Tuesday, November 19, 2013

Women in Tech Investor Panel

Women in Tech Network hosted five outstanding women angel/venture investors at General Assembly/Cross Campus Wednesday November 13, 2013. The investor panel was featured to discuss the following items:

                How they discover new startups
                What they look for in startups
                Their levels of investment
                Trends in the LA Startup “scene”
               
Panelists included: Renee LaBran (early stage investor primarily in consumer products at Rustic Canyon/Fontis Partners), Victoria Cheng (early stage investor in financial services technology at Core Innovation Capital), Alyse Killeen (investor and fund operations strategy support for Clearstone Venture Partners), Alexa Fischer (investor and fund analytic support for Correlation Ventures), and Eva Ho (an active angel investor for her own early stage technology fund, Susa Ventures).


Any one of these individuals would have made a complete evening speaking about her experiences and her perspectives.  Perhaps one day we will learn to give women the full stage they have deserved to convey their insight.  Logically, in the approximately one and one-half hour window of this event, we had an average of 18 minutes with each investor – barely enough time to scratch the surface of their wisdom.  Of course, that doesn’t even include the time spent announcing sponsors, the moderator, and the moderator’s introductory statements.

The best discussions started with the question from the floor, “What three things do each of you look for from an entrepreneur’s business and pitch?” Even though we’ve discussed this many times before, the surprising part was that women investors expect many, if not all, of the same things as male investors.  Perhaps that is because money essentially is neutral and that businesses that desire to tap investment capital probably should be neutral as well.

In the opinion of one attendee, perhaps women were not asking the right questions to move forward.  Better questions might focus on what entrepreneurs should be asking or doing to get investor's attention – one of the prime reasons attendees came to this event. The panelists clearly were eager to be as responsive as possible in terms of insight into the investment process.

Another good suggestion was that the organizers might have polled attendees before the event so the moderator could pose questions to which attendees really wanted the answers.  The moderator’s introduction focused on statistics about the low status of women in STEM fields according to the World Economic Forum data. While the WEF ratings are important, and certainly worth acknowledging that women in tech (and venture) are highly underrepresented, the consensus from conversations afterwards was that it would be better to concentrate the discussion on, specifically, how we can help women change those ratings. 

Interesting data from the Kaufman Foundation’s research into women and venture capital suggests that women entrepreneurs who DO pursue investment funding received money in roughly equal percentages to their male counterparts, but a major challenge is that there is a shortage in the number of women entrepreneurs coming into the queue, itself.  If we could generate more prospective deals from women entrepreneurs, we might expect to see more women funded.

Toward the end, questioners were presenting hypotheses and asking the panelists to comment. One line of inquiry suggested that women in technology are less willing to accept an offer to collaborate on a project or enterprise compared to men.  Clearly, choices about whom to team with depend very much on the leadership, the quality of the other team members, and the specifics of the project or deal.  Over-generalizing might miss the nuances of the specific offer.  

We do recognize the high propensity of women entrepreneurs to remain sole proprietors, to not hire on a par with male entrepreneurs, and to hire fewer employees overall.  There are many possible causes and explanations, not the least of which is the escalating costs and overhead currently associated with employees compared to even five or ten years ago.  Women’s differential perceptions of risk might also be an explanatory factor – real risks related to women’s average earning levels and experience.  Such risk-management strategies might turn out to be quite appropriate to their circumstances and fundamentally sound in the long term. 

Above all else, it is satisfying to see five talented angel/venture capitalists who just happen to be women and who are making great strides building viable investment funds, themselves, while also making it possible for entrepreneurs (women and men) to succeed in today’s very challenging marketplace.

Friday, November 1, 2013

MSCI Considers Sale of ISS

MSCI Inc., the global stock market index provider, reported October 31st that it has hired Morgan Stanley to explore options of sale or other possibilities for Institutional Shareholder Services Inc. (ISS), the Rockville, MD governance proxy advisory unit which MSCI aqcquired when it bought RiskMetrics in 2010.

MSCI stands for Morgan Stanley Capital International, created in 1986 when Morgan Stanley bought the original global stock index company, Capital International. See: www.msci.com

ISS was founded in 1985 by Robert A.G. Monks as an independent, objective shareholder proxy advisory firm. Nell Minow was its President from 1990-1991.  ISS went through several different owners since that time, while consistently laying claim to over half of the proxy advisory business, although several new firms have grown up to challenge its leadership.

MSCI is looking to leave the business because ISS and other proxy advisory firms are coming under closer scrutiny for their practice of both providing recommendations to shareholders regarding governance practices and also providing consulting services to the companies whose boards and directors they assess.  This double-edged sword has become as undesirable as auditors which also charge management consulting fees of the same firms and credit firms that also provide consulting services to the firms they score.

For a brief historical survey of the many mergers and acquisitions which have occurred since the proxy advisory business began in the late 1960s, see the Technology Place Inc. Powerpoint PDF at www.championboards.com/ProxyAdvisoryFirms.pdf.

It is no longer clear who could buy ISS, deliver the independent, objective shareholder analyses required in today’s more demanding governance marketplace, and make money. ISS’s income is dependent upon fees from major corporations who have a vested interest in gaining positive opinions about their governance decisions made by their boards of directors. 

The other challenge is that both the SEC, Congress, and other regulators have toyed with the idea of tighter control over proxy advisory firms.  The uncertainty surrounding the business has perhaps been an even stronger motivation for MSCI to re-consider holding on to the storied firm.

If ISS ceases to exist, will the other proxy advisory firms take up the slack or will the business simply disappear?

Monday, October 21, 2013

A Little Something For Everyone

One area where women might have a shortage of experience, at least relative to other director candidates, would be the annual general meeting (also called the shareholder’s meeting or the proxy meeting).  A great introduction to this important part of public company performance is RR Donnelley’s 2013 Annual Meeting Handbook written this year by Craig Garner and Chris Geissinger of the San Diego offices of Latham & Watkins. The subtitle says it all: “Providing a General Overview of State and Federal Laws and Stock Exchange Rules Relating to Annual Meetings of Shareholders.”

Unlike many other “print-dominated firms” of the past, RR Donnelley has expanded and enhanced its focus to include extensive governance and financial services. 

The Handbook begins with a high-level overview of significant legislative provisions that might impact corporate filings and shareholder meetings in the current year.  First and foremost is a brief summary of The Jobs Act (which provides filing/procedural exemptions for newly-defined “emerging growth companies” – those with less than $1 billion gross revenues), followed by a summary of the significant Dodd-Frank Act provisions and the implementing SEC rules/regulations that will impact every other filer (heavily-weighted in 2013 by new compensation requirements). Finally, it describes how significant shareholder lawsuits might guide or constrain corporate actions and/or meeting activities.  

Next comes a summary of the array of requirements for annual meetings that originate in state corporate law, federal securities laws, exchange listing rules, and corporate charter and bylaw provisions.  Mandates covering proxy disclosure arrived with the Exchange Act of 1934 and subsequent SEC rulemaking.  The latest steps include the February 2008 SEC rule-making provisions “to facilitate the use of electronic shareholder forums.”

