Funny, But True Stories: Of All the Gin Joints

This story falls under the What Are the Odds? category. In this case, they were not in my favor. And I got busted.

My intentions were good. I had taken over a manufacturing company and was trying to save it from $1 million loss on one order. This company had one large client, responsible for 60 percent of its revenue. A discount mart, it provided the company with steady work and allowed it to grow significantly.

The discount mart even asked this company to change manufacturing capabilities to suit its needs, and because it was such a large customer, the company invested millions in upgrades so it could print T-shirts in several different ways for the discount mart. The investment seemed to be paying off. However, there was no written contract between the parties.

Until one day. The company had produced $1 million worth of branded/licensed T-shirts, just for this discount mart. Just prior to shipping the large order, the discount mart said, “No thanks.” That’s when the CEO knew he had a crisis, was reviewing his bankruptcy option and sought my help.

I told him it was a good thing he still had the merchandise and could do something with the T-shirts to cut his losses as there was no written contract he would be violating. But the discount mart wouldn’t have it. It was like an old lover. They don’t want you anymore, but they don’t want anyone else to have you either. If we did anything with those T-shirts, they’d say adios forever.

I figured we could still sell them in markets where this discount mart doesn’t compete, so we’d at least get 50 cents on the dollar. The strategy worked and we found a market in South America willing to buy the shirts for enough money to cover our costs and avoid a bankruptcy filing.

Everything would have been fine, except for one thing. The son of one of the discount mart executives vacationed in South America and bought dear old dad a souvenir T-shirt. You guessed it – one of those T-shirts. The discount mart made good on its threat and severed the relationship. I was able to keep the company out of a bankruptcy and the company sold six months later at a significantly reduced price.

The lesson here is about more than T-shirts, however. It’s about never becoming too reliant on a single customer, vendor or product – what I call the Big Gorilla. My rule is if a customer, vendor or product involves 25 percent or more of some part of your business, you’re dealing with the risks of a Big Gorilla…. sooner or later.

Unethical Tech Workers Pose Danger to Your Business

Fraud and embezzlement are two dangers to every company. I’ve written a lot about instituting policies and steps to take to help make your company safe from employee theft. These tips primarily focus on those employees who have access to your financial accounts.

But they aren’t the only employees you need to worry about. Your IT employees may also be capable of potentially causing massive damage to your company, as pointed out in a recent article in Fortune magazine, “How much do you really know about the tech worker you just hired?”

We have all read the headlines about companies like Sony, Target and Anthem/Blue Cross being hacked by outsiders. What is less common knowledge are the problems that can come from within the company. Yes, your own IT employees could be a threat. They have access to valuable information, and if they desire, can threaten to make it public if you don’t pay up. It’s the new age of blackmail.

There is really no way to know how often this happens, because like with many cases of fraud or embezzlement, the corporation often keeps it quiet so it won’t draw unwanted publicity.

And even if an employee leaves, he or she can still potentially blackmail you. It’s been reported that Nokia regularly deals with security issues, including being blackmailed by a former employee who obtained classified information. According to an article in the Helsinki Times, in 2007 a blackmailer asked for millions of euros to protect an encryption key of Symbian phones. The release of that information could have caused millions of dollars in damage.

At least he’s a charitable blackmailer — he asked for half of the money in cash and for the other half to go to charity. Nokia made the donation and paid the ransom, delivering half of it in an ice hockey equipment bag. The blackmailer took the money and ran. The crime is still under investigation.

So how do you protect your company? Your tech employees most likely have access to potentially damaging information about your business. And it can be a whole lot more difficult and complicated to prevent tech blackmailers than it is to set up checks and balances on your financial accounts.

How to prevent problems with tech employees

The key is to start with your hiring practices. Companies desperate to hire qualified tech workers have been guilty of skipping over crucial steps when selecting new employees. Ken Springer, a former FBI agent and founder of Corporate Resolutions, suggested these steps in the Fortune article: Verify everything on the resume, ask your current IT people to check their references, let prospective employees know you will do a thorough background check and reward employees for referring good tech people to hire.

In addition to these tips, I would add some of my previously recommended tips on fraud prevention that can apply here as well, including:

  • Conduct credit checks. Exercise caution in considering any employee in a dire financial situation.
  • Always prosecute fraud. Make it clear you have a no-tolerance policy.
  • Train your managers to pay close attention to their employees’ behavior and for any changes in that behavior. See More Red Flags of Fraud and The Red Flags of Fraud.

