to go downhill fast, you need to know in
advance so you can take swift action."
• Keep a lid on cost of goods sold. Look at the contribution margin to see where you can
reduce direct labor, direct materials and variable overhead costs.
• Tighten credit. Stop loosening credit in order to make sales and start tightening the screws.
Companies in trouble need cash, not shaky accounts receivables.

Taking Action
The biggest (and most common) mistake with companies in crisis? Failure of the CEO to take swift
and decisive action.
According to Zaepfel, CEOs in a sharp downturn go through four distinct phases. First they minimize
the problem and start living on hope. Next, they rationalize the situation, because "every business
goes through rough times once in a while." Then they deny that the problem exists, thinking, "the
numbers must be wrong" or some other implausible excuse. When they finally accept the gravity of
the situation, most become paralyzed by fear and indecision.
By this time, the company typically has only about 120 days of cash left. The stress level grows daily,
everything starts to fall apart and the good people start to leave. Unless the CEO takes immediate
and drastic action, the bank will step in with a workout team and the creditors could force the
company into Chapter 11 bankruptcy.

18

"By the time it reaches this point, you probably need to bring in a turnaround specialist from the
outside," says Zaepfel. "You can't make tough decisions while still in denial or paralyzed. Plus, you
need a fresh perspective on the situation, someone who has no emotional attachment to the
organization and can reorganize and redirect where needed. Also, bringing in a turnaround
specialist will usually buy you more time with the bank and other creditors.
Ultimately, turnaround situations require intense focus from the person at the top. To keep things
as simple as possible, suggests Zaepfel, focus on the following:
• Control the cash
• Get very clear on your market differentiators
• Stay lean and mean
• Raise expectation levels
• Over-communicate with employees and customers
"More than ever, your people will be looking to you for guidance and direction," concludes Zaepfel.
"So take charge, act swiftly and decisively, and lead the way!"

19


Mastering the Fear of Change
By Jane Adamson
CEO and Founder of Phoenix-based Sherpa Advisory

" ... instability is permanent, change is accelerating, disruption is common and we can neither
predict nor govern events. We believe there will be no new normal. There will only be a continuous
series of not normal times ... "

So write Jim Collins and Morten Hansen in their new book Great by Choice. They also take note of
the fact that "the dominant pattern of history isn't stability, but instability and disruption."

Change, then, is the status quo. The silent question that many CEOs and company leaders are asking
themselves in private moments is: "How do I get past the fear and embrace this challenge?"

It's an honest and very real question. Leaders don't want to appear vulnerable. Or as not knowing all
the answers ... Or being wrong from time to time ... Or being indecisive ... Or lacking vision.

Let's be honest: It's each person's powerful emotional brain causing the discomfort. It's not caused
by the logical side of the brain, which knows that change is, by its nature, unpredictable and
oftentimes stressful, and that no one has all the answers.

Fear of the unknown isn't something that will just go away because we want it to. However, we can
mitigate the negative effects of that fear by elevating the skills and best practices that are employed
by strong leaders at all times (but especially during times like this).

Strong Leaders:
• Don't pretend to know all the answers. They do become very skillful in asking good
questions and in listening. They ask questions of their customers, of their company, of their
key leaders and managers, and of the market influencers outside the company. Great
leaders ask, listen and learn with discipline and diligence.
• Trust the gut, AND verify with empirical data. They don't blindly jump without gathering
some degree of evidence as to what works and what doesn't. Strong leaders create a culture
of gathering data, testing, making improvements and testing again. Strong leadership teams
adopt a culture of consistently challenging assumptions without blame or judgment.
Assumption testing is a team requirement.
• Demand excellence in performance standards and in execution of those standards. If
companies know how to execute, they are also adept at changing quickly and knowing when
to change. Metrics guide them, and a clear process allows the company to adjust and
transition without chaotic results.
• Facilitate honest conversations. Strong leaders ensure that the real issues are raised,
debated, and resolved. That means accepting criticism with an open mind. That means
speaking the truth even when it's uncomfortable. That means never, ever, shooting the
messenger.
• Create a process of periodic strategy reviews so that the company pauses long enough to
make thoughtful adjustments to strategy based on changing conditions, while also still
staying aligned and committed to results.
20

When these practices are employed every day as part of the corporate culture, the whole company
keeps its collective eyes wide open and understands the importance of both staying focused on the
shifting marketplace and being receptive to new ideas and approaches.

A CEO embraces the challenge of disruption by accepting the concept that the future is
unpredictable, and then puts practices into place to prepare for what cannot be predicted.