Detailed requirements of proxy materials, notice, content, voting are covered in depth in the next chapter, Federal Proxy Rules and The Proxy Statement. This chapter is a comprehensive “everything you need to know” about drafting or understanding proxy statement content. A separate section explains how the SEC regulators receive and review the material submitted in proxies, followed by comparable reviews conducted by the major listing exchanges.

The Annual Report to Shareholders is described in the next chapter as “… a different document than the proxy statement and the Annual Report on Form 10-K that public companies must file with the SEC, and is subject to much less regulation and supervision by the SEC.”

Shareholder Proposals, their content and review are covered next, describing how shareholders may submit issues for consideration in the annual meeting and the pre-conditions shareholders must meet before their proposals will be considered.  How proposals might be excluded by either the company or SEC review is well-presented.

Preparing for the Annual Meeting contains a checklist of all preliminary requirements as well as location, deadlines, order of business, content and procedures – both anticipated and unexpected.  The formal transaction of business at the annual meeting is outlined in detail along with follow-up reporting requirements.

In 2000, Section 211(a)(1) of the Delaware General Corporate Law allowed “boards of directors of Delaware companies that are authorized to select the location for their annual meeting to determine that the meeting not be held at a physical location, but instead be held solely by means of remote communication.” Thus, a new consideration relates to managing the electronic shareholder meeting processes, including concurrent or supplemental broadcasts.

If you are a new director candidate, the RR Donnelley 2013 Handbook provides an excellent introduction to everything that a board member needs to know about the shareholder meeting and supporting documentation.  If you are an experienced director, it gives a high level overview of key current issues that need to be addressed or considered in the 2013 proxy season filings. If you are a member of the senior management team of a public company, it provides guidelines as you prepare the company and its documents for the public screening of the annual shareholders’ meeting.

Analysis by Emotion

Sometimes, in the face of pure and simple numbers, researchers still have a propensity to put their hearts before their heads in the interpretation of cold, hard data.

My goal has always been to foster intellectual curiosity and enhance the analysis of corporate governance issues and resources. I try to go behind the popular (and sometimes fanatical) headlines that too often characterize corporate governance debates. In other words, to get people thinking and talking more broadly about current governance issues by tapping a variety of resources that might shed light on a given governance subject.

One such example might be The Conference Board (TCB) with its rich resource of boardroom information. We might not know about TCB if we simply assumed that the organization was only a bastion of elite, elderly corporate white hairs. By delving deeply, with an open mind, we might discover the TCB Proxy Voting Fact Sheet which analyzes the proposals submitted to public corporations during the annual proxy season, who submitted them, what subjects, who voted how, what proposals were withdrawn, and many other significant data points of value to any person trying to understand how well these once-a-year submissions work.

The reader is directed to the TCB web site, to sign in and download the 2013 report at: https://www.conference-board.org/download.cfm?masterProductID=7865

The report shows, clearly, how the "proxy season" runs from January to June each year and that the bulk of proxy proposals inundate boards in May of each year. TCB tracked 2,442 Russell 3000 firms and 440 of the Standard & Poor's 500 firms which held annual general meetings where proposals were considered. Finance firms held the greatest number of meetings (601 or 24.1%), while communications firms held the fewest (37 or 1.5%) of the Russell 3000, which is known to be heavily weighted by technology firms.

A total of 1,370 proxy proposals were recorded by TCB, of which 763 (55.7%) were submitted to Russell 3000 firms and 607 (44.3%) were submitted to S&P firms.

It may surprising some to learn that individuals submitted the most proposals (over a third), followed by public pension funds and labor unions, then hedge funds, religious groups, and other stakeholders (including environmental, social and corporate governance activist groups).  

Over a third of the proposals submitted (38%) pertained to corporate governance issues - such as proposals to declassify the board (nearly all of which were submitted by the Harvard Law School Shareholder Rights Project) and proposals to split the chairman and CEO positions. Over 71% of corporate governance proposals made it to a vote.

Another 19% of all proposals submitted concerned executive compensation, with 59% making it to a vote.  Most proposals sought to require an equity retention period for executives and/or directors, followed by proposals favoring a shareholder vote on severance agreements.

Social and environmental policy issues represented about 34% of proposals submitted, while 63% of those made it to a vote. The dominant social/environmental topic was political contributions followed by environmental issues.  ONLY 2 proposals were submitted on the topic of board diversity, and 56% of the votes cast were negative.  Yet, TCB analysts managed to eke out the following conclusion which implied far more support than indicated by the actual, factual evidence:

"Among social and environmental policy proposals, the topic with the highest average support was on board diversity (seeking to ensure that women and minority candidates are included in the pool of nominees), with an average 35.1 percent of for votes for two voted proposals."

So much for analysis by emotion.

I Expect More of My University

I take a lot of flak because, generally, I don’t buy into the idea that quotas help us overcome bias, discrimination or prejudice in the workplace or on boards.  Anybody who knows me, however, recognizes that I have zero tolerance for bias, discrimination or prejudice and that I consider these behaviors to be archaic and a small-minded form of bullying not to be tolerated. It does not matter if the target is women, African-Americans, Latin-Americans or people of different religious backgrounds.  In my book, there simply is no excuse for this behavior in a modern society.

So, it really hit me hard to read, this weekend, about a review authorized by UCLA Chancellor Gene D. Block in 2012, to determine if allegations of racial bias and discrimination by faculty were valid and if existing university policies were adequate to address these problems.  The findings were that “university policies…. were vague and insufficient,” that “procedures for addressing such complaints were practically nonexistent,” and that UCLA had “failed to adequately record, investigate, or provide for disciplinary sanctions for incidents which, if substantiated, would constitute violations of university nondiscrimination policy."

It hit me hard because this is the university of Jackie Robinson and John Wooden.  We have no excuse for this behavior on the part of our faculty leadership. We have no excuse for tolerating this treatment of our fellow students or faculty.  This is unacceptable.

Do we need quotas to fix this problem?  Do we really need yet another “diversity officer” on top of all of the other so-called diversity officers that already exist within the university structure? Do we really need more policies and procedures?  More sensitivity training?

What we really need is a little more light on the offenders.  If there are faculty members at UCLA who do not value their peers because they might be slightly different, we need those faculty members to leave.  They must understand that the university system has the final say on the credentials and choices of valuable professionals. It is not the job of faculty members to dispute those decisions, secretly, through behaviors that potentially mistreat or denigrate their peers as human beings.  It is one thing to disagree with a person, to debate and to discuss divergent perspectives or views.  It is entirely something else to suggest that one person is superior to another because of some token external trait.

If a faculty member behaves in a biased, prejudicial, or discriminatory manner, the channels of review at UCLA should be clear, crisp and brutal in their rejection of that individual’s behavior up to and including rejecting of that individual as a member of the UCLA family.  How can we make this any clearer?  There are Faculty Senates, Departmental leadership structures, and channels into the Chancellor’s office that SHOULD have provided diverse faculty members with the process to correct these behaviors. If those institutions failed to protect those diverse faculty members then they have failed us all as students and alumni/ae.  Adding one more layer of diversity officers on top of that slag heap will not make it smell any better.

