CEO's Diary: Risk management

The CEO still has questions

April 30 - My wife is on the side of the Chair.

She thinks I should pursue the non-exec role even if the short term pay-back is limited.

She knows of former colleagues of hers who are stranded, unemployed in their fifties through little fault of their own bar having failed to diversify their skill set. I'll be honest, I know it's an issue. And she says she'll support the time requirement.

Which is all very well. But three questions still arise. The first is, is this the right company to do this with? The second is, will the shareholders agree, whatever I want? The third is, what if this speeds up my exit from the existing job?

But I know at the end of this I'm simply juggling risk. Funnily enough, I'm quite happy to do that for others, and much less happy doing it for myself.

I'm having dinner with the Chair tomorrow to discuss this. I still want to know why he is so driven on this issue. What's in it for him? Or does he really just care about me? I'm certainly not used to the latter, at least since I left relatively junior employment.

But I need to know.

* * *

April 29 - I had a chance to talk to the Chair. To my surprise he says the owner of NonExecCo (as we'll call it) liked me and thinks I'd be good for the job.

I stressed I was not at all sure. More, I could see little benefit for me, let alone my company.

He assured me, money was not an obstacle. Not good enough I said: this wasn't just a training exercise, and I'm not at all sure my career really needs this. What's more, without some compensation I could not see why I would want to take on the additional hassle.

He was blunt. He said being happy with my lot now was short sighted. My shareholders need not be happy with me forever. I am getting to an age (as he unsubtly out it) where jobs stop growing on trees and people need extra persuasion to look at CVs. And, as he put it, I need to think 'portfolio' in case I ever need the diversity it brings.

And anyway, if I was so sure that NonExecCo needed complete reorganisation, and the exit of its owner, why hadn't I thought about buying it? There was every reason for not wanting to buy my existing operation. Size alone made it a difficult proposition to buy, and my own success at creating profit had probably put it out of any realistic reach for now. But why not keep options open elsewhere?

This was not the form of counsel I had expected. I had not viewed this as a long term parachute option. He said I was mad. Nothing lasts forever. Whilst jobs might now not grow on trees, did I really think I was going to be in the current job until retirement? And if not, how was I going to earn a living given that I am the father of a young child who might still be at university at around my nominal retirement date?

Sure, I can say no, he said. He didn't mind. But he wants me to think about my plans, he said. Because he's worried that I am not and thinks I'm making a big mistake.

I'll have to muse on that. It sure put the rest of the day into relatively mundane perspective.

* * *

April 28 - I finally got to the meet the owner of the company that the Chair has asked me to consider being a non-exec of.

He's older than I was expecting. Not chronologically. I worked out that bit a long time ago. I mean in attitude. Grumpy is not the word. Nothing is right for him.

He says he wants to keep going for many years yet. I don't believe him. He exuded no pleasure from the role he has. All he could do was moan about banks, markets, regulation, tax, accountants, employees, doctors (who he claims sign off 30% of his staff sick at any time), unions (although he doesn't recognise one) and more, and more. I think he either needs to be out or wants to be out soon. But maybe he hasn't come to terms with that yet.

What I did not get was much feeling of the company itself though, partly as we met on neutral territory, partly beaus this felt like a meeting where we just got the feel of each other.

This would be a tough assignment. I'm sure I know why the Chair has recommended me - I have a track record for sacking shareholders, and I strongly suspect this show will be better off without this guy. But I want to know three things before I take this on. The first is how much time this will take out of my week, the second is whether they'll pay for it and the third is whether I can withstand the grief of working with this man. Which leaves question four, which for a change I'm asking (and overall I'm not good at doing so) which is, what's in this for me?

I think I might have to muse on this and see the Chair.

The interesting point is that if I have a complete management team right now (and that will be the case soon) then I should be able to delegate more and have the time to do this. Oh, and then there's the final question. Would the shareholders say yes anyway?

Why am I getting into this? Do I really need a new challenge? I wonder.

* * *

April 25 - I was out much of yesterday, and in the course of doing so discovered that for reasons beyond my wit all my personal data was wiped from my lap top. Not files or programs, I stress, just all personal settings that allowed me access to absolutely anything, anywhere.

OK, today I'm back in and the issue is being resolved for me. But you can't imagine how debilitating this is.

And no one can explain how or why it happened as yet. I'm just told it doesn't look like I'm to blame. But I can't really sure they just aren't being nice to me.