21


5 Foolish Faux Pas of CEOs in Crisis
By Lee N. Katz
The Turnaround Authority

While preparing for my speech on "How Not to Hire a Guy Like Me: Lessons from Past CEOs'
Mistakes," I realized that it was worth sharing a few of the biggest faux pas CEOs make along with a
few of my more colorful anecdotes. What follows are the 5 things CEOs in crisis do that you want to
avoid as the leader of your company or organization.

1. They Act Like Deer in the Headlights
In crisis situations, it’s amazing how many CEOs and company leaders act like deer in the headlights.
They just freeze up and wait for the impending SMACK! I was working with a guy whose company
had entered a crisis. In the midst of this crisis, his very time-sensitive catalog that directly generates
80% of his 65 million dollar annual revenue within 90 days had to go out. It was hours before the
catalogs had to be postmarked and mailed, but in order for this to happen we had to have $10,000
immediately. In a cash crisis, this guy, worth a few million, wouldn't take $10,000 out of his own
pocket to pay the postage. If anything went wrong, he was personally guaranteed on 40 million
dollars. He would have been totally wiped out had he defaulted, and all he had to do was personally
put up $10,000. I was brought in within hours of the deadline and convinced him to put up the cash.
This was the first of many critical decisions amongst endemic problems, but thankfully, this incident
established trust and a working relationship that led to a successful restructuring plan.

2. They're Only as Smart as the Last Person They Talked to
Many CEOs (and people for that matter) are only as smart as the last person they talked to -
especially in a crisis. They cease being able to think for themselves, whether out of the hope of
being able to pass the buck or because anything and everything sounds better than what they're
doing. At a non-profit educational institution, the president was kicked out of office for various well-
deserved reasons, resulting in a crisis of leadership, and the interim president kept changing the
restructuring plan with every person to whom he spoke. He'd announce firings and closings almost
daily, and then backtrack when someone objected, subsequently calling those he'd fired to tell them
to disregard the two week notice they'd received. Back and forth he'd go like this, only spouting the
last thing someone else said to him. The only smart thing he did without changing his mind was hire
me - and I fired him six weeks later. In restructuring, you generally get one plan to move forward
with - it's a house of cards and you don't want it to fall from a lot of movement. Keep your plan
conservative and reasonable, and don't be as smart as the last guy you talked to.

3. They Can't Check Their Egos at the Door to Admit Mistakes
The president at an electronics parts manufacturer found some cost accounting discrepancies that
meant he was selling products under cost. Though he didn't tell the bank, perhaps thinking that his
Ivy League Ph.D.s would save him, the truth emerged a year later when his cash flow continued to
deteriorate until the bank noticed. If he'd set his ego aside, spoken to the bank and brought in a
professional early, he'd still be president, but the bank gave him the boot and brought me in. He lost
everything because his ego got in the way.

22

Queue the Dragon Lady of El Paso: his wife and executive VP. Upon arrival, my first goal was to build
loyalty and get buy in, and an opportunity dropped into my lap. The assistant immediately asked for
twenty bucks to buy coffee and toilet paper. "Huh?" I asked. Apparently, in the interest of the
budget, the company was rationing coffee and toilet paper. The Dragon Lady was losing millions on
her left side while hoping to limit enough toilet paper and coffee for 60 people on her right side to
balance out the equation. I gave the assistant $100 and told her to buy the biggest can of coffee and
pack of toilet paper she could find, telling the other employees, "compliments of Lee." From then
on, they loved me. I had full buy-in, no one lost his job and we sold the company six months later.

4. They Don't Depend on Their Key Subordinate
I hire people who are smarter than I am. I have no problem with people making more money than I
do or being smarter. I view myself as a catalyst for positive change. However, I was brought into a
company at which the CEO did not share this sentiment. The CEO had created a generous sales
commission structure, and the Sales Manager did a great job for the company, meeting and
exceeding goals. Resultantly, he made twice as much as the CEO in his first year on the job. When
the board refused to give the CEO a raise to exceed the Sales Manager's salary, the CEO attempted
to lower the sales team's commission structure, thereby disincentivizing them, even though they
had been very successful on behalf of the company. After the CEO forced a changed pay structure,
the Sales Manager quit and went to work for a competitor. The board of directors found out and
fired the CEO. While this echoes the sentiment of the ego problem, it also highlights the issue that
CEOs fail to utilize good talent and rely on key subordinates.