Chancellor Block gets credit for at least conducting a high-powered review.  His predecessor chancellors deserve the stigma of allowing this bullying to fester.  The real need is for UCLA’s faculty to stand up and do the right thing, rather than delegate or dump the responsibility for fair treatment and respect on someone else’s doorstep.  The UCLA faculty know who is behaving in this manner.  

What is missing is the courage to call the bully out.  What is missing is backbone.  I expect more of my university.

Friday, October 4, 2013

Falling Walls Lab LA 2013

UCLA hosted a very creative event last night, the culmination of several months’ work in collaboration with The Falling Walls Foundation of Berlin, Germany. The event was a series of 3 minute pitches by 14 creative candidates, selected from 50 for the LA competition.  Three finalists were chosen by a jury of six talented and diverse professionals. The finalists will compete as a group of 100 in a global pitch-off to select the “Falling Walls Young Innovator of the Year” in Berlin, November 8 and 9, 2013.

See:  http://falling-walls.com/

The Falling Walls Lab Los Angeles is the work of the UCLA Office of Research, (led by James S. Economou, M.D., Ph.D) together with the Falling Walls Foundation (led by Anne Lorenz, Head of Programme), with the support of A.T. Kearney and KWS Saat.

The Los Angeles Lab winners were:

3rd place - Jerrid Matthews with a phone app to guage UV exposure toward anticipating skin cancer risk
2nd place – David Hsieh with a novel approach to treating early stage cancer mutations
1st place – Kevin McFarland with a digital assessment application for results-based education

These three will have their expenses paid to join other candidates from other qualifying labs in Sao Paulo, Brazil; Moscow, Russia; Johannesburg, South Africa and London, UK.  Los Angeles Lab is the only US representative.

This was a quality pitching experience. Not only were the candidates well coached in their presentations, but they were very professional during the Q&A as well.

Some of the candidates were at the very early concept design stages: Robert Hughes working on no-fault coercion as an alternative to penalties in the law; Panagiota Kaltsa’s idea for a social-media whistleblower app to flag instances of governmental corruption; and Nidhi Taneja’s reward-based app to incentivize people to make better healthcare choices. A couple of the candidates spoke about research ideas that were still in the labs, suggesting intriguing approaches to major contemporary problems.  Among these were Yitong Zhao’s work enhancing algal biofuel productivity; Marcus Roper’s idea of tapping the wisdom of mold as a mathematical solution to traffic congestion; Seth Dorfman’s work with space plasmas; and third-place winner David Hsieh’s strategy to eliminate cancer cell mutation processes. Some candidates have business entities in progress or operation.  These would include Eric Curry’s Pets, a pet care service provider; Christopher Girdwood’s Recovery Pledge Inc.; Samuel Hampsher’s CO2 based geothermal system at GreenfireEnergy; second place winner Jerrid Mathews’ UV Guardian for personal sun exposure monitoring; and first place winner Kevin McFarland’s SmartestK12 providing digital student assessments. Two candidate have a product idea that might be ready for prime-time at major US ports – Jeffrey Bell’s solar-driven particulate air filter system and Eipe Koshy’s water-borne wind powered vessels.

The “neat thing” about the ideas presented at last night’s event is that they all have real world value and potential.  The candidates were selected because their ideas potentially are “disruptive” – just as the Fall of the Berlin Wall on 9 November 1989 realigned the world as we knew it. In like manner, today’s Falling Walls Foundation will change the world of tomorrow by “building and promoting interdisciplinary connections between excellent academics, entrepreneurs and professional from all fields” and from all over the globe.

Thursday, October 3, 2013

On the Horns of a Dilemma

Once again, I find myself on the horns of a dilemma. On the one hand, I'm talking with uber-enthusiastic women with extensive financial expertise about their desire to bring more women into the angel and venture capital space (seed the supply side) to invest in promising women-owned businesses (grow the demand side). It is easy to conclude that, if anyone can accomplish the former goal, these are the women who could do just that.

On the other hand, I look at the businesses that today's women are building, and I must conclude that there is a sizable disconnect between what is being presented for investment and what would be considered worthy by the investment community. This is true of women investors, not just men. We can create all the women angel investor pools that money can buy, but if we do not also create a viable pool of profitable women enterprises, we will continue to see the tiny percentages everywhere.

By way of an example, I spoke to a group of well-educated women entrepreneurs, asking them "What businesses would you consider building?". Their answers were: "I don't know," "Something meaningful," or " A business for babies."

It was not my place, at that occasion, to critique or challenge their opinions. However, if we are serious about building women-owned enterprises, worthy of investments with expected returns, then we need to do a better job of bringing economic realities to the current generation of business-potential young women. Maybe even to their older sisters, as well. What would that better business education look like?

There would be five core competency courses:

Problem - Solution analysis
Customer - Revenue nexus
Team building
Executing up to scale
Returns to investors - the "end game"

Problem - Solution Analysis

Out of the gate, we need a course to get potential women entrepreneurs to think about how the Problem and the Solution uniquely define the product and customer. The Problem is the pain, ache, dilemma, barrier, obstacle or significant need which you feel personally, as an entrepreneur, and which a large enough cohort of peers also feel intensely. "A business for babies" is not a clear problem statement.  Women argue they have a host of problems raising kids, but the challenge is to hone in, laser-like, on the specific real-world problem amenable to a solution with a significant revenue-potential and which has not been developed by competitors in the marketplace. "Something for babies" is simply a heart-felt statement and lifestyle wish. It is not the foundation for a business.

A computer game to correct early childhood "lazy eye" is a potential business. Blankets or cushions designed to reduce the risk of crib deaths is a promising entrepreneurial area. This first class would teach women how to think more concretely and define clearer problem-solution sets.

Customer - Revenue Analysis

The second course would address the Customer - Revenue nexus. Who is willing to pay how much for your entrepreneurial solution? What are all of the component costs to produce your solution - from fabrication to marketing to delivery plus your compensation and that of your employees?

Parents buy products and services, not babies. Customer profiles must focus on who has the need that is so clear and pressing as to justify paying for this solution as opposed to any other option in the marketplace - including the "do nothing" alternative.

Too often, a woman entrepreneur will tell me, "I don't want to just make money. I just want to do something meaningful." Where do women get the idea that poverty is "meaningful?" Have they ever experienced life without an income? How did they determine, in fact, that scrimping between food stamps was a state to which they might actually aspire?

The arrogance of "I don't need money" comes from a scenario where someone else is feeding and clothing them and putting a roof over their head. It is not pretty being somebody else's charity case.

"Meaningful" is being able to stand on your own two feet, earn a reasonable income that compensates for the value you bring forth. "Meaningful" employment includes reasonably competitive compensation so that you and your families can put "meaningful" food on the able and pay rent or mortgages for "meaningful" housing. "Meaningful," in business, is being able to earn a return, over and above what is required to give all input elements their appropriate, fair and reasonable returns.