Sadly, threats to the wellbeing of your company can come from both internal and external sources. It’s worth the time and expense to make sure you are hiring ethical and honest tech employees.

 

 

Short-Term Pain, Long-Term Gain

For almost 40 years, I’ve been working with distressed businesses to create value for stakeholders. Unfortunately, the one common theme is that at some point during its life cycle all companies will experience financial difficulties caused by our economy or by management making the wrong decisions. Some companies will experience these difficulties more than once.

It’s how the companies deal with these issues that determine whether they survive or become a statistic of another failed business. The same could be said for individuals — how we deal with adversity can determine our survival or success.

I come from a humble, poor background. We were so strapped for cash that we had to borrow money to bury my WWII veteran father in 1964. Thanks to Social Security, my sister and I received death benefits until we were 21. To make additional money, I mowed lawns at age 12, sold peanuts at football games and had a paper route. The entire family chipped in to help with finances.

Many families also implement survival strategies for the greater good of its members. Some cut out dinners in restaurants so their daughter can go to cheerleading camp. Others drive their cars for 200,000 miles so the family can live in a nicer home. One parent works a day shift while another works at night so they can always have one parent with the children and save on daycare.

We deal with short-term pain for long-term gain.

The same concept goes for the companies I work with. My job is to educate people at these failing companies and implement survival strategy. It’s a tough, stressful job because it does involve people’s lives. I know what it’s like to struggle financially and I don’t wish to take anybody’s job away.

However, generally a turnaround does involve cutting jobs, reducing pay, closing plants, changing products or product lines, and sometime firing senior management that made the wrong decisions. Companies must change direction to survive.

Just look at all of the companies throughout the years that have changed for survival — Coca Cola, GE, Home Depot, General Motors, Chrysler, banks, insurance companies, probably even your company. All of these businesses have made tough decisions for survival. Unfortunately, some don’t. What ever happened to the buggy whip and wooden wheel businesses?

Yes, it’s always tough when people lose their jobs. But I learned to view those necessary job cuts in a different way. Years ago I was driving my son Sam to school. He asked me what I was doing that day. I told him that I had a rough day ahead of me because I was going to Philadelphia to lay off 200 people and close a division of a company. He looked at me like I was an ogre and asked how the kids of those laid-off parents would be able to afford camp, get baseball gloves and enjoy candy (now with kids of his own his concerns still lie in these three areas).

I told him that by laying off 200 people and closing one plant, I was saving 600 jobs and keeping the company alive. Certainly what I had to do was terrible for some people, but it was for the greater good. If I didn’t let 200 people go today then I’d have to let 800 go next month.

The strategy worked. Less than a year later, the chain was merged into a national retail chain and jobs were restored as the footprint expanded. It was another case of short-term pain for long-term gain

Another analogy of a turnaround is that of being in an accident and going to the emergency room. The dedicated doctors and nurses sole goal is for you to survive. Hours of surgery, many stitches, amputation of extremities may be in order. Later, the patient goes to the plastic surgeon, buys a wig or obtains a prosthetic. But, we survive thanks to these dedicated folks. Short-term pain for long-term gain.

All of us individually have made decisions that involved short-term pain for long-term gain. And companies have to do the same.

Communicate, Negotiate and Delegate in a Turnaround

This week I’ll be in Jekyll Island at the Turnaround Management Southeastern Conference, where I’ll be on a panel called Titans of the Turnaround. I chuckle about being called a Titan, as I was for an article written about my book, “How Not to Hire a Guy Like Me: Lessons Learned from CEOs’ Mistakes.” I never played football for Tennessee.

But it has me thinking about the skills that I have found to be the most useful in my career in the turnaround business. These include the ability to communicate, negotiate and delegate.

Communicate

I’ve written several times about the need for communication, because it doesn’t matter how smart or visionary you are, if you can’t communicate to your employees you will not be a successful leader. As Lee Iacocca said, “You can have brilliant ideas, but if you can’t get them across, your ideas won’t get you anywhere.”

When I am hired as interim CEO or consultant at a company in trouble, I stress the need to senior management to communicate openly and honestly about the situation. I often have to work hard to open up lines of communications with employees at all levels, as they may have become accustomed to being kept in the dark.

