Posts in category: Articles

Article originally published in the Philadelphia Business Journal on September 30, 2019

What are the roles of management and the board in developing a company’s
strategic plan? This is an update of an article I wrote in June 2015.
One of the most important roles of the CEO and the senior leadership team is to
develop and successfully execute their company’s strategic plan. One of the most
important roles of a board is to provide input during the development of the plan
and vote on its adoption.

A strategic plan is management’s road map to take the company from where it
currently is to where it should go over a multi-year period. It identifies objectives,
strategies to pursue, obstacles to overcome and resources that are needed.
The strategic plan should be consistent with the vision and mission of the
company. The vision is an aspirational statement – the lofty purpose of the
company, a statement that inspires employees. The mission broadly describes the
business in which the company is engaged, the markets served and how the
company differentiates itself.

The foundations of the strategic planning process are the situation analysis and the
SWOT analysis. A situation analysis describes the current and projected
economic, competitive, technical, regulatory and societal environment in which
the company will operate during the plan period.

A SWOT analysis outlines the company’s strengths, weaknesses, opportunities
and threats. Strategies need to be developed for the company to build on its
strengths, minimize the impact of its weaknesses, take advantage of its
opportunities and defend against its threats.

The board’s role is advisory – to pose questions to management to stimulate
thought and provide guidance, to assess the risks of the strategies under
consideration and to evaluate alternative strategies. This process should take place
over a number of board and board committee meetings, so that the directors have
time to think about what is being presented before voting on the plan.
The board cannot hold management responsible for achieving the strategic plan if
the directors play a direct role in its development. The board’s role is to help
management think about issues that may not be on their radar. The CEO and the
senior leadership team must own the strategic plan. The board’s job is to monitor
progress and hold the CEO accountable for results.

A CEO with a strong reputation and many past achievements has built up political
and performance capital. A board will take the CEO’s track record into
consideration when assessing strategies that are presented for approval. However,
strategies presented need to be evaluated on their merit by the board and rejected if
they are judged to have a low probability of success, are considered to be too risky
or don’t fit the strategic direction of the company. It may take courage for a
director to raise these types of issues. It is their job to do so.
So, what are some of the pitfalls boards need to consider when CEOs present the
company’s strategic plan?

Failure to face the brutal facts of reality

As a director, I have sat through strategic planning presentations, incredulous that
the CEO and business unit leader were not facing the brutal facts of their reality.
In one example, the business unit held a weak market position, competing against
companies with superior technology. Revenues and earnings were stagnant. It was
very apparent that the strategies presented would not be effective in improving the
business unit’s competitive position and generate growth. The board convinced the
CEO that the business should be sold.

Setting a strategic objective without the right strategies to achieve it

Without the right strategies, objectives will not be achieved. Employees will
disengage and not feel a sense of ownership in the objectives. Boards play an
important role by questioning the CEO to determine whether the right strategies
are in place to achieve the objectives of the plan.

Doing the same thing and expecting a different result

Results will not change if strategies that have not been effective in the past
continue to be implemented. During the strategic planning process, paradigms
need to be challenged and changed. If no strategy is capable of achieving an
objective, perhaps the objective is not achievable, and another objective should be
chosen.

Underestimating the actions of competitors

As a CEO and board member, I have listened to business unit leaders outline long-
term strategies to gain market share with no thought to how competitors might
respond. You can be sure that they will. How will they respond, and how will the
company defend against their response?

Not shedding a losing strategy

Much can be learned from entrepreneurs and their mindset. How do entrepreneurs face the specter of failure? They pivot and pursue another strategy, another idea.
Why? Because resources are limited, and they are forced to move on. Established
companies should exercise the same discipline.

Failure to recognize that some leaders may need to be replaced

Members of the current senior leadership team of the company may not have the
experience, skills or mindset to execute the strategies or achieve the objectives of
the strategic plan. They may need to be replaced with other leaders that are more
capable of achieving the plan’s objectives.