Making a profit is not original sin. It is generating some return that can be used to grow the business, serve additional customers, and compensate more employees for their productivity. Profits make R&D possible, which allows for the creation of new and innovative solutions to more problems.

The concept of "meaningful" typically bandied about by some women entrepreneurs, today, simply suggests their lack of experience with the realities of the business marketplace.  It is a conversation about a "foreign country." They need to immerse themselves in that culture to better understand its breadth and depth.

Team Building

The third course would be Team Building. Ninety percent of all women businesses are sole proprietorships - one woman shows. Women need more experience working together in order to recognize the difference between effective, successful teams and failing teams.  Too many women-owned businesses continue to be "lifestyle" or "hobby businesses" - activities for women who need something to occupy their time and attention.

Women need to learn focused collaboration. Not the wine-glass-in-hand networking or the tie-dyed-t-shirt advocacy or awareness-demanding events that dominate women's agendas. Those are social exercises that hold little value and convey little knowledge.

Women have to learn how to build a partnership of two or a team of three, then grow further by consciously tapping the valuable and unique expertise that surrounds them. Women need to guide the ship of their business idea by fully utilizing the talents of a crew dedicated to the same strategic journey.  When differences of opinion arise, women entrepreneurs have to navigate the diverse views into a course correction or strategic business pivot. They cannot simply slam Susie's reputation, then take their dolls and go home a huff.

Execute to Scale - Growth Strategies

The fourth course for women business entrepreneurs must help women Execute to Scale. This teaches entrepreneurs how to grow their business, capture the rewards of economies of scale and scope. Women need to learn to execute incremental growth plans, through new customer acquisition, new product development, or other beat-the-competition innovations.

It's not enough to keep the Lemonade Stand as a small monopoly on the corner. Women-owned businesses need to envision a much larger journey to financial and economic success.

Returns on Investment - The End Game

The fifth course would prompt women-owned businesses to contemplate their desired End Game. What is the destination: a buy-out, an IPO or assimilation into a larger entity? Quo vadis? Whither? Why and how will she navigate this ship to its ultimate destination? How will she measure success?

If she has no concrete ambition, then why would any investor (male or female) put time, money, or effort forward for her benefit? Aren't there scores of other more worthy, more competitive, and even hungrier entrepreneurs at every turn?

Women who have acquired this knowledge - whether in the school of hard knocks or by more traditional training - merit the attention of angel and venture investors because these are the women building enduring, successful enterprises for tomorrow's economy - and as the inspiration for the next generation of young women leaders in business.

Chicken or Egg?

It is not a chicken vs. an egg dilemma. Angels don't have to come before entrepreneurs or vice versa. They both have to happen in tandem if we want to see real growth in net new business formation. While we work, on the one hand, to increase the number of new women as angel capital investors, we also need to ensure there is an adequate pool of quality, viable, investment-eligible women-owned businesses ready for funding.

Monday, September 30, 2013

Revenue Recognition

When should revenue be recognized in a given transaction?  This really should not be rocket science, but apparently it is.  It’s also an example of how regulations get created because some Tricky Dick Accountants. Lawyers, Salespeople or Executives decide that gaming the system is to be preferred over the reality.  Revenue recognition – pure and simple – is the accounting recording of either the increase in the value of an asset or the decline in the value of a liability (or some combination of both) as the consequence of a product or service transaction. 

It’s not carved in concrete though. Revenue could be recognized either before or after the delivery of an actual transaction in instances such as a contingency contractual arrangement, a bill and hold transaction, an installment sale or a multi-element software sales agreement. In each case, the percentage or partial transaction should define the parallel partial revenue recognized.  You don’t get credit for 100% of the revenue if only 2% of the software has been delivered and accepted by the customer.

Revenue recognition really becomes an accounting problem when management or executives “rig” the system for their personal benefit.  How many different ways are there to do this?  Many, it seems.
  • Shipment or transfer of assets to third parties, resellers, or company-owned facilities, while in fact retaining ownership, but counting revenue as if actually sold to customers.
  • Accounting for assets sold, but products/services transferred are partial, incomplete, have a right-to-return, or contractual commitments have not yet been fully performed.
  • Creation of fictitious accounts, customers, resellers or transactions.
  • Double billings, re-invoicing past-due receivables, or otherwise inflating transactions – existing or non-existent.
  • Artificial billings based on future sales – real or otherwise.
  • Recording additional sales invoiced and shipped after the end of a reporting period.
Why would anyone do this?  Because they seek to artificially inflate their performance compensation or bonus by falsely jacking up revenue recognition. Why would anyone risk losing it all?  Because the controls in place are not adequate to the task and the perpetrator knows it.

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have come together to propose a new regulation and definition of revenue recognition. Interestingly enough, they both agree that a new accounting standard is needed to simplify and reconcile the differences between U.S. Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS).

The new “core principles” for revenue recognition are pretty straight-forward:

Step 1. Identify contract(s) with the customer
Step 2. Identify separate performance obligations.
Step 3. Determine transaction price.
Step 4. Allocate transaction price to each performance obligation.
Step 5. Recognize revenue when each performance obligation is satisfied.

This is a case where the proposed standard actually is simpler and less confusing than the existing criteria with their numerous variations by industry, geography, and contract.  But, let’s see how much wailing and whining the new standard generates, in spite of its obvious principle-based simplicity.

Chicks, Broads, and B*tches

Not long ago, there was a company with a great idea – to provide facilities for rent as conference and board rooms for businesses.  Unfortunately, the founders chose Naked Ladies Realty as their company name.  I tried to reason with them.  Tried to tell them they would hit strong resistance when they asked clients to complete a Purchase Order made out to “Naked Ladies LLC.”   The company with the great product idea died a quick death, and their facilities were sold to The Church of Redemption.

Today’s young women entrepreneurs are bursting with the same “girls just wanna have fun” enthusiasm as they flaunt their right to “be who I wanna be” mentality.  But, brands have a way of biting entrepreneurs in the butt.  When today’s women entrepreneur adopt brand names that includes “Chicks” or “Broads” or “B*tches,” they take on the negative stigma associated with those derogatory words, just as did African Americans or Latinos or Irish or Swedes.  A slur is a slur is a slur.

Of course, these little girls know so much more and better, right?  They know this is just what they need to appeal to the viral marketplace of today’s mobile technology.  Little do they know about the people to whom they are appealing.

Imagine if women in the military were to adopt similar chosen names for their network of women-empowering-women in a unit of the Army, Navy, or Marines.  Can you predict the response they would elicit by adopting the name, “Chicks in Arms?” Or, perhaps, “Broads Ahoy” or even “B*tches Command.”  Everything good that women have achieved in the military would be washed down the drain by the choice of such “fun girl” nomenclature.  And, if you were aghast at the number of sexual harassment assaults documented against women in the military up to now, can you imagine the uptick that would follow from this abject flaunting of female sexuality?

Do women want respect? Then, perhaps, they will need to brand themselves and their networks with identities that foster respect.  Do women really expect that other women will view their organizations with pride? Do they expect that men will hold such gatherings in high or low esteem?