Some employees work night shifts and may feel particularly left out of what’s going on. At one company, I hosted a midnight barbecue and chatted with the employees as I grilled hamburgers. In addition to enjoying my superb cooking skills, they left feeling listened to and informed.

As a “Titan” I also have to communicate effectively with everyone involved with the company, including lenders, vendors and customers.

Negotiate

I’ve written about my need to negotiate as the Turnaround Authority, which has earned me the nickname the Monty Hall of business. Every day is a game of  “Let’s Make a Deal” for me. You cannot be successful in the turnaround field without the ability to negotiate effectively with all interested parties.

In the negotiation process, I employ communication skills while always searching for creative solutions. Because I have not been involved in the company as it began to suffer financial difficulties, I can clearly see the situation, while the CEO has often become too emotional to determine and handle what needs to be done.

I worked with one company that had lost control of its brand and entered into licensing agreements with substandard manufacturers. It was embroiled in trademark issues and meanwhile had accumulated large debts.

I was able to renegotiate licensing agreements and default substantial licenses, getting the company back on track and focusing on its fantastic design department.

To read more about negotiation, please see my previous post, “A Key Ingredient to a Successful Negotiation.”

Delegate

I’ve seen it more times than I can remember in companies in crisis. A CEO who should be focusing his time and talent on getting his company back to financial health is instead working on tasks that could easily be handled by someone else. Usually it’s because he has not learned to properly delegate and let go of tasks that are not the best use of his time.

This inability to delegate is often one of the reasons the company has ended up in trouble in the first place. The CEO did not know how to let go of tasks or was micromanaging those that he had delegated.

All CEOs and business owners have to learn the art of delegation. That involves giving clear instruction on what needs to be done and when the deadline is. Another key is making sure you delegate the task to the right person.

The CEO needs to see himself as the catalyst to get the job done. He also needs to have the skills to communicate, negotiate and delegate.

The Path of a Peanut Seller

It started as a blog post I wrote in January and now the moment that changed my life as a teenager is a video in the Moments series on the Saporta Report. And it all started with peanuts.

Please click this link to view the short video and find out how I gamed the system in the peanut-selling business, which led to my career as The Turnaround Authority. I no longer work for peanuts.

Grant Field in the 1960s, where I began my peanut-selling career.

Grant Field in the 1960s, where I began my peanut-selling career.

 

 

 

 

 

 

Fraud Prevention Tips from a Former Con Man

Talk about using your super powers for good. Before he was even old enough to vote, Frank Abagnale became one of the most notorious con men in history. From the age of 16-21, he posed as a pediatrician, lawyer, sociology teacher, film director and even an airline pilot to hitch rides all over the world. He estimates he flew a million miles to more than 26 countries, all in his impressive Pan Am uniform he got by calling the company’s headquarters and telling them he had lost his while traveling.

He also defrauded a lot of banks. After stealing more than $300,000, he was caught and served time in France, Sweden and the United States. After being granted parole at the age of 26, he was hired by the FBI and is now a respected authority on forgery, embezzlement and document fraud.

Once a notorious con man, Frank Abagnale is now a respected authority on fraud prevention. “What I did 40 years ago is 4,000 times easier to do today than when I did it," he said.

Once a notorious con man, Frank Abagnale is now a respected authority on fraud prevention. “What I did 40 years ago is 4,000 times easier to do today than when I did it,” he said.

After appearing on Johnny Carson’s show nine times, Frank was urged by him to write a book. “Catch Me If You Can” is the fascinating story of his life, which Steven Spielberg made into a movie starring Leonardo DiCaprio in 2002.

Frank also started his own company, Abagnale & Associates, to educate others on fraud prevention. Looks like he’ll never run out of work. Fraud is still a huge problem in the U.S., costing more than $900 billion a year.

According to the most recent Payment Fraud and Control Survey, 87 percent of cash managers, analysts and directors claim to have incurred instances of check fraud in 2012.

Although claims have been made for years that the U.S. would soon be a checkless society, around 75 percent of payments from one company to another are still made by check. Abagnale believes the U.S. is still 20-30 years away from being completely paperless. And it’s never been easier to create a counterfeit check.

“What I did 40 years ago is 4,000 times easier to do today than when I did it,” he said in an interview on CNN, talking about his counterfeiting. Back then he needed an entire room to set up a large press to create fake checks, a tedious process. Today all you need is a stolen check for the account number, a laptop and a scanner.

