Forbes List Fail

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Recently, Forbes unveiled its newest list – “America’s Best Small Companies 2010”,which led me to wonder: What criteria did the magazine use to determine the “best small companies”? 
Instead of taking a thoughtful, comprehensive approach to this process, Forbes chickened out, took the lazy way out, and insulted all small business owners and those of us who work with them.  And, in the process, Forbes embarassed themselves.  Their list should have been called “America’s Best Publicly Traded Small Companies Based on the Best Earnings Growth and ROE in 2010,” because that’s what the list really is.  What it decidedly is not is a list of Americas Best Small Companies.
Someday, Forbes will realize there’s more to a successful – or “best” – company than a stock price.  But that’s probably too much to hope for.
First, Forbes excluded millions of small businesses by requiring that candidates: “…for our list had to be publicly traded for at least a year, pull in annual revenue between $5 million and $1 billion, and boast a stock price no lower than $5 a share.”  That eliminates a lot of companies – there are about 27.5 million businesses in the United States, but only about 6,500 are publicly traded.  There are also thousands of successful small businesses that earn less than $5 million in revenue, but are profitable nonetheless.  (In any event, the $5 million threshold was an illusion; the company on the list with the lowest revenue was Nevada Energy, with $29 million in sales).
But, we’ll cut Forbes a break here.  They probably didn’t want to research millions of companies, and it’s a lot easier to measure publicly traded companies, since their financial reports are naturally made available to the public.
But that’s where the breaks stop.  For Forbes imperically decided the only attributes that comprise a “Best Small Business” are:
  • earnings growth;
  • sales growth;
  • return on equity in the past 12 months and over five years; and
  • stock performance compared with that of its peers.
Say what?
Long-term, sustainable success in business – especially small business – is based not only on financial terms, but the quality of a company when it comes to such crucial areas such as:
  • employee satisfaction and productivity;
  • customer satisfaction and loyalty;
  • how well a company benefits its community and strategic partners as well as its vendors. 
Satisfied employees are always more productive; becoming an employer of choice takes a combination of corporate values, compensation, challenging work, a good environment and the opportunity for personal and professional growth.  Businesses measure this all the time through Employee Satisfaction Surveys, or 3600 Surveys.
Customer satisfaction and loyalty – also easy to measure and benchmark – were not included as criteria by Forbes.  Why?  Because this list was clearly intended not to be the “Best Small Companies in America” – but actually a tip sheet for short-term investors and traders. 
I’m not suggesting that financial measurments be eliminated when determining a best small company – it should just not be the only measurement.
Values play a significant role in successful business.  How an owner’s values permeate throughout the workforce is essential to long-term success.  Having and implementing long-term values such as quality of product and service; commitment to clients and customers; appreciation and understanding of the workforce creates a culture where the “best” truly comes out. 
It’s ironic, then, that Forbes on one hand says, “we dropped companies that are thinly traded and those with fuzzy accounting or major legal troubles,” and on the other hand names Medifast as the #1 Best Small Business in America.  Medifast, as you might know, is in the middle of a major lawsuit in which Fraud Discovery Institute accused the company of “ … pyramid-style selling – is unsustainable and will lead to a revenue trajectory similar to other multi-level marketing companies: dizzying initial expansion followed by lackluster revenue or worse…..”
Whether these accusations are true or not – they are illuminative.  If Medifast is indeed one of “America’s Best Small Companies,” won’t they still be there in 2011 when the lawsuit is behind them?  Why rush?
If you’re a day trader looking to make a quick buck – the Forbes list might be just right for you.  If you’re looking companies to emulate or model as a Best Business – Forbes is out of answers, and this list is one epic fail.
Follow Eric Swenson on Twitter: www.twitter.com/managingpeople.
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Employees First

Dave Berkus is an accomplished speaker, author and angel investor.  He provides common sense advice to all businesses through his blog, Berkonomics.

His recent post deals with the frustrations of business owners who perceive that government regulations always favor employees.  His advice?  Recognize the realities of the times.

He’s right!

Workplace Litigation Trends Report

This is the 7th year that Fulbright & Jaworski has surveyed senior corporate counsel regarding litigation.  I’m focusing on the responses that affect businesses – and selecting those answers.  The results are illuminating!

In which area is there the most litigation pending in the U.S.?

Contacts: 53%
Labor & Employment: 49%
Personal Injury: 27%
(participants could pick more than one type)

In which area has there been the greatest increase in multi-plaintiff cases whether they be class, collective action, or significant multiple plaintiff action?
Wage & Hour: 46%
Labor Union: 13%
Age: 11%
ERISA: 10%


[What types of cases] will see the greatest increase in 2011?
Discrimination: 39%
Wage & Hour:35%
Labor Union: 17%

ERISA: 5%

Ten Truths for the Boss

Anyone who’s read this blog over the years, or who knows me personally, is aware that one of my heroes is Michael Josephson.  Mr. Josephson has commented for years on the relationships between ethics and successful, sustainable business models.  One of his greatest radio commentaries discusses “10 Truths for the Boss”, which I’ve put here:

Why is it that most employees think their bosses are at least a little out of touch? Probably because they are. Even those who worked their way to the top lose some credibility and effectiveness because they don’t recognize what I call Ten Truths for the Boss:

  1. The more certain you are that “it can’t happen here,” the more likely it is that it will. Be careful about overconfidence and complacency.
  2. There are lots of things you don’t know, and lots of people who hope you don’t find out. Hardly anybody tells you the whole truth anymore. Information is filtered through the fears and career aspirations of subordinates, and many employees believe you will “kill the messenger” if they deliver bad news so they tell you what they think you want to hear.
  3. To those who want to please you, your whisper is a yell and your comments are commands. Be careful, people may do foolish things to please you.
  4. What you allow, you encourage.
  5. There’s never just one bad employee; there’s the employee and the manager who keeps him.
  6. At least someone who works for you is “gaming” the system so they appear to reach their business objectives with smoke and mirrors rather than real achievement.
  7. According to the law of big numbers, if you have lots of employees, you probably have a few crooks and psychopaths working for you.
  8. Few people think as highly of your ethics as you do.
  9. No matter how many good things you do, you will be judged by your last worst act.
  10. No matter what your job description says, what matters most is how you manage relationships and people.