As it happens, the day was a good one. I'd been asked to meet a company who said they believed there was common ground for us to explore. They're right. There is. Ideas they're working on fit well with our delivery model. They have technology and no route to market. We have the latter. I can see a possibility for us adding some services to the range if this works out.

NDAs are now under way, or so I', told, but it's always interesting to meet people who are sparky, innovative, have taken risk, and know what they want.

That's not my shareholders. And from the continued lack of feedback from the owner of the company that the CEO has asked me to visit with the possibility of being a non-exec that's not them either. I called the Chair about that. He's as annoyed as me at the lack of reaction and is taking it up: he's not the sort of person who wastes breath on an idea for it not to progress. The world is too short of such people.

* * *

April 23 - I saw the audit manager today - and she was smiling.

Are auditors allowed to smile, I asked?

She assured me that nothing that as yet forbids this in the ethical guidelines governing her work, but there are serious problems in providing any realistic interpretation of the message that the smile should convey since standardised communication of audit reports is now necessary, and to interpret the smile would be to imply, for example, that part of the communication were italicised as if to draw attention to an issue and so communicate something of importance. Since this does appear to be forbidden by those same ethical codes it would, she said, be quite inappropriate for me to ask the reason why she was smiling because it was obvious that she would be unable to respond and as such it would be unwise for me to pose the question.

With which she smiled, and went on her way.

And I have to say I was amused.

* * *

April 22 - Sometimes lawyers bring good news. Our Newman - the new manager for the east - has been subject to challenge from his old company on having given notice to join us. They also had a go at us as well.

Today his old company agreed that so long as we did not use data that was legally theirs his employment by us was something to which they could not object. We have given an undertaking not to do so. I think that's important anyway. If we steal their data we encourage someone to steal ours.

But they wouldn't release him from his gardening leave, and I won't risk that either. Which is annoying. I can't see what the hassle is for them.

Although, given it's a pleasant afternoon a spot of gardening would appeal to me right now!

* * *

April 21 - I have spoken to the owner of the business where the Chair has suggested I be a non-exec. I have the feeling he has as much enthusiasm for me taking on this task as the shareholders in my company have.

It's extraordinary, isn't it? The evidence that non-execs add value to businesses, that they assist continuity, that they seem to be linked to increased profit and growth is available for all to see, but still people mistrust them.

I remember (from long ago) the economics course I did to become an accountant that said that people maximise profits. Apart from the fact that I'm still not sure what profit it is I'm meant to maximise, I also know that shareholders in SMEs really do not seem to have this objective. If they do, it's certainly not profit as defined in the P & L account. It seems much more likely to be the sum of their perceived well-being, and involving others in their business threatens that well-being by much more than the yield in increased cash rewards them, so they don't want it.

Now, how do you work out a reporting system for shareholder perceived well-being so that you know how to hit all their buttons at the right time and keep the cash flow going, as the two seem in most cases to be in perpetual conflict one with another? That to me seems the ultimate question in SME accounting. Any answers anyone?

* * *

April 17 - I mentioned recently that we have decided to get tough on non-payers. One relatively small account has been a persistent abuser, and hires kit from us. We are seriously concerned that they're going under. Payments have by now not just been late, they're paying round sums on account of less than invoiced sums owed, which always looks bad.

We'd chased and were getting nowhere so we decided to exercise the option our hire contract gives us in the event of non-payment, which is to terminate at will and to remove our kit. This won't clear the debt, but in this case it might represent the best recovery we can get.

So this morning we sent teams into all sites the customer owns, they delivered letters telling them what was happening and then, as is the normal case, were allowed access to the equipment, which they uninstalled unless doing so would leave damage requiring remedial rectification. Thankfully, in most cases we can leave the mounting bracket behind to prevent this.

And they left, with the kit. Of course, by the time they had the proverbial was beginning to hit the fan here, but we'd expected that. Indeed, as the person who took the decision to do this I had instructed I take the calls.

The customer was irate. I read to them our mails saying we would have to take action to recover in accordance with our contractual rights and then drew their attention to the relevant clauses in the contract and said that was all we had done.

We had now terminated the contract. We would not reinstate the equipment. We could still take legal action, at our option to recover the debt owing. Or they could back down from the somewhat aggressive stance they were taking and we could now negotiate a much reduced sum to settle all claims.

It's amazing how a big discount changes perceptions. I agreed 30% of the outstanding balance in five days would, if cleared, settle the account. I get an agreement by return.