Directors, ask penetrating questions so CEOs and the senior leadership team are
more effective at developing objectives and strategies. Monitor progress, and hold
the CEO accountable for results.

Stan Silverman is founder and CEO of Silverman Leadership. He is a speaker,
advisor and nationally syndicated columnist on leadership, entrepreneurship and
corporate governance. Silverman earned a Bachelor of Science degree in
chemical engineering and an MBA degree from Drexel University. He is also an
alumnus of the Advanced Management Program at the Harvard Business School.
He can be reached at Stan@SilvermanLeadership.com.

Article originally published in the Philadelphia Business Journal on September 23, 2019

Serving as an independent director on the board of a company furthers your
professional development and provides insight into how other organizations
conduct business. I would like to share my perspectives on board service. This is
an update of an article I wrote on this subject in December 2015.

I have served as an independent director on the boards of public companies,
private companies, private equity companies and nonprofit organizations including
educational institutions. I have held the position of CEO of the then-private
company PQ Corporation, and chairman of the board of the Drexel University
College of Medicine and the Soap and Detergent Association. My board service
has been a rewarding experience.

An independent director is one who meets the definition of independence, which
generally means that the individual is not an employee, doesn’t do business with
the company and has no familial ties to management, among other criteria. One of
the primary responsibilities of a board is to hire the CEO and to fire them if they
don’t perform. A director needs to be capable of this, regardless of any business
relationship or friendship between the director and CEO that has developed.

For those who desire to become an independent corporate director of a private or
public company, a common first step is to join the board of a nonprofit
organization. This is an opportunity to learn about the board governance process,
the fiduciary responsibilities of a director, the areas under the purview of the board
and that the job of a director is governance and not operations, as that is the
responsibility of the CEO.

Serving on a nonprofit board also provides an opportunity to learn about how to be
a director or trustee, how to have your opinions effectively heard and how to make
influential arguments on issues. It is also an opportunity to network with
individuals who could support your candidacy as a director for a private or public
company board.

There are a number of differences between public, private and private equity
company boards:

Public company boards

Public companies are owned by institutional and private investors. Public
company boards have a formal board process, with significant time spent on
satisfying the complex Securities and Exchange Commission regulatory
requirements of a public company. These requirements include the review and
approval of quarterly 10-Q and annual 10-K financial reports, 8-K public
disclosures of material events and annual proxy statements that disclose to
investors the details of operations, financial results and executive and director
compensation.

Analysts who follow a public company opine on its prospects as an investment
and make buy/sell recommendations to investors. They also issue estimates on
quarterly earnings. If a company does not achieve these quarterly earnings
estimates, it can have an adverse impact on the company’s stock price. This can
place an emphasis on quarterly earnings versus earnings growth over the long-
term.

Public companies are under the scrutiny of the SEC as well as investor advisory
services, which advise institutional investors on the quality of the board
governance process and issue a report card regarding the governance practices of
the company. The reports of investor advisory services and their recommendations
can impact how shareholders vote for a company’s directors.

Private company boards

These companies are owned by private individuals, often family members who
have an interest in building long-term shareholder value for eventual sale of the
company or to pass ownership to the next generation of family members.

Private company stock is not traded on public markets and therefore private
companies do not face the scrutiny that public companies face by the SEC,
investment analysts and investor advisory services. The time that public company
directors spend on dealing with this scrutiny can be spent by private company
directors on discussion, approval and oversight of the company’s objectives and
strategies that are developed and implemented by management.

Private equity company boards

On private equity company boards, the directors usually are significant investors.
My experience on these boards is that the directors and the CEO are financial
partners focused on strategies to increase shareholder value. Their time horizon is
much shorter than that of a private or public company. As in the case of private
companies, the time not spent on compliance required by public companies can be
spent focusing on the company’s objectives and strategies.

Private equity companies acquire firms with the goal of using their resources and
specific expertise to increase the firm’s value. Unlike public company firms whose
operating metric is earnings, the primary operating metric of a private equity
acquired firm is cash flow which is measured by EBITDA (earnings before
interest taxes depreciation and amortization).

