Atlanta

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The $5,000 Dollar Magician and the Real Element of Disbelief

Maybe we should be more jaded by now when we see wasteful government spending. Perhaps it was believed that we would shrug off  the scandal over the General Services Administration spending $823,000 on a Las Vegas conference. But I’m not going to. I’m still appalled. I don’t know if it was the clown, the mind reader or the $5,000 motivational magician who sent me over the edge, but at least one of those entertainers didn’t belong at a government conference in the midst of one of the worst recessions our county has ever faced.

While we may be shocked and wonder how these things could possibly happen, the reality is that they happen every day.

I’ve written previously about the necessity of reviewing the expense reports of senior people, which is one of the first things I do when reviewing a company that is losing money. I’ve uncovered a lot of fraud that way, from CFO’s writing themselves checks for thousands of dollars to them depositing large rebate checks into an account only they know about.

But it’s not only theft that should concern you. Overspending on company events or inappropriate business expenses can be costly as well. Putting the morality of infidelity aside, is it appropriate for a married CEO to charge trips with his girlfriend on the company credit card?

I thought of how costly fraudulent and inappropriate business expenses can be not only to a company’s bottom line but also to its reputation when a scandal erupted recently in Atlanta.

This scandal involved a $106.22 wine cooler from Pottery Barn.

Brian Leary headed The Beltline, a non-profit, partially government-funded organization that is developing a multi-use trail on a former railway corridor around Atlanta.

His staff purchased this wine cooler – among other questionable expenses – for his fiancee. I dare say it cost a previously well-respected CEO more than $106.22. It cost him his job.

When a city audit turned up that expense plus payments of parking tickets and dry cleaning bills for Brian, $500 kegs of beer and a $2,100 tab for food for employees at a baseball game, well, people started asking questions. Shortly thereafter Brian was out, unemployed and disgraced.

I find theft and inappropriate expenses by C-level execs much more egregious than many. After all, these people have been trusted with the management, reputation and future of their companies. With their high salaries they should be the people least likely to need the money. Does an exec with a six-figure salary really need his company to pay his $7 dry cleaning bill?

I don’t know what causes senior-level executives to turn dishonest and steal from their companies or exceed the limits on appropriate business expenses (wait, is it as simple as money?) – I just know that they do.

Have you checked expenses at your company lately? Are your employees clear on what can be considered an appropriate business expense?

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Why Should People Follow Your Lead?

You are a leader. Most likely, leadership is not a position for you, but an attitude and a way of life. People at work, home and in your social circles turn to you for advice. Your wife (or husband) lets you be the spokesperson in confrontational situations. People listen to you. But what was it that got you where you are? Did you work your way up the career ladder? Were you given a great opportunity and took advantage of it? Were you always this way and running your own business crystallized this approach in your life?

No matter what some may tell you, it is unimportant how you became a leader. The essential point is how you use your power to motivate and inspire, to scold and fire, to teach and support others.

You may have been to some leadership seminar and learned the “key principles of leadership.” They told you that by following their 7-step program (or 4-step plan, or whatever it was) that you will be a revered leader.

I want to try something different, though. Rather than offer steps, I want to offer questions. I want you to ask yourself the following three questions, and then I want you to answer them honestly and understand how the answers can make you a more effective and motivational leader.

Question 1: Would you rather be loved or feared?

You may already be familiar with the Machiavellian dilemma of The Prince: is it better to be loved or feared as a leader? This question explores both your preference and abilities. Do you rule with an iron fist or joke around with your colleagues over drinks? Many people work with friends or want to maintain a very cordial working relationship with employees. It is in our DNA to seek approval. But are you capable of confrontation when necessary? Consider this: your good friend (and you are his superior) is underperforming at work and you notice. What do you do? What do you think you should do? Explore the normative and positive aspects of your answer and decide what actions and words would make you the best leader at your company.

Question 2: Do you seek advice or work in isolation?

When you are facing a challenge, you may close your office door and work until you solve the problem. Alternatively, you may write a set of e-mails and schedule some meetings to explore the problems with others. Do you seek the advice of others and hope for their buy-in or do you rely entirely on yourself? In my experience, leaders who openly share their challenges and ask for advice resolve their problems faster and more creatively than their counterparts who do it by themselves. However, there are a few leaders I know who are best at relying solely on themselves. They consider the situation objectively and without any input they devise brilliant solutions. Know how you work best and perhaps consider an alternative method to problem-solving. Ask for advice! It rarely hurts, especially if your team feels that it has your ear and you get buy-in.

Question 3: Do you inspire people to trust your leadership?