The Josephson Institute of Ethics website is here.

To follow Mr. Josephson on Facebook, click here.

To follow Mr. Josephson on Twitter, click here.

The Art of Persuasion

It’s always a little strange to see your thoughts in writing – especially if they’re being written by someone else.

I was recently interviewed by students at the USC Marshall School of Business – they are candidates for Master’s degrees in Leadership and Management.  The focus of the interview was how to persuade employees to see your point of view.

Here’s the paper (and I didn’t edit at all!)

Background:  Eric Swenson has over 20 years of experience in management, sales, training and marketing. He has managed hundreds of employees and interviewed over 2,000 people in his career. RSJ/Swenson LLC is a management and human resources consulting firm with offices in California and Nevada.

Interview Summary: Eric shared his insightful thoughts about the leadership and persuasion. For Eric, persuasion is a natural process and he prefers soft tactics. He is always honest to his superiors and subordinates. Eric believes that effective leaders are very expressive when they come to everybody. They are very candid and direct and these personal traits play a key role for persuasion process. According to Eric, the three most important aspects for managing up and down are communication, openness, and setting a positive tone that focuses on the end result.

Persuasion Strategies:

  • Self Persuasion: “If you were in my position, how would you handle my problem?”
    • You should let team members identify the solutions on their own. You also remind them why they live in the same organization. This especially helps you deal with some conflicts with your members.
  • Logical reasoning: 
    • You use facts, figures, and belief that your idea is correct. You also consider the goals, needs, and interests of your subordinates/superiors you’re trying to persuade. The more they see an idea can help them, the more likely they are to help you.
  • Persuasion Tactics: 
    • Collaboration: You need to work with your subordinates, not at them, in order to get them to enthusiastically support your requests. You collaborate with team members, rather than using authority. You don’t need to overuse that power. The relationship based on the trust is a key for the collaboration.
    • Communication/Honesty: You should facilitate communication and be very honest to your people.
    • Improving Persuasive Skills: Appeal to the subject’s self-interest: You make it sure that what you need align with their best interests.
    • Present strong evidence to support your views/positions: You do intensive research and show the team members an idea that will likely work.
    • Establish credibility: You’re more likely to persuade your subordinates when trust and respect you. You promise to take the blame if it does not go well. This leads you to build up the trust and respect you’re your subordinates.
    • Make your objectives clear: You should get your team understand what you are doing and why are why you are doing that.

Other key factors:
Decision making is a collective effort: As a leader, you have to be honest to your team members. If you found you made a wrong decision, you would change the decision. There is nothing wrong with admitting a mistake.

California Alternative Workweek Schedules

One of the best ways of improving morale without costs is to consider Alternative Workweek schedules.  Up until January 1, it has been most difficult to implement.  However, California law regarding alternative workweek schedules have been eased somewhat as a result of AB 5.

Alternative workweek schedules allow non-exempt employees in a “work unit” to work in excess of 8 hours per day without incurring overtime. (California law includes a daily overtime requirement.) Generally, an employer may propose AWS work schedules of up to ten hours per day (12 for healthcare workers). Hours in excess of 10 per day, or 40 per week are overtime. Typically employers propose schedules consisting of four ten hour days or a “9/80” schedule. Special procedures describe advance disclosure and a secret ballot election prior to implementation of the AWS.

The AWS can apply to a “work unit” within a company, rather than to all employees. Previously, the Labor Code did not define “work unit,” although state regulations included a definition. The new law defines a work unit as “a division, a department, a job classification, a shift, a separate physical location, or a recognized subdivision thereof.” The amendment also clarifies that even a single employee may qualify as a work unit as long as his job function meets the definition.

In setting up an AWS, an employer may propose a single work schedule, or it may propose a menu of work schedule options for workers to select. Can the “menu” include a traditional 5 day week for those employees who do not want to work longer days? The amended law clarifies that the menu options may indeed include a regular schedule of five eight-hour days in a workweek. Consequently, employees who do not wish to work an AWS schedule may still vote in favor of the AWS by choosing to work the regular 8 hour day. This change greatly increases the odds of achieving the 2/3 employee supporting vote need to implement an AWS.

Additionally, the new law specifies how often employees may move from one schedule option to another on the menu. For example, if an employee opts to work four 10 hour days, how frequently can he opt to go back to regular 8 hour days? As amended, Labor Code § 511 allows employees to move from one schedule option to another on a weekly basis.

Employee Morale: The leading predictor of future growth and profitability

…or so says Roxanne Emmerich, author of “Thank God It’s Monday: How to Create a Workplace You and Your Customers Love.”I have no reason to disagree with her.

In this economy, there are fewer employees doing more work.  And for those employees who are unhappy – and there are legions – there are no other jobs to get.

While the economy begins to recover but job creation a long long way away, it’s time to find out what to do in order to improve morale in your workplace.

Give ’em training, self-improvement courses, or survey your employees to find out what they want.

When this economy recovers, the last thing you’ll need is to have all your employees looking for another job.