It's up to them how they deal with any regulatory issues arising from not having our kit: as I often say, we're not a charity.

I have no idea if we'll actually see the money. If we do we'll have got out of a potential mess quite well. And we can do without that sort of customer, wherever the economy is going.

* * *

April 16 - The shareholders aren't happy with the suggestion that I be a non-exec. The ex-CEO was mad with the Chair for suggesting it. He called him and told him so. He's told me there's now way I'm to do it. He's not having me selling our secrets to others for nothing he says.

I pointed out that I'd not make more, and the company would be paid for my time. I think he'd missed that bit. He was left grumbling, no more.

Mrs CEO was as unreasoned. Her response was to simply say "I think this is a bad idea".

Now that leaves me with a problem. Do I accept what they say, or do I assume that, as is often the case, they're wrong and I should investigate further before making a further recommendation for action?

I'm inclined to do the latter. I'm not prejudicing us at all by going to see the company. After all, I might conclude they're right and that I want nothing to do with this lot. And if I'm going to be satisfied they're wrong I have to find reasons to say why that's the case.

I've told the Chair to set up a meeting, but I've also told him that no one should think this represents a commitment on my part. And I can live right now with the fact that although the shareholders said they dislike the idea, neither actually said I should not investigate it. In the absence of instruction not to do so, I will.

* * *

April 15 - Much of the life of a CEO is unexciting. I try to pull out interesting bits of each day in this diary - but it's not a fair representation of what really happens. I mean, is answering emails interesting in most cases? Are routine meetings interesting? Is talking to customers as a matter of course to make sure good relations are maintained something to write home about? Is stroking people's egos and smoothing ruffled feathers, every day, memorable? Actually, no, they're not. But they're essential.

So are monthly management meetings. We usually hold them on the third Tuesday of a month, which fell today. But it was a lack lustre affair. The first management accounts of a year rarely have much to say. We hit target. That's enough said. The only bad debt risk of significance had been discussed. The pipeline is OKish, given the current climate. People issues are pretty OK. The team is now stable. There are concerns about work losses, but most were already well known and needed little more discussion. We had no special papers or plans to discuss. It was all pretty routine.

* * *

April 14 - I spent a lot of time over the weekend reading about the company that the Chair has asked me to join as a non-exec director.

I'm an accountant - so I began with the accounts. It's got to be said that account production software has, these days, removed a lot of the anomalies that used to be apparent in these and once gave some indication of the quality of the underlying data and of the auditors or accountants.

This company is not audited, and the accounts have a horribly standardised feel, but they also tell a story. It's apparent from looking at four years of results that the pattern of trading is erratic, margins are unstable, overheads are inconsistent and that the reward structure is determined at whim. That said though, it is profitable, even if the balance sheet looks wholly unstructured, and cash flow must be erratic as working capital ratios seem all over the place. All that suggest one area where management is needed.

The web site suggests another. It's useless. Sticking up what is little more than a brochure on the web is really not very helpful these days. Amazingly, I found it really hard to work out how to contact them from the site - which is what most people use them for. There's a great deal to do there!

But what is also clear is that the market they are in is likely to be volatile in the face of an economic down turn. Unlike us there is no regulatory or other reason why the service is required. They could be eliminated in a cost cutting exercise unless they can show why they add value. That might be a real challenge.

Do I want to accept that one right now?

And can I face taking on another strong-headed entrepreneur who owns his company outright and is sure he's right on every occasion? That's the real question.

* * *

April 11 - I saw the Chair this morning for breakfast. Having bashed through all the usual issues (some of which are rehearsed here) he had an unusual proposition for me. Would I like to be a non-executive director?

I admit the thought has not really occurred to me. I much appreciate having him on board, but had basically retained the stereotypical view that non-execs are for large companies, or at least, I wasn't one. Certainly looking around the smaller company acquaintances I have that is my experience, even if I think that a mistake.

However, he has a company where he has been doing some mentoring which he thinks in need of a non-exec to ask the awkward questions of the owner / director which no one else feels able to raise, precisely because of their dependent status. He thinks it would be good for me to see another company in operation and to broaden my experience of management by sitting as an outsider on another board.

He's quite candid. He doesn't want my existing employer to lose as a result, and wants them to be paid a fee for my services. But he thinks the time out will pay dividends in a sector quite different to our own, but where many of the operational issues are apparently quite similar.

I'll muse on it - and we'll have to ask the sharehoilders, but I admit, I've already been working on a draft of the email.