There are some leaders who keep their teams focused by frequent and harsh criticism, yelling and threats. Very few of these leaders (though there are some) build a good team with a solid focus that produces good results in the long run. Recently I visited an Atlanta-based online retail company (not a failing one) and arrived early. I go there once every few months and each time people greet me like I am their favorite uncle. It feels strangely good to be there. What do they do differently? – I asked myself. As I made my way to the waiting area I could hear the CEO chatting with the customer service team.

Technically, he did not have to be there (there is a customer service manager after all), yet he was sharing how great the team was doing and the few challenges they needed to work out. He did not go into too much detail, just excitedly elaborated on a few broad themes. He mentioned key priorities for the company over the next few months. He asked anyone who had a problem that they felt needed his attention to come directly to him. I felt like he could send out a memo the next week saying that they were moving the company to Oceania and everyone would follow excitedly. That is how much they trust their leader. Sure, this type of open environment does not work at all companies, but it works for this one. The CEO found a way to inspire and motivate people as the right kind of catalyst for the right kind of team.

As you answer these questions for yourself, I again encourage you to reflect on the consequences of those answers and how they benefit – or not – your business.

What kind of leader are you?

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Update Your Plan: You May Need It Sooner Than You Think.

As managing partner of GGG and the Turnaround Authority, I get the pleasure of providing guest posts by our other partners. The following post is by our Partner, Vic Taglia.

My 93-year-old mother-in-law fell and broke her hip six weeks ago. Her surgery was successful, and she avoided most complications; now she is undergoing physical therapy in a rehab center in Atlanta. Until the accident my mother-in-law was mostly self-sufficient and protected her privacy, but this accident has forced my wife to get involved in my mother-in-law’s affairs.

We are now familiar with Medicare, supplemental Medicare, rehab time limits, rehab centers, assisted living facilities, skilled versus unskilled nursing homes, Veterans benefits, etc. We have discovered that my mother-in-law has 21 bank accounts at five different banks and doesn’t trust direct deposit for her Social Security check. We located what seems to be an operative will – from 1982.

Her family has had several changes in the past three decades (whose hasn’t?), and the old will doesn’t match what she has described as her current desires for at least the last decade. Fortunately, my mother-in-law has time to fix this: we have an appointment with an estate attorney next Thursday in the rehab center. Yes, I found an attorney who makes house calls.

So what does this mean for you?

Obviously, you should review your estate plan periodically: every five years is a good idea and more frequently if your life situation changes. In business, however, you have many other plans that need periodic review.

When was the last time you tested your off site computer backups? Not just to see if the data is backed up, but have you tried to use the back up data to see if it really works? I bet there are some businesses in the northeast that wish they had tested the water resistance of their backups before hurricane Irene. Really, who in Vermont would think that a hurricane would cause them a problem – and that is exactly the point.

You need to think about the unthinkable.

When did you last review your succession plan? Who could take over for you if you broke your hip and couldn’t go to your business for a month or more? What is your plan if your VP of Operations is hit by a bus? (In my It’s always the president’s fault blog, I described how this led to the firing of a company president.)

What about your financing plans? How stable is your bank? Can you rely on it for continuing financing in these tumultuous times? Will you find out one day that your bank has all the real estate/manufacturing/service business they need and they would love to see you take your business elsewhere? Nothing bad about you – they just want to move in a different direction.

What about your professional advisors? Have you met your lawyer’s partners? Your CPA’s? Your financial advisor’s? Are you comfortable with them? Do you have confidence in them? I have seen several cases in which the unexpected death of a lawyer or CPA caused significant disruptions in a client’s business.

So think about the what ifs and prepare a plan to counter the unexpected. You may not be as fortunate as my mother-in-law.

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Life’s Lessons and Surprises: 18 Months at Life University

Life is full of surprises, and as a business leader, you can’t let those surprises turn your business upside down. If you learn to manage them as part of your business, expecting that they will be there and creating contingencies for them like emergency cash, a fully stocked resume and interview line should you need some fast hires, good networking, a solid relationship with your banker and so on, then you will likely survive when they surprise.

In 2003/4, I did a turnaround for Life University, the award-winning chiropractic institution in Atlanta, GA. Life had a lot of lessons about the power of surprises.

Life’s Problem

After achieving an all-time high enrollment rate and setting the standard of excellence in contemporary health for its chiropractic undergraduate and masters degree programs, Life University was challenged with a loss of accreditation and defaulted on $35 million in secured bond debt.