Private equity companies focus on increasing the revenues and EBITDA above the
levels when they acquired the firm. The higher the growth rate in revenues and
EBITDA, the higher the EBITDA multiple they can sell the firm for compared to
when they purchased it. Private equity acquired companies carry significantly
more debt to maximize the return on their equity investment.

Whether you serve on a nonprofit, public, private or private equity company
board, all directors need to be concerned about liability exposure. Directors have a
fiduciary responsibility and must practice the duty of care and duty of loyalty.
Don’t join a board unless adequate D&O (directors and officers) insurance is in
place. Directors serving on public company boards face relatively larger liability
exposure due to the nature of scrutiny and risks associated with public companies.

Board service is a rewarding experience and provides an opportunity to develop
valuable skills. It expands your network. It also provides an opportunity to be
exposed to businesses and business issues you normally would not be exposed to,
which is an enriching experience, helping you to be more effective in your job.

Stan Silverman is founder and CEO of Silverman Leadership. He is a speaker,
advisor and nationally syndicated columnist on leadership, entrepreneurship and
corporate governance. Silverman earned a Bachelor of Science degree in
chemical engineering and an MBA degree from Drexel University. He is also an
alumnus of the Advanced Management Program at the Harvard Business School.
He can be reached at Stan@SilvermanLeadership.com.

Article originally published in the Philadelphia Business Journal on August 26, 2019

President Donald Trump has made immigration reform a high priority for his administration. In addition to his initiatives to address illegal immigration, Trump favors significantly reducing the number of legal immigrants and giving preference to those from European countries.

Trump’s initiatives on legal immigration will adversely impact our prosperity and long-term global competitiveness. His initiatives will not make America great again, but do the opposite. As business leaders, it is our responsibility to point out to the public the fallacies in his thinking. It has been written that Trump is only playing to his political base. This is at a huge cost to our country.

Except for Native Americans, everyone has immigrant ancestors or were an immigrant themselves. Immigrants built this country.

Trump claims that immigrants are a burden to taxpayers. So, what does the data show?

A study published in September 2018 by The National Immigration Forum titled, “Immigrants as economic contributors,” indicates that immigrants have a significantly positive impact on the economy. The article states that “in 2014, immigrants paid an estimated $328 billion in state, local and federal taxes. Immigrants paid more than a quarter of all taxes in California, and they paid nearly a quarter of all taxes in New York and New Jersey.”

A March 2013 article published in the CATO Economic Development Bulletin is headlined, “Poor immigrants use public benefits at a lower rate than poor native-born Americans.” In 2012, 29% of poor immigrants use SNAP benefits (food stamps) compared with 32.5% of native-born Americans.

Data from the Centers for Disease Control and Prevention from 2008 through 2016 shows that birth rates in the U.S. have been below replacement rate. The birth rate continues to decline for a variety of reasons, but immigrants are filling this gap.

With a birthrate below replacement rate, a reduction in the level of immigration adversely impacts not only economic growth, but also the ability to pay future Medicare and social security benefits to seniors. This is outlined in an August 2014 report published by The New American Economy Research Fund titled, “Staying covered: How immigrants have prolonged the solvency of one of Medicare’s key trust funds and subsidized care for U.S. seniors.”

Trump and those who support his policies are ignoring the economic importance of immigrants from all countries – from those countries not so well off in addition to those with a high standard of living and a highly educated population.

Immigrants come to the U.S. in the honorable pursuit of making a better life for themselves and their children, as many generations of immigrants have done before them.

Study after study shows that immigrants are good for business and have a positive impact on the economy. Many immigrants are entrepreneurial. They bring needed economic life and vitality to our inner cities – to areas long abandoned by factories and blue-collar residents. They are motivated to succeed. Immigrants start small businesses within their communities and create jobs and pay taxes. Some work two or three jobs to provide the needed resources so their children can go to college.