5. They Don't Get Buy-In
Buy-in is so important, and the CEO who isn't getting it is looking for trouble because nothing goes
forward for long without buy-in. At WYNCOM the CEO didn't want any bad news, and he never
wanted to hear what anybody had to say. He therefore didn't have 100% of his team's focus to
make his wishes a reality. Subsequently, he lost 8 million dollars in 2 years. As a CEO it's important
to know which way you want to go, and though a business is no voting democracy, you shouldn't be
handing down dictates from on high either. Have a conversation with your people, and let them tell
you what they think. Even if they disagree and you still go the way you want to go, you can
incorporate their feedback and by doing so, get their buy-in and support. All I did when I became
CEO of WYNCOM was act as a catalyst and seek others' input, Thus, we went from an EBITDA of
negative four million to positive four million in 12 months. In fact, we saved a half million dollars in
postage just because I listened to someone.

23


Ten Leadership Lessons from Lincoln’s Life
By Vistage Librarian

As chief executive of the United States at a critical crossroads, Abraham Lincoln was the
quintessential leader.
Yet, he did not have a single day of executive experience when he took the job.
Lincoln inherited a monumental turnaround situation from President James Buchanan--with seven
deep South states already seceded from a Union that teetered on the brink of total chaos.
CEOs and other leaders can learn from Lincoln's struggles and his success, says Vistage speaker
Gene Griessman , an ardent student of Lincoln's leadership style. Griessman does a one-man
portrayal of Lincoln that he has adapted for the Vistage audience. He has also compiled a book of
quotes called "The Words Lincoln Lived By."
Interestingly, Lincoln wasn't "a natural" at most of the following characteristics that ultimately made
him successful as the country's chief executive. He worked relentlessly to better himself. To learn
more about any of the traits below, click on the link, or read the entire sequence.
• Lifelong learner
• Methodical and analytical
• Intellectually curious
• Persistent
• Decisive commander
• Paragon of willpower
• Effective communicator
• Avoided personal quarrels
• Master delegator
• Protector of his inner spirit

Lincoln as a Lifelong Learner
Lincoln was a student of the world who read voraciously. He used mentor relationships to
accelerate learning. He was a good listener. And he learned from mistakes and successes.
"Lincoln made some major mistakes that green CEOs often make," says Griessman.
For instance, Lincoln chose people as generals and in his civilian government who performed poorly
and embarrassed him. But he learned from his mistakes, and grew from them.
Lincoln used books as an entrée to the world of knowledge, whether it was Euclidian geometry or
tomes on military strategy that records show he checked out of the U.S. Library of Congress.
"He also learned from other people's experiences, and that's the Vistage philosophy: to share
experiences. He did that constantly," says Griessman.

A Methodical, Analytical Mind

Lincoln understood that hard thinking is hard, said Griessman. The president used a rigorous,
analytical approach in his deep--and slow--thinking about a subject.

24

The fact that Lincoln looked at a matter from every angle is evident in the quote: "I'm never happy
with an idea until I have bounded it north, bounded it south, bounded it east and bounded it west."
This concept borrows from his experience as a surveyor--a profession that his idol, Thomas
Jefferson, also pursued once.

Abundant Intellectual Curiosity
Lincoln was never satisfied with surface information; he wanted to know details.
He read scientific books and is the only American president to hold a patent.
As president, he needed to know what people were thinking, so he held what he called "public
opinion baths" to learn the details of what the public thought.
On a certain day every week, he would open the White House to "ordinary people," who lined up
without regard to rank or importance, and were ushered in to talk with him about what was on
their minds.
When a high-ranking military officer challenged this practice as a waste of time, Lincoln countered
that it helped him avoid the insularity that comes with public office.
Today, CEOs and executives can practice "management by walking around" to get unvarnished
information.

The Virtue of Persistence
"Lincoln understood that it can take a lot of 'no's' on the way to a 'yes'," says Griessman. "His
persistence was legendary."
The president combined strategy and tactics with his persistent behavior, though, understanding
that he could not approach accomplishing his goals in a single-minded fashion.
"He came at the issue as many ways as necessary to get there," Griessman explains.

Decisive Commander
Some people who weigh an issue from every side then have difficulty making a decision. Lincoln was
not one of them.
"He had the will to command, the capacity to be a take-charge guy," says Griessman. "The greatest
decision he made was the hardest -- whether to let the Union disintegrate peacefully or whether to
engage in war to preserve it."
Lincoln had this to say about decision-making: "The true rule in determining whether to accept or
reject anything is not in whether it has any evil in it, or whether it has more of evil than of good.
There are few things wholly good or wholly evil. Almost everything is a mixture of the two, so our
judgment is required in determining the preponderance between them."
Every tactic has its downside, Lincoln realized. "It's whether the benefits outweigh the negatives,"
says Griessman.

25

Paragon of Willpower
Another trait that he grew into was his ability to exert willpower in a situation.
"He believed willpower was like a muscle and it could become flabby or strong," says Griessman.
Once a decision was made, Lincoln believed in acting with due speed. Resolving to change--but not
doing it--was disastrous for the character, he thought.
Lincoln said, "Your own resolution to succeed is more important than any one thing."

