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What does TXU going private mean for you?
Sunday, June 24th, 2007

In today’s Dallas Morning News, there was a study about the benefits of TXU going private.  The study concludes:

The benefits supporting going private would have occurred even if TXU stayed a public company.

Going private is likely to lead to higher energy prices.

Going private will lead to reductions in employee benefits.

If this study is correct, is there any wonder about why TXU would want to go private?  Think about it.  If the study is correct, that would mean:

The company would pursue the same strategy as a private company that it uses as a public firm (so there is no additional cost).

The company would be freed from many of the reporting requirements that public companies face.  As a result, it can save money. 

The higher energy prices would lead to more profit.

As a private company, it would be likely to cut employee benefits and that too would lead to more profit. 

How will TXU going private impact you?     

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Negotiation Scenarios: Responding to irate individuals
Sunday, June 17th, 2007

When faced with an irate email or an angry remark from someone, it can be very tempting to respond in kind.  Such a response generally leads to an escalation of the issues.  What are some other options that can be taken?

Dealing with Irate Individuals

This article from the New York Times suggests meditation as an approach in the context of students.  Mediation is helpful when taking a test or dealing with irate individuals.

Focus on the substantive issues, rather than the words used. 

Let the situation sit until the emotions have cooled.  Sometimes though, this option destroys the relationship so be careful about letting the issue sit too long.

Ask someone else (who is not emotionally engaged in the situation!) to deal with or help you deal with the issue.

Seek clarification.  (Help me understand, I think that I am hearing, I don’t mean to disagree are three phrases that can preface such requests for clarification.) 

Write an irate message and delete it.  Do not send it…

Write a draft reply and let it sit in your draft messages for a few days so that the frustration may have worn off. 

Buy time by assigning a lower priority to the issue or acknowledging receipt and explaining when you will reply.

What approaches have you used?  Which ones have worked best for you?

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Working for your kids?
Sunday, June 17th, 2007

On Father’s Day, it seemed appropriate to mention an article in the June 25th issue of Fortune.  Fortune discusses parents working for their children.   

The dynamics of kids working for their parents are familiar to many people.  Working for parents is just an extension of how family’s often function.  Kids do what parents tell them to, right? 

However, when parents work for the kids, the roles are reversed.  The person who may be entitled to deference at home has to exhibit deference in the work environment.  If the kids and the parents have a strong relationship and communicate, the article indicates that parents can work for their children.

Think about how this situation could occur.  As people age, many parents who own small businesses may turn the businesses over to their children and continue to work in the business.  In other cases, a child may have a successful business and hire parents as the business grows. 

Negotiating with parents and other family members is difficult.  The article suggests that, rather than telling the kids what to do, parents ask questions.  Perhaps, kids may do the same thing?

Other tips that might be helpful include:

Separating business and family so that conflicts at work do not harm familial relationships.

Deciding how to deal with conflict before it occurs. 

Keeping the business discussions on business topics is important for many.  This makes it safe for people to disagree on the business issues, without judging or attacking the value of the people involved.

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Ten steps to help people use and not abuse relationships
Wednesday, April 18th, 2007

A few days ago, Paul Wolfowitz’s abuse of relationships was a major news story.  An earlier posting on my blog asking “Are relationships bad for business?” dealt with that situation. 

Today, the Dallas Morning News‘ print edition has an article “Checking for checkered past” talking about the importance of knowing business partners.  It is a very good article, by the way.  The story is one that comes up over and over.  Two people go into business and one person takes money from the organization’s bank account.

What these two situations point to the role that relationships can play.  People want me to take a position on relationships.  Here is my position:  use them, don’t abuse them.

Relationships and networking can can be used, without being abused.  They need to be used in conjunction with:

  • Due diligence 
  • Appropriate controls
  • Good business judgment 

What steps (controls) can be taken to make sure that relationships are used, not abused?  The exact answer depends on the situation.  Here are a few steps that can be helpful in a business relationship.  Many of these steps are discussed in other postings in this blog.

Step 1.  Decide what sort of relationship you are seeking.  Once the relationship is defined, a plan can be developed that will keep you on track.

Step 2.  Get to know the potential participants in the business relationship.  Often, people select the firm that is the “name” firm in an industry because the company is well known.  Fame may be legitimate, or it may be the result of marketing and manipulation.

Step 3.  Check references - customers, partners, and suppliers.  How were the firms and individuals selected?  What has worked especially well?  What could have been improved?  What issues have arisen?  How situations have been resolved?  How would the references characterize the relationship?  If they had it to do over again, what would the references do?  What makes a good relationship for the reference?  How has the firm or the individual measured up against each of these criteria?

