BERKONOMICS

Assuming first that a corporate whistle-blower is not tooting about you individually, such a class of people have been granted protections under the law and serve a function that needs to be acknowledged.

First, the assumption is that such a person is not making his or her gesture for personal profit, but to give proper notice that there is something illegal going on within the company that the person cannot accept and must tell someone about.  Note that I use the word “illegal” to differentiate the tell-tale from the legitimate whistle-blower. A tell-tale almost always has a motive based upon political or personal gain, with the exception of when there is a perception or the reality of any form of sexual interference or bullying being reported.  That’s a subject for a separate discussion, and there are civil penalties as recourse for such proven behavior.

Whistle-blowers, on the other hand, if not motivated by a personal reward, are often brave beyond need, risking job and reputation to call attention to an illegal act or acts.  If the person comes to you with evidence of such acts, you must act immediately to address the issue, often including reporting the incident to the authorities along with the whistle-blower.  That’s particularly tough if the consequence is going to be severe against the company itself.  But, if we have learned anything at all from the last several decades of such incidents reported from within highly visible companies, covering up the problem results in amplifying it beyond anyone’s wildest imagination.  Quickly dealing with it and the consequences always is the lesser of numerous alternatives.

[Email readers, continue here…]  And of course, the whistle-blower is protected by law and cannot be punished in any way for the deed of reporting a wrongdoing that breaks the law, whether later proved true or false.

Some agencies offer cash rewards for whistle-blowers that are in proportion to the amount recaptured by a taxing authority or penalties assessed.  Such rewards blur the heroic act into one where personal gain can easily be assumed to be more of a motive for a good deed than brave action. And there are raging arguments from company offices to the halls of Congress about whether a whistle-blower should or must first approach senior management within the company before reporting to authorities. But, no matter what the outcome or how high the reward, that does not change the protection the whistle-blower has under the law.

Much of work place safety is common sense.  But there is a natural tension between economy of operation and provision for safety for employees, and the resulting risk to the enterprise must be carefully weighed.

Good boards of directors have a committee of the board to deal with “audit” issues, which should include analysis and recommendations to management about workplace safety as a part of a broader issue of risk management.  After all, the board and management together are responsible for keeping the company alive, protecting the corporate asset on behalf of all stakeholders – including shareholders, employees, and customers.

Especially in a manufacturing environment, there are laws created by those who have experienced the result of accidents by others that impose upon all companies the hard-earned lessons from the past.  Many of us groan when reading or hearing of these detailed, burdensome rules and laws.  Yet workplace accidents are harmful to health and safety for all, to morale, and they ultimately cause financial hardships upon the company, whether in the form of lost productivity, increased insurance cost, or debilitating lawsuits that inevitably follow.

[Email readers, continue here…]   No company, even the smallest, is immune to safety issues.  In this computer keyboard-driven office world, programmers, accounting and office personnel, and many others are exposed to carpel tunnel, back, and leg and neck problems, just by sitting in place.  The risk of injury, worker compensation insurance claim, lost productivity, and lawsuit are only slightly less in the office than on the factory floor.

And how do you protect your employees who travel when on the road?  Are you and they aware of the procedures for informing insurance companies, their managers and others in the event of an accident while on the road?   How do you and they respond when out of the country? To whom do they turn when in unsafe environments, let alone after an accident, when isolated from their local infrastructure?

None of us likes to think of these issues which detract from the focus upon growth and customer service.  But these very issues can derail the best of organizations at the worst of times.  At the very least, management and its board should discuss the exposures to safety risks and how they might be mitigated in advance.

Have you ever lost all of your data on your smartphone, laptop, or desktop PC?  If not, it is probably only a matter of time until you do.  Those of us who have experienced this heart-stopping event now regularly back up our data and many of us create images of our entire hard drives often, ready this time to address an effective recovery.

But what about the shock of a fire, a major natural disaster, or even the loss of an important company top executive?  Are you or your board prepared to immediately jump into a pre-planned recovery?  From experience on more than forty boards over the years, I can state that few have even considered the possibilities.  All of us have a phone listing of our employees and associates. But very few have a phone tree for simultaneous contact of larger numbers of people to marshal a recovery from any type of disaster.

Boards of directors for companies of all sizes should have a person or better yet a committee dedicated to considering the preparations for disaster recovery.  Often, we consolidate this task into the audit committee of a board; and often we expand the subject to ‘risk management’ which includes examination of all forms of risk, from insurance coverage to OSHA compliance and more.

[Email readers, continue here…]  When a company is very small and the company’s assets reasonably replaceable with existing or easily borrowed funds, the event is less likely to threaten the existence of the organization.  As a company grows in size and complexity, more stakeholders depend upon the wisdom of the CEO and the board to think in advance of these unpleasant things, and to attempt to insulate the company’s dependents from a disaster.

How about yourself?  Have you been open in sharing your knowledge and talent with a backup, or even a potential successor?  It is prudent and certainly a sign that you take this responsibility personally as a leader among your peers and subordinates.

I have three unfortunate examples in my past of founder-CEOs dying suddenly at their prime.  The shock to each organization was a threat to the very core in all three instances.  Yet as we will discuss in detail in a future insight, in one, the board stepped in immediately to reassure the stakeholders, elect a new CEO from within the board, and reach out to the community with a plan for succession that allowed the business to continue with minimal interruption.  In another, the creditors threatened to close the company, and the board was completely unprepared to respond.  The contrast was quite a lesson to me – one that I would never want to repeat as a board member or senior manager.

What if?  How about dedicating at least a half hour of your next executive or board meeting to the subject, and creating a checklist and assignments for covering at least the greatest three risks identified?  It is yet another sign of your growth and growing wisdom as a leader.

Here is a simple economic truth.  Fixed overhead continues to eat into your cash month after month.  It doesn’t differentiate facile, efficient businesses from slow, disorganized, quality-challenged ones.

If it takes eighteen months to get a new product out the door and into the market, and if a product’s gross margin is ten dollars but the corporate overhead is a million a month, it will take the sale of 67,000 more units to break even than if it were to take only six months to market.  If the total annual potential is 100,000 units, the slower cycle to market just cost the company two thirds of a year in the product’s profits.  With today’s rapid obsolescence, that could be the entire life cycle of the product itself, lost because of being slow to market.

And profits from the sale of the product create cash for development of the next product.  If the time to market is slowed by inefficient development, the risk of a competitive product overtaking yours increases dramatically.

[Email readers, continue here…]  So the truth of the statement is self-evident. Because fixed overhead burns cash, extended development cycles burn more cash, preventing earlier sale of product, to create even more cash.  Efficiency in development pays off in less cost and earlier competitive products, often producing greater market share in the process.

Have you considered how to make your operation more efficient as an important way to increase cash flow?  Most of us are quick to worry over cutting costs.  Some of us worry over how to greatly increase revenues.  Few of us worry over how to squeeze more efficiency out of the development cycle or from the organization itself.

That’s your challenge for the day, week, and month.