Communicator Par Excellence
Lincoln became a master at three forms of communication:
• The one-on-one
• Speeches
• The written word
The president was persuasive in person, whether speaking to an audience of one or hundreds. "He
was a master of the stump speech, the kind used at political rallies. He was brilliant at that," says
Griessman. He also memorized Shakespeare, and recited from Macbeth only five days before his
assassination, after visiting the fallen capital of Richmond, Va.
In addition, Lincoln understood how to use the media. The Gettysburg Address--which Lincoln wrote
and delivered to explain why the nation was at war--was only two minutes long. Lincoln knew that
the short speech was "newspaper length," and his brevity paid off. The address appeared in its
entirety on the front page of the New York Times the next day.

Avoiding Personal Quarrels
"This is terribly important for CEOs," says Griessman. "It's one thing to be competitive. It's another
thing to personalize the opposition."
"Many people despised Lincoln. Even within his own cabinet, there were those who regarded him
with contempt, including his Secretary of War who privately called him a gorilla and an imbecile,"
Griessman relates.
Lincoln, who overlooked much tension, also had the capacity to avoid turning opponents into
enemies--recognizing that an opponent may disagree with you, but like you; an enemy may agree
with you but hate you.
He also learned how to avoid turning an argument into a quarrel, after his high-spirited and quick-
tempered youth, when he once narrowly escaped a duel that he had accepted.
"As a practicing lawyer, he learned that your opponent on the other side of an issue might be your
ally on another day. So in the very process of doing the law, he realized that the people he argued
with in court were not his enemies," says Griessman.

26


Master Delegator
Winston Churchill once pointed out another Lincoln weakness that became a strength: the late
president's propensity for firing generals after they made one mistake.
"CEOs need to understand that there's a learning curve with the people they delegate to. They will
make mistakes, and if they learn from them, that's acceptable progress," says Griessman.
Some of the lieutenants Lincoln chose were not agreeable individuals. Edwin M. Stanton, the
Secretary of War who disliked Lincoln, almost never laughed--although his boss was an inveterate
joke-teller.
"When he became president, Lincoln had never had a single day of executive experience, so he
assembled around him a cabinet comprised of people who had executive experience. He always felt
the information he didn't have could be found."

Protector of His Inner Spirit
• Lincoln learned how to protect himself by:
• Living one day at a time
• Collecting jokes and telling funny stories
• Attending theater
• Reading recreationally
• Making peace with himself

His philosophy was: "I do the very best I can each day, as it comes."
To follow Lincoln's lead, it's essential to make friends with yourself.
As he said, "If at last, when I come to lay down the reins of powers I shall have lost every other
friend on earth, I shall at least have one friend left, and that friend shall be deep inside of me."
To learn more about Lincoln's leadership legacy, visit Griessman's President Lincoln Website.

27


The Changing Role of Board Involvement in Corporate Strategy
By Joe Evans
President and CEO of Method Frameworks

Up until the early-2000s, corporate boards might have rubber-stamped their approval of the CEO's
strategic plan without the need for much involvement in its formulation.

They were largely content with rewarding profitability or handing out consequences for losses -- all
based on the rear-view mirror perspective of financial performance. In the U.S., that changed with
the arrival of the Sarbanes-Oxley Act of 2002, which required board members to pay far more
attention than before to the goings on within their organizations.

At that point, the stakes were raised in regard to board responsibly for managing the CEO's job
performance, overseeing financial reporting and supervising risk management. Their legal liability to
shareholders increased significantly. Board involvement in strategy has continued to change even
more dramatically over the past five years, perhaps forever changing the board/management
working relationship.

From 'Bored' Involvement to Board Involvement: Changing Norms
Before Sarbanes-Oxley (SOX), board members cared more about the performance of the company --
indicated by the financials -- and less about the accuracy of the reports and how numbers were
obtained. Of course, that has changed.

In 2008, as the Great Recession began, credit dried up and sales slumped for companies around the
globe. The risks and complexities of the business world grew as the economy worsened and strategy
mistakes that might have been overcome in the past began to magnify and severely damage or ruin
companies -- even those that had been financially strong and solid performers before this major
inflection point occurred.

The norms for board of director involvement in strategy began to change again about that time.
Corporate boards began commanding a view from behind the wheel -- with bright headlights.

Corporate boards have always varied in their direct involvement in the formation of strategy and
planning process, but it became apparent that a hindsight view was not good enough to avoid
catastrophes from occurring. That would require more involvement up front -- in strategic planning.