Immigrants harvest our vegetables, landscape our lawns and build our houses, many of whom enter the U.S. on temporary work visas, which Trump has made more difficult to obtain. This threatens the livelihood of business owners who are deprived of needed workers.

A March 2018 article in the Wall Street Journal reports that in the 12-month period that ended Sept. 30, 2017, the number of F-1 student visas issued to foreign students, especially to those from China and India, were down 17% from the prior year. The number of F-1 visas issued during this period was down 40% since the peak year of 2015. This decline is the result of Trump’s anti-immigration rhetoric which is giving foreign students pause to committing to a multi-year program of study, as well as stepped up vetting of visa applications.

We will not get the benefit of the research done by these foreign students because they aren’t studying in the U.S. In addition, the reduction in their numbers is putting a financial strain on universities, since these students pay full freight, forcing more reliance on tuition paid by U.S. students, many of whom take out student loans to fund their education. This is a huge lost opportunity to positively influence these foreign students and expose them to the American way of life.

An August 2012 report by the Partnership for a New American Economy, indicates that in 2011, of all new businesses started in the U.S., 28% were started by immigrants. The report also stated that immigrants were more than twice as likely to start a business as those who are native born. Immigrant business owners employ 10% of all employees working in the private sector.

Quoting from an August 14 article in the Dallas morning news, “Although [immigrants] make up about 24% of the population of Dallas, 32.2% of all businesses in the city are owned by immigrants, according to a study published last year. Even as the nation grapples with whether to embrace Trump’s crackdown on immigration, a fundamental reality is that immigrants are a driving force of the U.S. and local economy, now and across the history of America.”

An April 2013 article in Forbes magazine headlined, “40% of the largest U.S. companies [were] founded by immigrants or their children,” indicates that between 1995 and 2005, 25% of the high-tech companies founded during this period had at least one immigrant founder. These immigrant entrepreneurs did not all just come from countries within Europe, they also came from developing countries.

Some immigrants or children of immigrants have had a transformational impact on the U.S. and on the world. To name a few: Sergey Brin (Google), Jerry Yang (Yahoo), Pierre Omidyar (eBay), Andy Grove (Intel), Elon Musk (Tesla and Space X), Steve Jobs (Apple) and Satya Nadella (Microsoft). Their companies are on the cutting edge in their respective fields and play a key role in the technical and global competitiveness of the U.S.

These entrepreneurs have created millions of jobs, improved our global competitiveness, changed how we live and put the U.S. on the forefront of the information technology industry. We should remember and appreciate their contributions every time we send or respond to an email or text message, access an app, take a photo with our cell phones, or use social media.

A policy brief by the National Foundation for American Policy dated October 2017 stated that since 2000, 39% of Nobel Prizes won by Americans in physics, chemistry and medicine have been awarded to immigrants. If Trump’s initiatives are put into practice, how many immigrants will be denied entry into the U.S. whose children or grandchildren could be future Nobel Prize laureates and contribute to the advancement of U.S. global competitiveness? Immigrants are an investment in the future of America.

The iconic words by Emma Lazarus, enshrined on the pedestal of the Statue of Liberty, represent one of America’s most inspirational ideals of those yearning to build a better life for themselves and their families in the United States:

Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tossed to me:
I lift my lamp beside the golden door.

These words don’t need to be re-interpreted, as recently suggested by some in the Trump administration. Immigrants made this country great. They will continue to do so. As business leaders, it is our job to speak out and inform the public of the facts.

Stan Silverman is founder and CEO of Silverman Leadership. He is a speaker, advisor and nationally syndicated columnist on leadership, entrepreneurship and corporate governance. Silverman earned a Bachelor of Science degree in chemical engineering and an MBA degree from Drexel University. He is also an alumnus of the Advanced Management mProgram at the Harvard Business School. He can be reached at Stan@SilvermanLeadership.com. Follow Silverman on LinkedIn here and on Twitter, @StanSilverman.