* * *

April 10 - It's odd how things creep up on you. We've been merrily promoting our new activity but in doing so have entirely forgotten to put in place the standard template terms and conditions for the service, which differ sufficiently from our standard service contracts to require some reasonable re-thinking.

Newc has already issued a couple of botched versions of the standard terms I realise, but as we're now nailing down our biggest contract for this to date it occurred to me that a compromise will no longer do and spent hours today with him bashing through just what we do supply, what we do want to exclude from liability and how we can define contract variations (because, as we all know, these generate profit).

It's a task almost as important as winning the work in its own way. Good job I caught it now.

* * *

April 9 - There are some issues that require kid gloves. Pregnancy is one of them. In a company of any size you can be pretty sure that this is also a subject that is routinely encountered.

With some members of staff the whole thing runs smoothly - at least from an employer's point of view. With others, it's a nightmare. Office has one such person right now on her team. She seems to think that maternity leave starts at conception and we've hardly seen her since. Now, as an experienced father I know that there is something called morning sickness that appears completely misnamed as it happens at any time. And I'm aware of the fatigue some women suffer especially in the early and late stages of pregnancy. But I also know that in the mid stages most women are fine, and can, subject to the odd hospital visit, do a normal working day.

But not this person. She has been absent almost 50% of the time, and after four weeks of this we've had to ask for a medical certificate. This, very unhelpfully says she's 'tired'. "Aren't we all?", Office demanded of me.

It seems that she thinks a few light duties are all that can be expected of her at the moment, and then at her convenience. The fact is, and she confirms it, she's not ill. She's just pregnant, with all that follows from it - but nowhere does it say that this gives a right to time off. Sickeness does that. She has a condition, which is quite different.

This is the first time we've experienced this issue, so today Office and I met her (two being required for safety) and made clear that maternity leave begins, in her case, in about 16 weeks time and in the meantime we have a right to expect her to work normally. If, alternatively, she feels she can't fulfil the contract we'll be happy to reduce her hours to suit if a full time work load is too much right now, but we do need to establish a 'normal' pattern if working so that we can commit to he needs as well as she to ours.

I think we did this as tactfully as possible, and put it all within the context of asking how we were together to manage everything to ensure she had the best opportunities combined with becoming a mother, but it is difficult! And what was clear was that she was obviously quite unaware that she had any duty to us, but assumed all obligations were the other way around.

I shouldn't say this (but I'm going to, and I'm sure it just shows me to be a Grumpy) but it's this that annoyed me. This mentality of rights without obligations was not common when I was her age and is more common now. The 'greed' generation don't understand obligation - and I find that really annoying.

* * *

April 8 - I always hope that my accounting days are over. Is that every accountants dream? This though is not always the case. Sometimes things just require one to recall that double entry is a language that, once learned, is ingrained and changes you forever.

The difficulty arose because #1 has a few days off, and her deputy (appointed since I headed the accounts department) had got herself in a right pickle with a journal on fixed asset disposal.

I know - these should be easy - and such is our fixed asset register that I cannot see how she could go wrong, except that she decided to short cut things and consolidate a number of year end write offs, and in the process came up with an almighty hash on an issue that should have been well within her grasp as a qualified AAT.

Once she'd got it wrong though she tried to correct it by doing another composite adjustment and from there it just sank in the mire, and in a panic she asked me for help, thinking it best to have it resolved via me rather than land it on #1's plate on her return (which I took as a curious compliment, but noted as an issue for #1 to address).

There was only one thing to do, and that was prepare a spreadsheet of the place where all the credits and debit had gone until it was obvious where the adjusting entries were needed to ensure that the desired effect was obtained. It didn't take that long with a clear head (which by this time she had lost). It wasn't quite doing T accounts, as of old, but it was close.

What was horribly obvious was that I was better at such things than she is. Do they teach this stuff these days - or is it just the fact that it rarely has to be used that is the problem?

And for those who ask - yes we could integrate our fixed asset regsiter into our accounting package but don't. We keep a separate register because of the flexibility this gives us in managing asset descriptions and locations, and their reallocation - which is important when a lot are off site. What we use should, and does, write the journals for disposals. In this case the problem was trying to be smart - and it went wrong.

It's always people who beat systems.

* * *

April 7 - Great fun doing interviews for new operational people - something I would rarely do. Even more fun to do it with Office - the two of us being effectively unqualified for the job we were doing in the sense that neither of us do operational work.