Frank shares tips on how to prevent all types of fraud. Here are a few of his tips for businesses:

Tear out the hard drive of any printer or copier you discard. They store images of everything that is copied on them, some of which may be confidential information. Be sure to destroy any hard drives before getting rid of them.

Use a black uni-ball 207 pen when you sign documents, especially checks. The ink in these pens forms a bond to the paper that prevents the signature from being stripped. It is the only pen whose ink cannot be altered by chemicals or solvents.

• CFOs and chief auditors need to play an active role into the purchasing of the company’s checks. Purchasing agents often opt for the cheapest checks. Companies need to invest in checks that contain the latest security features. These include Thermochromatic inks that react to temperature changes and cannot be replicated and prismatic backgrounds with multiple colors that are difficult to reproduce.

For more fraud prevention tips from Frank, buy his book “The Art of the Steal: How to Protect Yourself from Fraud, America’s #1 Crime.” (There are also plenty of tips in my book, “How Not to Hire a Guy Like Me: Lessons Learned from CEO’s Mistakes.”)

Frank has made it his life’s mission to prevent people being stolen from. “If you make it easy for someone to steal from you, someone will,” he says. “Don’t make it easy.”

As the Turnaround Authority, I’ve worked with many companies that made it way too easy for employees to steal from them. One of my favorite stories is about a company in Dallas that had invested in surveillance equipment to keep a watch on inventory that might walk out the door. The problem was that the surveillance room was kept unlocked.

This was back in the days of cassette tapes, so after somebody stole some inventory, he or she simply went to the surveillance room and either erased or replaced the tape. One thoughtful fellow merely placed the tape player on pause, then restarted it when he was done.

While some thieves have to be incredibly creative, like Frank, to steal, others merely jump on an available opportunity. Don’t give them one.

Scary “Tricks” Played on Companies

Scary “Tricks” Played on Companies

In honor of Halloween, I’d like to share some of the scariest situations I’ve encountered at companies. Unlike Halloween, no one asked whether these companies would like a “Trick or Treat.” They just got tricked.

Here are just a few of the situations I’ve encountered:

• A son who was stealing from his father’s business because he thought his salary was too low. After dad died and mom was made CEO, instead of him, he was so angry he confronted his mom with a knife. Talk about “A Nightmare on Elm Street.” Wonder if he ever got invited to Thanksgiving dinner again. I bet he doesn’t get to carve the turkey.

• A CFO who was been stealing a business blind but the CEO wouldn’t believe it. (He did once we presented him with the folder from the CFO’s computer desktop with a list of all the money he stole and how he spent it. How I love an organized thief.) His father-in-law paid it off so he wouldn’t go to jail!

• A business owner who lost his boat building company because he proudly appeared on the cover of a magazine with his bikini-clad girlfriend in the background. His wife was not amused. She filed for divorce and got control of the company, which was started with her daddy’s money.

• A Texas-based company that overstated its inventory and received a larger loan that it should have qualified for and defaulted on the interest payments. . When I took over as CEO, I discovered that we were $75 million short in inventory. That’s a number that will keep you up at night. The bankers were stunned and prosecuted the CEO and CFO!

• A company president who owed the mob several hundred thousand dollars for gambling debts was stealing and giving the merchandise to the mob right from the plant loading dock at night. The mob then applied the value of the items to his debt. These guys didn’t even have to wait for merchandise to “fall off a truck.”

• A refrigerator warehouse company forced into bankruptcy because the CEO was paying more attention to his hobby of breeding the perfect bull and less on keeping frozen things frozen. Which is kind of crucial to a refrigeration company. I had to liquidate both the company’s and his hobby’s assets, so I held an auction to sell the bull sperm. It went for the discount rate of $75,000 a gallon. So somebody got a treat that day — a deal on bull sperm. And that’s no bull!

• A production manager at a designer haute couture manufacturer was selling the overrun of $5,000 dresses to discount retailers. That worked so well, he eventually escalated his scheme and bought excess material that he wrote off as scrap and then had it made into dresses to also sell out the back door.

• A bookstore where the controller diverted the Discover merchant account for his own use. The stores kept routinely depositing into it and ended up paying off the guy’s entire mortgage. A federal judge sentenced him to five years!

The lessons learned from these types of occurrences are that you have to keep your eye on every aspect of your company and trust your gut when things don’t seem to add up.

The scariest part? These things could happen to your company. And there’s definitely no treat involved.