Where the strategy involved acquisitions and mergers to accomplish growth, boards have
historically been very involved along with major shareholders. In today's environment, even when
the strategy is built around more basic blocking and tackling maneuvers than a complex one
28

involving M&A transactions, seeking council and input from the organization's directors is wise and
becoming more systematic.

Corporate boards now want to be made comfortable about the planning process itself, insuring that
risks are properly addressed in a standardized fashion via a robust strategic planning methodology.

The Importance of a Great 'Board/Management' Working Relationship
CEOs and their management teams often take the approach of tackling strategic planning internally,
to the exclusion of board involvement. The strategic plan is updated or, in some cases, a new
strategy is born -- and only then is the finished planning product is related to the board at the next
director's meeting. This approach can backfire.

Corporate boards no longer are demonstrating default buy-in of their CEOs' strategies, especially
when they did not have a role in its development. Indeed, the trend is shifting to one of tighter
management and board collaboration when it comes to strategy development and strategic
planning process design. Board members are increasingly seeking a more hands-on approach to
setting strategy with the CEO, offering their broad and deep expertise to shore-up gaps in
experience that might exist within the management team. Working in isolation (i.e., CEO and
management develop strategy and planning without board involvement) often creates re-work.

Boards and management should be working closely together to set in place strategies that provide
good working parameters for the CEO. The chief executive should be empowered to navigate
successfully in the execution of the organization's strategy, yet be encouraged, or required in some
cases, to seek board approval on changes to strategy are being contemplated. With the stalled
economic growth we are currently experiencing, another evolutionary step may soon be coming in
regard to board involvement in strategy. Get ready to see a checkmark added in the "Plan" column
for the "Board" role in the Evolution of the Board Role graphic.

29


Ten Strategies to Make Your Board of Directors More Effective
by Les Wallace
President of Signature Resources

While the Vistage community offers support and insight into business and personal growth, your
own personal board of directors -- advisory or investors -- can add a different value to your success.

Boards become highly intimate with your business and its environment and as such become a
focused sounding board for strategic decisions. Boards of directors also typically include business
people outside your realm of endeavor who bring expertise in strategy, finance, technology or some
other dimension that can expand perspective on your specific marketplace.

Finally, boards also become a monthly or quarterly set of business eyes to help you stay focused on
the most critical performance, growth, and success factors for your enterprise. As you convene and
utilize boards, consider the following governance strategies to maximize value.

1. Measure organizational performance with "balanced measures." Progressive organizations
measure customer/client value and employee engagement equally with bottom-line financial
results. Boards that keep a close eye on each of the three categories have a full spectrum view of
enterprise performance.

2. Create a simple set of dashboard indicators to review at each meeting. Employing balanced
measures requires an easy-to-grasp reporting system. Information should be presented as a simple
set of indicators on a monthly basis. This report allows board members to quickly scan overall
company performance and determine which area they want to inspect with more detail. The report
should contain three to five indicators for each balanced measure.

3. Tie at least 75 percent of each agenda to strategic plan objectives. If boards use a "consent
agenda" they can accept numerous self-evident updates without wasting valuable time. A consent
agenda is a single agenda item that includes standard actions (e.g. bank signature changes),
informative correspondence, and general reports to the board that shouldn't require dialogue (e.g.
renovations update, quarterly marketing/advertising plan, updates on corporate investments
performance). By accepting the consent agenda the board completes many minor transactions at
once, thereby leaving more time for one of the most important functions of governance: strategic
thinking and planning. In today's fast-changing business environment, boards struggle to assure
enough strategic change to remain relevant and successful. Investing more of each meeting in
strategy discussion enhances a board's focus, performance and responsiveness in regards to
strategic issues.

4. Conduct board member development at each meeting. Ongoing growth of board member
capabilities is a constant challenge. Limited free time and budgets make travel and professional
conference participation for continuing education a rare opportunity. One solution is to conduct a
small amount of development at each meeting. For example, boards can read and discuss an article
on governance to learn how to be a better board, listen to a presentation by an accountant to
improve financial oversight, or invite a customer/client to provide their explanation of your

30

product/service value to promote greater board understanding of your value proposition. These
brief investments will contribute to the ongoing growth of governance capabilities.

5. Hold a brief "product" or "service" tutorial at each meeting. A ten-minute update on one of your
organization's products or services enables board members to stay current and maintain a "feel" for
the texture of the enterprise. This enhanced knowledge also offers the board a chance to interact
briefly with managers and program leaders as a means of evaluating the CEO's management and
leadership influence.