Probably the only way the little girls will understand the consequences they face with such choices is to let them have their way and see what happens.  Just like Naked Ladies LLC.

Where's The Beef??

On October 4, 2011, I posted an entry on the 3D (Diversity Director DataSource) blog which challenged us all to begin to put performance metrics behind our efforts to increase the numbers of diversity candidates actually sitting on corporate boards of directors. See:  http://gmiratings.typepad.com/3dblog/2011/10/to-ensure-that-we-succeed.html

So, what has happened in the past two years?  Where’s the beef in this bun?

I challenged the leaders of the GMI 3D Registry in several specific ways:

1.       First, we have to define what we envision “success” to be.

One measure of success would be if the 3D Registry “attracted competent, capable, experienced and willing director candidates from a diverse pool.”  I have no idea whether or not that happened did because they don’t give us “the number” – they don’t talk about who they have, whether they are competent, how they measure competence. The 3D Registry does not report on candidates. 

2.       Second, we have to determine who is using this resource. 

How many companies of what size or what size of boards actually tapped this resource?  How many diversity candidates were placed in each of the past two years?  I have no idea, again, because, the 3D Registry only talks about all of the other so-called “research” which fails to be specific about candidate headcount.  The 3D Blog is yet another litany of how wonderful are the small handful of sitting women and minority directors (something I do NOT challenge) and how stupid corporations must be not to increase their diversity headcount. Didn’t we expect better from this resource? Or did we expect just more of the same?

3.       Third, we might consider some form of anonymity for director searches, at least in the early stage of board consideration of basic credentials and initial due diligence about qualifications.

This was a general suggestion to provide more “neutral” strategies for nominating committees to identify candidates: anonymity of candidates before the nominating committee. Like the orchestras of today, holding “blind” auditions for candidates.  We don’t know if visual clues are the barriers to entry or if we are simply not seeing women and minorities putting themselves forward in the auditions in the first place.  I’d like to see real data on this, not just search firm anecdotal tales. Nothing has changed with the 3D Registry – no innovative suggestions based on their experience, no novel proposals based on their finding.  Just the same ol’, same ol’.

4.       Finally, we should expect reportage from the 3D registry administration about the growth in headcount and successful placements.

Is it really too much to expect some data from this well-hyped tool during the past two years? I suggested we could expect, at a minimum, at least the categories of those who used the 3D registry as well as (perhaps later) the scale or size of entities inquiring. There are many ways to “scrub” the data to ensure it neutrality.  What we have to start doing is to measure positive growth in headcount, placements and inquiries, and we should have been doing this for each of the past two years.

After studying many director databases over the years, I am not convinced we are using them as effectively as we could.  I have seen a host of such registries disappear without any track record of the lessons or experience using it.  Is the current crop of 3D registries also destined for demise? To my mind, if we do not know anything about their performance, then we are simply wasting economic resources and fostering misleading hype.  It’s also re-enforces the concept that, to the hammer, every problem is a nail.  Another way to describe it is that “we are doing the same thing, again and again, expecting a different result.”  We all know what that is.

Beginning in 2010, I documented the trends reported by Directors and Boards (D&B) magazine, which tracked the quarterly new appointments of directors, including the share of women directors.  I updated that information recently, covering their 1st Q 2013 results (and updating other metrics contained in that report).  See: http://www.championboards.com/DandB2013.htm

The most significant trends were the slow erosion of the US business economy and the parallel loss of leadership in the form of director seats.  D&B now reports that women are being named to corporate boards at above-35% shares of quarterly nominations, but that the number of companies and the number of seats are continuing to decline.  We see the same downward trend persisting in total US listed companies, commercial banks, and federal and state credit unions. We could also point to the associated decline in the number of top tier executive (C-level) which is associated with the loss of corporate entities.

Included in that summary is a chart showing the results of another Director Diversity Initiative – from the University of North Carolina’s School of Law - which has been working in this same field since 1992 and reporting on their 3D survey results since 2006.  At least UNC has the courage to report their results. 
Their data reflects the same overall downward trends. And, while we do see small upticks in diversity appointments, the real challenge persists in that we still have no assessment of what is happening on the inside – how many candidates are added? How many inquiries into the directory? Are inquiries satisfied or not? Are companies providing feedback on the credentials of the candidates? What are we learning from this resource? And, most importantly, why don’t we care about the decimation of the American business economy?

So, I’m feeling a little like Clara Peller from the 1984 Wendy’s hamburger commercial.  Like Clara, it seems like there’s a lot of fluff and pomp around the latest offering, but what we are missing here is some old fashioned substance in the diversity director database dialog.  “Where IS the beef??”

Monday, September 23, 2013

Over Boarding

While I definitely am a fan of John Chiang, California State Controller, I had to take a moment to digest the news that, in that capacity, he is required to sit on a grand total of 81 boards and commissions. See: http://www.sco.ca.gov/eo_about_boards.html.

This is the same political leader who has argued for years that we need more diversity in our corporate boardrooms, who was an instrumental supporter of the formation of the 3D Diverse Director DataSource, now housed at GMI Ratings (formerly The Corporate Library: http://www3.gmiratings.com/home/our-products/3d-diverse-director-datasource/ ). I did check he is NOT on the board of that entity, though.

I know how he gets added to those boards. Some bright legislator decides to create yet another board or commission to oversee some economic or social activity and then decides that somebody with financial expertise is needed on the oversight board or commission. So, they add the position of State Controller to the entity's board. John's position adds another director notch to his belt.

But, Controller Chiang is so overwhelmed with boards he doesn't even know that some of them have been decommissioned (like the Technology Services Board) by the The General Government Trailer Bill (SB 1038) effective July 2012. California doesn't need a technology oversight board because it implements such wonderful massive high-tech public projects on time and within budget.

Then too there are the host of redundant boards like the Prison Construction Committees of 1984, 1986, 1988 and 1990, the board of the New Prison Construction Committee-Bond Act of 1981, the County Correctional Facility Capital Expenditure Finance Committees of 1986 and 1988, and the boards of the County Jail Capital Expenditure Finance Committee-Bond Act of 1981 and 1984. Why not just ONE board to oversee Prison Construction or Finance? Or is that too obvious?

We have a choice. We can continue with the way we have done this for years - naming the State Controller to every board or commission that might need financial expertise, and thereby so over-board the Controller that he cannot possibly bring adequate financial expertise to bear for those positions. Alternatively, we could require the Controller to name an independent board/commission member with appropriate financial expertise from resources like the 3D Registry or from top tier college/university business school director candidate lists or even from director candidate lists prepared by top tier financial professional associations, mandating that their lists roughly approximate the percentages of their last (2 to 5 year) profiles. We might see a marked improvement in the quality and effectiveness of government boards/commissions if the public sector were to implement a little of that diversity that they insist that businesses "ought" to provide.

Dear John, I would not be so sure it is a good idea to flaunt the fact that you are "attempting" to serve on 81 boards or commissions these days when the credibility of public oversight of financial entities has reached rock bottom lows and when the public sector's financial credentials are so wanting.  

