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The Board, The Budget, The CEO and Everyone Else

I was recently asked, again, what are the traits of a great CEO. After my instant blast, “The anti-Trump”, I offered a more measured response. “It depends if you are on the board or a member of the organization. If you are on the board you are riveted on a track record of financial results and growth. If you work for the company you want a CEO who isn’t a slave to quarterly results and is willing to take a long view of success. Better still, a CEO with a fundamental belief that without taking care of the talent, the company will never be great. And therein lies the rub. To illustrate this divide I turn to that beloved annual event: budget planning.

Most companies are finalizing their budgets now. For those of you who don’t sit in on those executive meetings, let me tell you how this discussion goes.

CEO: If we are going to show the growth the board needs in ’16 we are going to have to make some tough decisions. Let’s look at our G&A expenses and make some cuts.

Exec 1: Don’t forget we are launching New Product ABC in the 2nd quarter next year. We’ll need enough resources to get that up and running. NewPro will account for a 15% bump in revenues.

Exec 2: My group is already running lean and mean. I can’t imagine taking another hit and being able to function.

Exec 3: There is already a morale problem around here. I’m worried that more cuts will cause us to lose our superstars.

Exec 4: I suggest that rather than take our usual “cut approach” that we should take a “stop projects with no ROI” approach. If we stopped pouring people and money into bets or products that aren’t paying off we could get to cost containment in less painful ways.

Exec 5: That’s all fine and good but we haven’t let Project XYZ work it’s magic yet. It would be too soon to pull the plug.

CEO: Here’s what I want. Everyone bring in your plan to cut expenses by 10%. Do it however you want to but keep in mind that headcount is the biggest ticket.

End of discussion. No coordinated, analytic, holistic, thoughtful conversation. Just a number for each executive to come up with. Talking about unprofitable products or top performers or the morale or the unintended consequences of continuous reductions rarely happens for more than a moment. All eyes must stay focused on “shareholder value”. Or as the rest of us know it as “slash and burn” or “here we go again” or “WTF”.

To be clear, all boards, executives and staffs want to be profitable and successful. But there seems to be only one formula used to get there. Here are a few radical but doable ideas to continue to control expenses without creating such damage to the morale or culture of the place.

  • Control executive compensation. Yep, I’ve said it. If boards were disciplined about (or not friends with) executive salaries just imagine the millions of dollars in cost containment? Absolutely biggest ticket in the company and the most untouched in every annual budget discussion. Reduce merit increases and bonuses for the executive team and you get to your 10% goal immediately.
  • Generate a “stop doing” list. If each department head identified all the projects, products or activities that chew up time but don’t return a profit you would uncover loads of dollars. Not only that, it will be a morale booster. Everyone knows these are stinkers and can’t understand why the senior team doesn’t put the brakes on.
  • One word: Skype. Obvi, I know. How many travel expenses could be eliminated if all meetings that are less than 3 hours are done via Skype? How much wear and tear on people could be reduced if they didn’t have to hop on planes for a couple meetings? It is shocking to me how infrequently Skype is used in corporations. There seems to be only two choices for remote meetings: the dreaded conference call or very high end video equipment that may or may not work well.
  • Don’t nickel and dime the staff. The first items that are cut (never to return during better times) are small employee perks: free snacks, development (vs. required) training classes, reward and recognition funds, celebration gatherings, cell phones etc. The combined savings from all these activities is small potatoes but the price that is paid is huge. Value the staff first. Make cuts in their worlds as a last resort rather than the first go-to.
  • Share the pain. The bitterness is growing by the day in corporations. The disparity between exec and staff comp is so immense that the best and the brightest are leaving to start their own businesses. The grass is not necessarily greener but working so hard for little reward in a large company just feels too awful. Leaders who are willing to take the hit can garner respect and loyalty…and even more hard work from the staff.

Where the real change needs to occur is with the corporate boards. Executives take their marching orders to increase profits and reduce expenses knowing full well that they will be grandly rewarded. Although the staff discontent is increasing at a rapid pace these days, there doesn’t seem to be board or executive concern about that. The system is entrenched and broken and immoral.

Calling Elizabeth Warren. Come in please.

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