6. Create rules for board interaction. Seasoned board members are adept at decision-making,
interpersonal relationships, and handling differences of opinion and conflict. Boards that define
commitment expectations and develop rules for interacting at board meetings and with company
officers often function more effectively than before creating these guidelines.

7. Job descriptions and commitment to serve signed by each member. Joining a board is frequently
fraught with uncertainty about the required time commitment, conflict of interest guidelines, board
development commitments, representation and other duties. Just as a job description helps focus
an employee's work, a board member job description helps focus the potential member's
commitment and also discourages those who might consider joining for the wrong reasons. Board
members should sign their job description and conflict of interest statement as an additional step to
raise awareness of the governance commitments expected.

8. Conduct a board self-assessment at least once a year. Progressive boards engage in regular self-
assessment. These can be limited or extensive. A limited evaluation might look at the quality of
meetings, agenda management or perceptions of individual participation. A comprehensive
assessment would cover additional aspects of governance, such as strategy, board makeup,
committee structure, and CEO feedback.

9. Provide formal CEO feedback twice a year. Many boards fail to evaluate their CEO on a timely
basis. Boards should provide direct, formal feedback on their CEO's performance, twice a year. This
discussion keeps expectations and performance calibrated and results in better organizational and
board performance.

10. Plan an annual retreat to revisit organizational values and strategic plans. Progressive boards
find time to "retreat" at least once a year, if only for a day, away from the pressures of a typical
agenda. Discussion at these retreats allows relaxed exploration of changing business conditions,
shifting customer expectations, chronic challenges, expansion and a renewal of focus on strategy for
the governance body. Retreats range from one to three days.

31


3 Common Exit Planning Mistakes (and Solutions)
By Patrick A. Ungashick

When it comes to exit planning and selling a business, all of the mistakes are made in advance—in
the many years the business operated without a well-informed exit game plan. Here are three of
the most common mistakes that CEOs and business owners make when it comes to selling or
passing down the business.

Mistake 1: Confusing Growth with Value

Owners and CEOs of closely held businesses often believe that business growth equates to a higher
valuation when it comes time to sell the business. A growing business is not necessarily more
valuable. It’s how the business grows that determines the value. Here are a couple of examples:

1. ABC Manufacturing has grown its revenue by a double-digit rate for several years in a row,
but the revenue increase (and 40 percent of total revenue) came from a single, large
customer. At exit, a buyer or successor will likely have concerns about losing this major
customer and may either reduce the price, or place onerous terms on ABC’s owners at sale.
The business grew, but the way it grew presents risk to the buyer.

2. XYZ Consulting has achieved growth rates above its competitors in recent years, but most of
its success is attributed to the skills of a few key employees. Little effort has been made to
capture the business methods used by these employees, cross train other employees or
create a strong management bench. While the growth is real, a potential buyer or successor
may not see a way to create sustainable long-term growth beyond the talents of those few
top employees.

Solution: Focus not only on growing the business, but also creating “transferable value,” which
means creating business factors that reduce the risk of possible revenue loss for the buyer or
successor.

Mistake 2: Focusing Solely on the Top-Line Sale Price of Your Business
Most owners have the same goal when exiting their business—financial independence, or the
freedom to never need a paycheck again. To attain such independence many owners focus only on
getting the “maximum value” for the business at exit, meaning they want to sell it for the highest
possible price. When examined closely, this approach is misguided for several reasons:

There is no connection between the business’s maximum sale price and the net amount the owner
needs from the business at exit to achieve financial freedom. For example, the maximum value of a
business might be $5 million, and the selling owner nets $3 million after costs, debt and taxes. If he
or she needed $4 million to reach financial freedom, then maximum value was not enough. In this
case selling for the maximum sale price does not necessarily provide for a successful exit.

1. With multiple-owner businesses, getting maximum value at sale may leave some owners
smiling and others crying. For example, assume a business has three owners: Owner A owns
60 percent, Owner B owns 30 percent and Owner C has the remaining 10 percent. Assume
32

this business sells for a maximum value of $30 million. Owner A grosses $18 million (60
percent of $30 million), Owner B grosses $9 million, while Owner C grosses $3 million. After
costs, debt and taxes each might take home only a half of the gross amount. While one or
two million in the checking account sounds nice, it might fall far short of creating financial
freedom for that particular owner. In our experience Owners A and B may regret selling the
business if the outcome results in their partner and friend falling short of personal financial
freedom.

2. Maximum value often produces maximum taxes. Many tactics that reduce taxes at exit
involve reducing the nominal value of the business, and bringing into the picture other
means of compensating the seller, such as consulting agreements, employment contracts,
and other devices. In most cases, taxes are the greatest cost at exit and it pays to focus on
the net result not the top-line sale price.