Monday, September 16, 2013

Asymmetrical Information Risk

The discussion at Directorship 2020 focused, in part, on what boards could do to bridge the gap created by “asymmetrical information risk?”  (Where “asymmetrical information risk” is defined as the situation where management has more and/or better information about the company than the board.)  One solution suggested was that boards should go out and get more information about three key types of leading indicators to overcome the gap:

                Customer satisfaction
                Operational efficiency and
                Talent management.

The ability to highlight or point out challenges facing boards of directors does not always translate into effective solutions to those shortcomings.  In fact, too often we keep coming back to the same ol’, same ol' solutions. 

For example, the assumption behind “asymmetric information risk” is that there is an inherent adversarial relationship between boards of directors and management (i.e., all C-level executives from the CEO on down).  “They know more than we do about the company; we cannot trust them; they are not keeping us adequately informed; they are hiding the truth from us; or they are inundating us with data rather than providing us with information meaningful to the company’s need to ‘drive long-term value creation.’”

With “asymmetric information risk,” we have taken “healthy skepticism” overboard into the realm of suspicion and blatant distrust of the company’s management.  Once advisers have pinpointed the latest offending “boogie man” (asymmetric information risk), those same counselors become the go-to expert resources for bringing solutions to this New Nemesis of a problem.  As financial advisers became the answer-men to the evils of accounting fraud, so too compensation consultants became the answer-men to the evils of excess executive pay. Now, the latest “best practice” is to tap outside independent expertise, hire a consultant, read reports from buy/sell analysts, and use internal auditors to assess and control risks related to this knowledge gap for directors.

We have become intimately aware of asymmetric information risk ever since Alvin Toffler popularized the concept of “information overload” in his 1970 book, Future Shock. Today, we simply are encountering the continued progression of hyper-complex financial instruments and accelerated transactional activities.  While these new forms of information glut present unique challenges and risks for oversight of large scale corporations, effective means of handling the information deluge rarely resides “outside” of the boardroom – delegating the job of a director to other advisers. 

The first “key agreed principle” of the boardroom (according to the National Association of Corporate Directors) is: “Board responsibility for governance.  Governance structures and practices should be designed by the board to position the board to fulfill its duties effectively and efficiently.” [Emphasis added.] In other words, boards own the solution to their own governance problems; not outside experts. That includes the specification of what information is needed, when, and in what form.

Pilots of modern airplanes are examples of individuals who also face potentially overwhelming complexity in their domain and who are surrounded by others - on whom they must depend – for assurances and information to perform their jobs perfectly. How do modern pilots navigate ever-more-complex and hugely larger aeronautic monstrosities?  What they do NOT do is pass the buck to external consultants or even ask others to provide more controls over their activities. 

Modern pilots do several essential things.  One, they strip the pre-flight checklists (the information specification and review process) down to their critical essentials, then rigorously and methodically go through each and every key element, one at a time – every single time, as if their lives depended upon the satisfactory completion of each step.  As a point of fact, their lives and those of their passengers DO depend upon a safe, complete, and accurate completion of this information review.

Do boards have a key checklist of their 3, 10, 50, or 100 absolutely essential items they must know about their ship of state?  How often do they actually review them – not because they predict a quarterly up- or down-tick in the value of their shares, but because the long-term viability and value of the company are defined by these essential items.

Second, the critical items are not “given” to pilots; rather they are developed collaboratively by pilots and crew-members based on their real world experience, drawn from their examination of where things went wrong, and what they believe would prevent re-occurrence of those events in the future. If a step does not contribute to the safety of the journey, it is dropped. If pilot and crew believe a step should be added to ensure better communication, coordination, and safe operations, then it is included.   Checklists are developed to address scenarios of the major potential disasters (risk factors) they are likely to face – events which would critically endanger the air ship and its valuable contents (both people and cargo).

Do boards develop checklists and scenarios to address highly probably, highly risky contingencies? Or do they develop proxy paragraphs, templates, and legal pro forma statements with little relation to the business operations that management must deal with on a day to day basis?  Do boards collaborate with management to identify and sketch out information needs based on what would best serve board strategic guidance for the company to achieve its best potential?

Third, when pilots and crew design response strategies that will be used when they encounter problems, those strategies are realistic and “bought into” by all participants. It is not “if” they might encounter problems, but rather “when” such problems will occur because leaders and support personnel do not deceive themselves into thinking they operate in some perfect fairy tale world. If events have any likelihood of putting the craft or contents at risk, then assuredly it is worth their strategizing a full, safe, and corrective recovery.

Finally, it is not just the Superman Scenario - the lead pilot, the CEO of the cockpit. All parties concerned are prepared to put their shoulders behind the strategy as one. It is a team-based recovery strategy that distributes ownership of the solution among all involved players – even to the passengers’ roles and responsibilities to listen and follow instructions. 

Management in companies is like the crew in the back with the passengers.  They absolutely must be an integral part of both pre-flight checklist review and emergency scenario collaboration and implementation. For the sake of appropriate control and the long-term viability of the firm, there had better never persist an information gap between what management sees and knows is going on in the body of the craft (the firm) and what the leadership is doing to push the craft forward toward its destination (its strategy).

Therefore, it would appear to be accurate to say that if “asymmetrical information risk” exists in a firm, in all likelihood that, in and of itself, is a leading indicator suggesting that the company is in trouble because communication between leaders and implementers is broken and because information that is essential to take the company to its destination is not being exchanged, effectively, between the parties responsible for ensuring a safe arrival.

Friday, September 13, 2013

Directorship 2020

The National Association of Corporate Directors (NACD) invited comments on its recent Directorship 2020 gathering held in Los Angeles, the third such event over the past few months – following New York and Chicago. See Kate Ianneli's summary at: http://blog.nacdonline.org/2013/09/future-boardroom-processes/ 

As a participant in the West Coast event, I’d like to thank the NACD and its supporting partners for organizing this peer-group exchange. The highest accolades for Directorship 2020 relate to the deliberative exchange -- the opportunity to share experiences among participants in a free-wheeling small group setting (tables of about 8 persons each).  This is a welcome change from the all-too-typical “talking heads” events with experts on the dais. There is tremendous untapped value in directors’ experiences.  It is satisfying to participate in that exchange of insight and struggle.

Another noteworthy distinction was made, toward the end of the day, by the panelists who had the opportunity of viewing the experience in all three cities.  They said that there were significant differences in perspective and tone as the event migrated from New York to Chicago to Los Angeles.  If it is accurate that “no one-size-fits-all solution” exists in governance practices – that governance is an art crafted by each firm – then it might follow that significant governance process differences exist elsewhere: across industries, across the private to public spectrum, and now regionally-differentiated enterprises.  We in Southern California also recognize there are worlds of difference among firms in Northern California compared to those in San Diego or Baja California or Los Angeles area firms.  Even the purported “best practices” concepts may now need to be modified by the challenge of “best for whom or for what business purpose?” At a minimum, this conclusion suggests that NACD might benefit from more events outside of the New York-Washington corridor.  What could we learn from Austin, TX or Portland, OR enterprises?