I was surprised though that this did not seem to matter. The reality is that we ask all candidates for almost all jobs to undertake a practical assessment before they can be offered the post - however well they interview. Given that East's #2 had also drawn up the short list - and is completely competent to do so - I was relaxed that this side was largely covered and that we were therefore looking for the right personal characteristics.

These jobs are a case where that horribly defined characteristic called 'a self starter' is essential. And that was enough to allow two candidates to stand out so far from the rest of the crowd that in truth Office and I could conclude the interview session knowing we'd done a good job, had selected what seemed like good candidates for the two posts we have available and can report that fact back with confidence.

How often can you say that of a piece of work?

* * *

April 6 - Why work on a Sunday night?

East's #2 rang me this afternoon. He's twisted his ankle - badly and can't drive. He sent a picture to prove it!

The problem? He was interviewing for new people tomorrow. So I'm the understudy and am now reading the CVs.

This is the price of being CEO. I wonder if I ever calculate it?

* * *

April 4 - Yesterday brought one problem, today another. Bad debt. Out of the blue a useful account has disappeared - a victim of the commercial property crunch. There's no point weeping about this, but those managers who were in met for lunch today to discuss what we can do to protect ourselves against this problem, which can only get worse the way things are in that sector, to which we have some exposure through managing agents and their like.

There is a plus these days with the remote equipment we install. We can say we will simply turn it off if they don't pay. It's not a phenomenal threat, but it's one we've decided to trial. Termination of service is not something we want, but on the other hand servicing business that does not pay is another thing we don't need. And overall, losing a bad payer before they go bust suits me just fine. I'd rather sell our effort to someone else.

* * *

April 3 - Some things are a persistent problem. Van insurance is one of them. For the third year running our insurer says we've claimed more than the premium we've paid for vehicles, almost all of it for small knocks from careless driving. We have a £100 excess we can charge to employees in this case, and when it's flagrant (like reversing incidents with walls which mysteriously jump out behind our drivers) we do deduct this from pay. But either way, we're still facing a big premium increase this year and #1 called me in for support as this is meant to be in her area but is not something of which she has much experience.

Our broker was, I admit, pretty useless when I spoke to them. A new person has taken over our account to add to the problems, breaking a relationship I'd had throughout the last few years. My problem was we'd been given little time before renewal, but a call around a couple of people I know gave me new names to try. One relatively small broker worked her socks off to see if she could get us a better deal - and did. I'm delighted to have shifted the account. It's good to know that some people are willing to work hard to earn their living. She did.

We'll still pay more than we have, but with slightly less bad feeling.

* * *

April 2 - Our IT chap is doing more useful stuff. As someone pointed out when I last wrote about this, what he's suggesting may not be revolutionary, but it's useful none the less. He's suggested a macro writing programme that is cheap, and easy to learn. We've all had this stuff in Word for years, but this works anywhere on the system, including emails, word processing, presentations and so on.

It's really stupid that it's so cheap, so simple, so effective and we haven't done it before. I wish I knew why. It's one of those road to Damascus moments when you realise someone has done something simple that will improve your working life henceforth.

That part of his trial is over. I'm asking the management team to agree that he have a month looking at the database now to make recommendations on that to see if he adds value in a bigger way or is just a man who can take a good idea from a PC magazine. I don't know the answer to that yet, but he's worth a trial for the degree of initiative he is showing.

* * *

April 1 - The usual spoof stuff arrived in my inbox this morning.
Stories of client sites blowing up, new orders for every site in a major supermarket chain, and in between it one I should have believed - confirmation that East really has landed the big new contract we'd won from a competitor which I mentioned a couple of weeks back.

I didn't believe that at first.

The joke was on me. I'm standing the celebratory drinks for all involved.

* * *

For previous installments of the CEO's Diary, see:
March 2008
February 2008
January 2008
December 2007
November 2007
October 2007
September 2007
August 2007
July 2007
June 2007
May 2007
April 2007
March 2007
February 2007
January 2007
December 2006
November 2006
October 2006
September 2006
August 2006
July 2006
June 2006
May 2006
April 2006
March 2006
February 2006
January 2006
December 2005
November 2005
October 2005
September 2005
August 2005
July 2005
June 2005
May 2005
April 2005
March 2005
February 2005
January 2005
December 2004
November 2004
October 2004
September 2004
August 2004
July 2004
June 2004
May 2004
April 2004
March 2004
February 2004
January 2004
December 2003
November 2003
October 2003