3. The owner may sell for maximum value, but that does not mean the owner will ever see all
of that money. When a small to mid-sized business is sold, one cannot pay attention simply
to the sale price. Beyond the gross price, the timing and terms of the deal are critically
important. For example, a business sale for $20 million price might include $5 million in cash
and the balance in any combination of the buyer’s stock, earn out provisions, deferred
payments, seller financing, and other mechanisms. The selling owner may need some or all
of those deferred or contingent dollars to achieve financial freedom, but may never see
some or all of it. For example, the buyer may default, the earn-out targets may never be
reached, or the seller’s stock may crash. Any dollars not received by the seller at the closing
table are at risk.

4. Maximum value for family business transfers can mean maximum financial burden on the
children and maximum exposure to estate or gift taxes. Likewise, owners who intend to sell
their business to key employees/internal buyers often forgo maximum value in favor of
other considerations such as creating their business legacy and rewarding employee loyalty.

Solution: Determine how much capital an owner needs to receive from the business between now
and the exit to achieve personal financial freedom. Analyzing the Exit Magic Number™ calculation,
focuses an owner on how much they need from the business, not what the business is worth. If the
owner wants financial freedom, then the exit plan must measure and reach a predefined outcome.
Before going after “maximum value,” owners should consider the best path to financial freedom,
with minimum risk and taxes.

Mistake 3: Planning Three to Five Years Out
The third most common mistake is waiting too long to plan an exit. Many owners do not begin
planning until three to five years before they are ready to exit. Often they think the best thing to do
is to build up the business and sales in the last three to five years with an exit timeframe or date in
mind. This approach to exit planning can lead to missed opportunities for several reasons:

Three to five years is too little time to create transferable value, which requires proactive actions
such as: developing strong successor management, creating intellectual property, deploying

33

scalable systems and reducing owner dependency. If these strategies are not in place, they often
take longer than 36 to 60 months to fully achieve.

1. Cyclical external factors such as economic cycles, interest rates, stock market conditions,
liquidity levels and other factors beyond an owner’s control have a large impact on business
sale price and terms. Many of these factors move in five- to 10-year cycles. Owners should
consider aligning their exit timetable with these external forces.

2. Others may put owners “in play” first. CEOs and owners often do not control the timing of
their exit. Somebody may pass away or get sick, or a potential buyer or successor may put
that owner “in play” before reaching his or her ideal timetable. Many businesses are sold
after the owner gets a call from a competitor, strategic buyer or private equity group.
Businesses that are not ready at any given moment for the owner’s exit, typically have a
serious weakness.

Solution: CEOs and owners need to define a vision and goals for a successful exit, and then make all
business decisions accordingly. Too many simply do not know if the decisions they make today help
or hurt their success at exit. If exit success is undefined, then any positive outcomes down the road
will largely be attributable to luck. When it comes to exit planning keep in mind author Stephen
Covey’s second habit of highly effective people--they “begin with the end in mind.” Owners need to
know where they are going and how their choices and actions today help or hinder their effort to
get there. Owners might consider factoring in exit goals with strategic business plans to connect
short-term growth objectives to the fulfillment of financial freedom.

34


Leadership Habits: Pick your Top Three to Work On
by Marshall Goldsmith

There is a difference between success that happens because of our behavior, success that happens
by luck, and success that happens in spite of our behavior.

Marshall Goldsmith is one of the most successful of corporate America's celebrity coaches -- he
typically makes upwards of a quarter-million dollars for a year or so of work with each individual
client -- and is also one of the best. The Wall Street Journal ranks him among the top 10 executive
educators.

Goldsmith's primary insight is that good manners are good management, that bad habits keep
highly successful people from succeeding even more. What differentiates the one from the other,
he observes, has nothing to do with one's abilities, experience and training -- and everything to do
with behavior. Simply put, Goldsmith explains, successful people often limit themselves with
behavioral tics that they don't even know they have. Likewise, successful people tend to assume
that the behaviors that got them this far will, in time, get them further still. They are delusional on
this last count, failing to realize either that their success has come in spite of their behavioral flaws,
or that their behavior prevents them from realizing their potential, not only at work, but also in life.