Another relevant point is that Directorship 2020 is trying to anticipate what governance might look like in 7 plus years.  If the average age of directors in 2020 is 65 years, roughly as it is today, then we would just begin tapping that vast unpredictable resource pool of 78 million individuals who constitute the Baby Boomer Generation (those born between 1946 and 1964, who graduated from college between 1968 and 1986).  Roughly half of them grew up during the Vietnam War era (1946 to 1955) while the other half grew up in the Trailing Edge Boomer era (those born between 1956 to 1964).  If this pool is not tapped directly as directors, they most certainly will be investors, shareholders, business owners and stakeholders.  They also undoubtedly will be activists of all scenarios – as they have been in the past.

This is the generation that introduced sustainability, the climate change debate, Benefit Corporations, and not merely the Internet, but every technology change up to and including online board and proxy meetings and the cloud. This generation pushed the redefinition of healthcare coverage with all of its technology and service consequences.  This generation is toying with crowd-funding which may yet prove to be a direct competitor, if not an clear alternative, to the traditional IPO.

As we sat at our round tables of eight NACD participants in LA, talking and taking notes with pen and paper, a few of us wondered how will we train and educate the future directors of 2020 to admire and respect the concept of governance, as we have? Unlike today’s directors, tomorrow’s directors will be tapping their mobile devices, expecting to draft summary notes on electronic devices and transmit the conclusions of their table’s conversation to live overhead projection displays. Will governance be ready for them?

We give “leadership development” a great deal of lip-service, but what are we doing to prepare the non-sitting director candidate (female and male) to understand, as senior c-level management, how to communicate effectively with sitting directors? How well are they informing directors by reaching beyond the limits of their “silos” of technical expertise (financial, technology, legal, global) to effectively inform directors and companies how to address unforeseen risks? How well are directors communicating to their leadership bench directors’ needs for comprehensive information and insight – not just numbers?

What are we doing today to instill in those yet-to-be-seated directors both confidence and trust in “this fragile institution of governance,” as Harvard’s Dean of Corporate Governance, Jay Lorsch, once described it? Will anyone know who IS Jay Lorsch? Will there be enough interested executives and managers with quality board-level experience coming forth from that richly diverse candidate pool? Will they be willing to serve on boards to guide future growth, employment, and innovation?  Or will our boards of 2020 consist of a few scared minions, cowering before the intimidation of regulatory might that was required in 2007 to right that financial ship of state which came so close to sinking and which continues to wobble in many sectors even today?

My peers and those just behind me, age-wise in the cohort pool, are the individuals we need to step up and serve in a governance role.  We owe them the best governance education and insight we can possible fashion. That is the true challenge of Directorship 2020.

Tuesday, August 20, 2013

Puffery

The Pension Fund of the Cement and Concrete Workers District Council filed suit against Hewlett-Packard (HP) and its former Chairman, President, and CEO Mark Hurd alleging securities fraud, on multiple occasions, because Hurd and HP issued and updated the corporation’s Standards of Business Conduct Brochure (SBC) in 2006, May 2008, and June 2010, and also approved and issued SEC Forms 10-K and 10-Q, including statements in the “Risk Factors” section that did not properly reveal the securities risks Hurd was undertaking with his relationship with Jodie Fisher. Not only did Hurd admittedly not inform his Board of the pornographic background of Ms. Foster, he also falsified expense statements relating to their relationship, allowed her to receive compensation for non-business purposes, and inappropriately used his position as CEO to attempt to pursue a romantic relationship with her.

The class action suit alleged that Hurd’s actions, ultimately, had an adverse impact on the value of the company stock which in turn reduced the value of the fund’s holdings. At issue was the question of the significance of the Standards of Business Conduct relative to security prices and/or shareholder value.

Judge Jon Tigar held, August 9, 2013, in a decision of the US District Court, Northern California, that HP’s Statements of Business Conduct (SBC) were inactionable corporate “puffery,” and that Hurd’s behavior, which might have contravened the mandates of those presumed ethical standards, did not rise to the level of a violation of securities law.  See the order dismissing at http://amlawdaily.typepad.com/hphurd.pdf (1)

Justice Tigar also cited problems with the Pension Fund’s filing relating to materiality, causation, and scienter. Were the SBC or “Risk Sections” material contributors to the rise in share value before Hurd’s behavior caused them to fall?  Did Hurd specifically make false or misleading statements that arguably inflated share prices? Did Hurd act with criminal intent? Did the Pension Fund show that Hurd’s falsification of expenses or compensation records actually caused share values to rise or fall?  In several respects, the Pension Fund had major legal challenges to meet and, failing to have done so successfully, their class action suit was dismissed.

The “puffery doctrine” is an interesting and new argument applied to Codes of Conduct.  Usually “puffery” in securities litigation is associated with “forward-looking statements” or advertising.  Corporations have been allowed some leeway in their use of “puffery” (i.e., held not accountable for them as factual statements) where it was obvious that the company was hyping itself rather than its share prices, specifically.  For a clear and full treatment of the “puffery doctrine,” see: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=887720 (2)

It appears to be OK for a Chairman, CEO, and President of a major US corporation to be playing fast and loose with a female contractor, fudge the expense and compensation statements, and yet also state that he and the company are “committed to being open, honest, and direct in all of our dealings.” According to Justice Tigar, this is OK because a Statement or Code of Business Conduct, first, applies dominantly to employees (not the chief executive officer) and, second, because securities law doesn’t know how to apply standards of fraud or criminal behavior based on actions contrary to a company’s Statement or Code of Business Conduct.  Apparently, actions contrary to a company’s Statement of Business Conduct are simply that – “actions not consistent with” company culture, values, or ideals.

Justice Tigar may have held that Codes of Conduct were empty puffs of air because if shareholders actually expected those ethical standards to describe the moral or behavioral foundation of corporate America, then maintaining that dual concept of reality (what they say and what they do) would drive shareholders stark raving mad.

Justice Tigar has pounded some pretty rusty nails into the coffin of corporate accountability by his extension of the “puffery doctrine” to codes of corporate business conduct, calling them essentially “aspirational statements.”  If his decision stands, perhaps other corporate statements might equally amount to “mere wishful future thinking,” including whistle-blower provisions, diversity statements or other ethical mandates.Shall we call all of these "Dream-Speak?"

Sarbanes-Oxley (SOX) Section 302 is securities law which states that corporate officers must sign and affirm the validity of financial statements which presumably should have included Hurd’s bogus expense statements. Corporations are "obligated" under SOX Section 406 to publish their Codes of Conduct and inform shareholder if ethics waivers have been granted. See: http://www.cooley.com/57376 for one legal interpretation. (3)

Perhaps the bottom line here is that the Cement Workers simply chose the wrong legal foundation for their case in a desire to elevate Corporate Codes of Conduct to a higher level of accountability than simple moral suasion.