Our Solution

Upon becoming the Director of Refinancing and CFO, we redid the budget based on declining attendance and negotiated a forbearance agreement with the Trustee and Bondholders. We also sold assets and refinanced others while the board searched for a new president.

The Outcome?

Within 18 months Life University’s cash flow was stabilized, accreditation was granted and the bond debt was refinanced. As part of the long-term plan, the school retained a President and Chief Financial Officer from a competing school. Victory was ours, and we won the Non-profit Turnaround of the Year Award in 2004 from the Atlanta Chapter of the Turnaround Management Association (TMA).

What I Learned from Life?

Professionals need to hire consultants and advisors who have different skill sets than their own. When professionals go outside their sweet spots they often make mistakes or don’t consider all the issues. Business is not the forte of all professionals – and it doesn’t have to be. Bring in business people to do business.

Life Always Has Surprises!

There are always surprises and things you didn’t account for. At Life, the CFO had a heart attack and bypass surgery, and without him we couldn’t find all of the documentation or understand the cash flow budget.

This created issues with the bondholders because a key member of the management team had been changed. Then, six months in, the president was gone, too.

A new president and a new CFO do not breed confidence to lenders.

What You Can Learn from Life

Be prepared for unfortunate events: heart attacks, death, personal tragedy, community strife. These things are part of life, and as a business leader, you have to have contingency plans in place to know how you would operate should the unthinkable occur.

Ultimately, in this case – and many others – communication solved these problems. Through extensive meetings, we got support in a forbearance agreement, which gave us time to hire a new president and to show results from fund-raising efforts.

Always have open communication.

The spirit of the chiropractic staff was great. They were committed to their university and seeing it survive. Anything I needed from them I got. Being part of a team that believes in the cause is a great thing, and in a crisis it’s very important to return to core values and purpose and to be able to lean on them.

Parting Words of Wisdom

This was a wonderful, award-winning turnaround. In turnaround management – as in business – there are always surprises. It’s your job not to let those surprises undermine your goals, but to deal with them as part of a business day.

What surprises have you encountered in business? How did you deal with them?

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I’m Lee N. Katz and It’s Nice to Meet You

Allow Me to Introduce Myself

My name is Lee N. Katz, and I’ve specialized in turning companies around for more than 25 years. In 1986, I joined Grisanti, Galef & Goldress (GGG), one of the oldest turnaround consulting firms in the United States. In 1997, I became the managing partner.

Throughout my career in crisis management, I’ve served as an interim executive officer and reorganization director for both large and small companies, public and private, with annual revenues from $5 million up to $3 billion. In addition to offering expert-witness testimony regarding business valuations, turnarounds, and plan feasibilities, and I’ve served on court-appointed federal and state receiverships.

I love using my skills to help owners, CEOs and boards of directors prevent crises from happening, but no one ever seems to know a crisis is happening before the roof gets blown off the barn. And that’s when I step in.

In the 70s I worked for First National Bank of Atlanta, eventually directing their asset-based lending in the Atlanta area. I’ve also spent quite a bit of time developing and managing commercial real estate for end users like Wal-Mart, John Wieland Homes, and other private investor groups.  I’ve renegotiated more than $1 billion in real estate leases and handled numerous environmental issues for real estate and corporate manufacturing clients. Sometimes I do this in cooperation with state and national Environmental Protection Agency authorities.

I often serve as a financial advisor to individuals and trusts.

Specialties

People often ask me what I specialize in, so I thought I’d toss the short list your way:

  • Financial Restructuring
  • Bankruptcy and Bankruptcy Restructuring
  • Real Estate Receiverships, both Federal and State
  • Operating Company Receiverships, both Federal and State
  • Restructuring Bank Debt with the FDIC and Successor Banks
  • Asset Liquidations
  • Alternative Restructures to Bankruptcy
  • FDIC Negotiations
  • Corporate Due Diligence
  • Bond Restructuring
  • Financial Advising to Bond Funds
  • Corporate Downsizing

Some Public Recognition

For those of you who are kind enough to be interested, my firm, GGG, has been recognized by the Turnaround Management Association’s (TMA) Atlanta Chapter:

• 2008 Small Company Turnaround of the Year Benton-Ga, Inc. Learn More
• 2004 Non-Profit Company Turnaround of the Year – Life University Inc. Learn More
• 2003 Large Company Turnaround of the Year – P.S. Energy Corp.
• 2002 Large Company Turnaround of the Year – Wyncom Inc. Learn More

So, that’s a bit about me.

Now you know who’s writing this blog. If you have any questions about these things or if there’s anything general that I can answer for you, please don’t hesitate to ask in the comments.