Everyone has a few Bad Habits: Twenty Habits That Hold You Back:
1. Winning too much: Goldsmith notes that the hypercompetitive need to best others
"underlies nearly every other behavioral problem."
2. Adding too much value: This is when you can't stop yourself from tinkering with your
subordinates' already viable ideas. "It’s extremely difficult," Goldsmith observes, "for
successful people to listen to other people tell them something where we believe we know a
better way or can improve on their idea. The fallacy is that, while it may slightly improve an
idea, it drastically reduces the other person's commitment.
3. Passing judgment: It's not appropriate to pass judgment when we specifically ask people to
voice their opinions ... have you found yourself rating their answer? Goldsmith recommends
"hiring" a friend to bill you $10 for each episode of needless judgment.
4. Making destructive comments: We are all tempted to be snarky or even mean from time to
time. But when we feel the urge to criticize, we should realize that needless negative
comments can harm our working relationships. "The question is not, 'Is it true?' but rather,
'Is it worth it?'"
5. Starting with "No," "But," or "However": Almost all of us do this, and most of us are totally
unaware of it. But Goldsmith says if you watch out for it, "you'll see how people inflict these
words on others to gain or consolidate power. You'll also see how intensely people resent it,
consciously or not, and how it stifles rather than opens up discussion." This is another habit
that may take fines to break.
6. Telling the world how smart we are: Driven by our need to win, we let people know “I
already knew that” or “I’m five steps ahead of you”. Being smart turns people on;
announcing it turns them off.

35

7. Speaking when angry: When you get angry, you are usually out of control. And you may
justify it as a “management tool.”
8. Negativity or "Let me explain why that won't work": Goldsmith calls this "pure unadulterated
negativity under the guise of being helpful."
9. Withholding information: This one is all about power. "We do this when we are too busy to
get back to someone with valuable information. We do this when we forget to include
someone in our discussions or meetings. We do this when we delegate a task to our
subordinates but don't take the time to show them exactly how we want it done."
10. Failing to give recognition: When we don’t take the time or remember to do this, we deprive
people of the emotional payoff that comes with success. We may not realize how important
it is to them.
11. Claiming credit we don't deserve: To catch ourselves doing this, Goldsmith recommends
listing all the times we mentally congratulate ourselves in a given day, and then reviewing
the list to see if we really deserved all the credit we gave ourselves. Who else made that
success possible?
12. Making excuses: We do this both bluntly (by blaming our failings on traffic, or the secretary,
or something else outside ourselves) and subtly (with self-deprecating comments about our
inherent tendency to procrastinate, or to lose our temper, that send the message, "That's
just the way I am").
13. Clinging to the past: "Understanding the past is perfectly admissible if your issue is accepting
the past. But if your issue is changing the future, understanding will not take you there."
Goldsmith notes that quite often we dwell on the past because it allows us to blame others
for things that have gone wrong in our lives.
14. Playing favorites: This behavior creates suck-ups; rewarding suck-ups creates hollow leaders.
We all believe we don’t like suck-ups, but maybe it’s just the obvious suck-ups we don’t like.
15. Refusing to express regret: When you say, 'I'm sorry,' you turn people into your allies, even
your partners. The first thing Goldsmith teaches his clients is "to apologize -- face to face --
to every coworker who has agreed to help them get better."
16. Not listening: This behavior says, "I don't care about you," "I don't understand you," "You're
wrong," "You're stupid," and "You're wasting my time."
17. Failing to express gratitude: "Gratitude is not a limited resource, nor is it costly. It is
abundant as air. We breathe it in but forget to exhale." Goldsmith advises breaking the habit
of failing to say thank you by saying it -- to as many people as we can, over and over again.
18. Punishing the messenger: This habit is a nasty hybrid of 10, 11, 19, 4, 16, 17, with a strong
dose of anger added ….. like the difference between asking the person “what went wrong?”
and asking “what the ____ went wrong?”. It’s also the small annoyed responses we make
throughout the day when we are inconvenienced or don’t like the news we are hearing.
19. Passing the buck: "This is the behavioral flaw by which we judge our leaders -- as important a
negative attribute as positive qualities such as brainpower, courage, and resourcefulness."

36


20. An excessive need to be "me": Making a "virtue of our flaws" because they express who we
are amounts to misplaced loyalty -- and can be "one of the toughest obstacles to making
positive long-term change in our behavior."

Bonus bad habit: Goal obsession, or getting so caught up in our drive to achieve that we lose
track of why we are working so hard and what really matters in life.

We can change our future by changing how we act. The key to a better future likewise comes from
learning to listen to what others have to tell us about our behavior. We learn best if the lessons
others have for us come not in the form of "feedback" -- which focuses on an irrecoverable past,
centers on judgment, and makes us defensive -- but on "feed-forward," which is constructively
centered on the future, and takes the form of helpful advice about things we have the power to
change.

37

Vistage best of leadership whitepapers

Vistage best of leadership whitepapers

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (16)

Andere mochten auch

Andere mochten auch (10)

Ähnlich wie Vistage best of leadership whitepapers

Ähnlich wie Vistage best of leadership whitepapers (20)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

Vistage best of leadership whitepapers