The real tragedy is that we show so little regard for the fact that Codes of Corporate Conduct, those mandates for ethical behavior in Corporate America, have now been lumped together with the likes of Twitter and other marketing and social media as simple business hype.  Shareholders, management, leadership and the public all seem to ignore the implications and consequences of this trend.  Even the NACD might want to reconsider what this decision means for their goal of "restoring trust in corporate governance."

Notes:

(1)    CEMENT & CONCRETE WORKERS DISTRICT COUNCIL PENSION FUND, et al., Plaintiffs, v. HEWLETT PACKARD COMPANY, et al., Defendants. Case No. 12-cv-04115-JST in the UNITED STATES DISTRICT COURT, NORTHERN DISTRICT OF CALIFORNIA; ORDER GRANTING MOTIONS TO DISMISS;  Judge Jon S. Tigar, United States District Judge, August 9, 2013

(2)  “The Best Puffery Article Ever” by David A. Hoffman, Temple University - James E. Beasley School of Law; Cultural Cognition Project at Yale Law School; Iowa Law Review, Vol. 91, p. 1395, 2006; Temple University Legal Studies Research Paper No. 2006-11.

(3) Cooley Law Client Alert: "The Sarbanes-Oxley Act of 2002: Final SEC Rules Regarding Codes of Ethics," 2/14/2004.

Friday, August 16, 2013

An Honor and A Pleasure

Recently, I had the pleasure (and the honor) of serving as a coach and “mock judge” for 15 entrepreneurs preparing for the 4th Annual Port Tech Los Angeles Entrepreneur Pitch Competition.  This was my 3rd year in this capacity, and I was joined by a stellar team of colleagues:

Rick Plumley – BrandZing (Marketing)
John Wentworth - The Wentworth Company (Recruiting)
Blair Schlecter – Law Offices of Blair Schlecter
Tom Taulli – Contributor at Financial Corner, Forbes; serial entrepreneur and author of several books on startups

The Port Tech LA Pitch Competition is exciting on several levels. First, the caliber of coaches – including Port Tech LA executives in residence, Stan Tomsic and John Dmohowski – is unmatched.  The opportunity of working with these gentlemen was a tremendous learning experience. The entrepreneurs were fortunate to be bombarded by the questions and insight of these very talented guys.

At the same time, the quality of talent in the candidate pool has never been better (and prior years’ talent was awesome, as well).  It is so exciting to hear presentations about creative, innovative business ideas that address substantive problems and to do so effectively.  Again, the charter of coaches is to advise and critique, so candidates often leave the room wondering where they stand.  The answer is that they stand on a solid foundation, and the business structure they are building will be beautiful.

But, don’t take my word for it.  The pitch-off of the finalists will be held September 10th from 2:00 to 9:00 PM at the Port of LA Administrative Building, 425 S. Palos Verdes Street, San Pedro, CA 90731.  The Port Tech LA Expo will be held September 11th (registration at 8:00 AM) where a host of exhibitors will display their “global technology solutions for ports and beyond.”  Keynote speakers will include Chairman Mario Cordero of the Federal Maritime Commission and City of Los Angeles Mayor, Eric Garcetti.


For further information, see www.PortTechLA.org – be prepared to be impressed!

Thursday, August 8, 2013

Ghaffari Speaks to Businesswomen(and men) at Duke Global Entrepreneursh Network

Elizabeth Ghaffari was guest speaker Wednesday August 7 at The City Club on Bunker Hill, Los Angeles, CA at an event titled, The Reluctant Entrepreneur, presented by a collaboration of the Duke Global Entrepreneurship Network (http://dukegen.com/) and the Duke Women's Forum. The evening provided an engaging discussion with a capacity-filled room of women and men who have started their own businesses and those who aspire to be entrepreneurs.

The event was coordinated by DukeGEN LA chair Jennifer Beall (Duke Trinity 2005 and founder of CleanBeeBaby LLC) and the Duke Women's Forum chair.

Whether looking to leave your corporate job to gain flexibility, or hoping to re-enter the workforce after starting a family, women tend to be slightly more risk-averse when it comes to taking the plunge of entrepreneurship. Ms. Ghaffari's stories of entrepreneurship from her own experience and that of the women she interviewed for her two books provided a wealth of information for current entrepreneurs to learn what it takes to get a new company off the ground. She also provided a wealth of women-specific resources for technical advice, mentoring, improving presentation skills, and building confidence to pursue opportunities and funding for high-growth start-ups and small businesses alike.

Sunday, July 21, 2013

B Corporations in Delaware

Last year, I asked my colleagues at area board governance events what they thought of the emergence of B (Benefit) Corporation legislation across the nation and most recently in California. I received blank stares. Now that 18 states - including Delaware, home to over half of all public corporations and the heart of the corporate governance judicial system - have passed B Corporation laws, perhaps the governance field will wake up and note the oncoming train.

I have a draft of a status paper from 2012 which describes the history of B Corporations, which I will share in response to email requests.

What are the current and prospective issues that now must be addressed?

1.      We already are seeing a decline in publicly listed companies and new venture IPOs. Will the increase in B Corps further exacerbate those trends by diverting investments (especially the burgeoning and largely unregulated social investments) away from traditional shareholder-benefit entities?

2.      When will the ABA begin to take steps to develop a "uniform code" - a legislative standard that can be adopted by all states - much like the Uniform Corporate Code?  Or will the legal profession simply sit by and watch states proliferate their own versions until such time as we realize we probably need a more standardized national version?

3.      When will we determine that the certification by B Labs of Berwyn, PA Is something of a conflict of interest as they also serve as the primary advocate of B Corporations?

4.      As we increase the number of B Corporations, what will be the mechanisms of consumer and business regulation? How will we prevent fraud at these firms with such blurred lines of accountability and the lack of legal precedent?

5.      How can companies and boards serve multiple masters: shareholders and stakeholder groups, specifically employees, customers, suppliers, the community (which community, in fact?), local to global environmental interests, social, arts, and cultural entities?

6.      Will shareholders invest in B Corporations in light of the dispersion of their "returns" among so many ill-defined entities?

7.      Do B Corporations portend the de facto merger of non-profit and for-profit organizations? How well will B Corporations adopt financial controls required of public companies? Or will B Corporations simply persist below the radar of most major regulators?

8.      What happens "at the end?" How will bankruptcies or mergers and acquisitions be handled? Will the "benefits" be transferred or eliminated? How will "benefit shares" be valued? How will investors convert their shares to later tiers of capital investment?

9.      We know that B Corporations are particularly appealing to the Millennial Generation which has demonstrated strong aversions to profit-seeking. Is the B Corporation the beginning of their version of "don't trust anyone over 30?". Will B Corporations produce the salaries, pensions, growth that will sustain the Millennials through their productive years  and onto retirement?

10. How will B Corporations, in combination with Crowd-funding, change the landscape of investment and - even more important - how will that combination manage incidents of financial fraud caused by naive investors being duped?


Passing a law enabling the formation of B Corporations clearly is the easiest part. Are the legislators, regulators, and professional organizations ready to take on the real challenges and consequences of their actions?