Step 4.  Check databases.  Dun & Bradstreet ratings, Better Business Bureau, credit reporting agencies, and other third party sources can be tremendously helpful, when contacted at the right time.  (There are requirements that govern when these resources can be contacted so make sure that the “i’s are dotted and the t’s are crossed” before checking these sources.)

Step 5.  Work with the individuals or firms to develop a shared set of expectations and to validate assumptions.  Walk through the scenarios that are likely to emerge in a business situation.  How would they arise?  When they arise, what should happen?  How will information be communicated?  When?  To whom? 

Step 6.  Build learning into the system.  If an issue arises, what will be done so that the organization and individual can learn from the situation so that problems can be solved and issues are not repeated?

Step 7.  Manage the risk.  Select relationships that are appropriate.  Do business with people you understand.  Make sure their self-interest is aligned with yours.  Start small and scale up to larger opportunities.  Potentially, require two signatures to withdraw money from an organization’s account.  (Cumbersome, but it may be appropriate.)  Evaluate the results and talk about what is working/not working from both parties’ perspectives.  Look for opportunities to improve the relationship.

Step 8.  If it looks too good to be true, run do not walk, to the nearest exit. 

Step 9.  Have contingency plans so that you can always walk away.

Step 10.  If something doesn’t work, learn from the situation and improve so that the next time works better.

These ten steps help people hope for the best and prepare for the worst.  Isn’t that the best way to do business without surprises?

Every semester, students (who are also employees, business owners, and job applicants) tell me about issues that they have encountered.  Most of these issues, in fact most business problems, can be avoided with common sense like those listed above.

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Moving from theory to practice
Thursday, January 25th, 2007

How does one take the theory from a textbook and apply it to real world business situations?  This is a challenge that organizations need to help their employees overcome. 

It seems to me that the secret is to help employees learn to think about the issues and what it means for them.  One way of doing this is to ask simple questions that relate to the subject.  As an example, here are two of the questions that students had on their quiz in Business Law today:

Reymundo wants to be a conscientious manager and to set the right ethical tone for his company.  What are three steps that he can take to do so?

Now, suppose that Reymundo is an hourly employee at a company.  What are two steps that he might take to encourage ethical behavior?

Think about how you might have answered the questions.  Even without reading the textbook, one may well have some common sense answers to questions like these.

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Freedom of Speech
Monday, January 1st, 2007

Even as he gave me permission to reprint this comment, Paul Shafer was concerned that some might be offended by it.  Perhaps, some will be offended.  More people are likely to agree with the comment and be able to relate to it.  Most may even agree with my assessment.  The discussion with Paul reminded me that, in some organizations, employees are so worried about being politically correct that they fear raising important business issues. 

Many young attorneys are worried about political correctness.  And so was I.  Several years ago, the president of my subsidiary of a Fortune 100 company said that he wished people were comfortable talking to him about issues, rather than bringing issues to me to take to him.  From then on, that was what I encouraged people to do.  Even so, expressing an opinion requires people to be willing to stand out from the crowd. 

This article considers freedom of speech in business.  Why is it important?  The article is intended to help my business law students think about Freedom of Speech.

Constitution

For government employees in the United States, it is easy to stand up and be counted.  Easy relative to what others experience, anyway.  The First Amendment to the United States Constitution reads:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.

Over time, that approach has been extended from the federal government to state and county governments.  Several large organizations have adopted this model because it makes it safe for employees to question leadership about the direction and to take ownership.  This leads to better decisions about the organization’s direction, and resources.

Abrams v. United States

Some organizations and people in leadership roles have difficulty being questioned.  If people are certain that their answer is right, do they have the ability to listen to those who might disagree?  In Abrams v. United States, 250 U.S. 616 (1919), the United States Supreme Court considered the publication of two pamphlets. The case can be found here. It is known for Justice Holmes’ dissenting opinion which said

Persecution for the expression of opinions seems to me perfectly logical.  If you have no doubt of your premises or your power, and want a certain result with all your heart, you naturally express your wishes in law, and sweep away all opposition.

Have you seen a speaker or writer who is so certain that the person is correct that dissent seems to be discounted?  This can be done by beating others over the head with an opinion.  Sometimes, it is done through sarcasm and subjecting others to ridicule.  In other cases, it may be handled through lecturing about different issues or approaches that the person chooses to use.  Think about the cases when you have seen writers or speakers do this.  It is relatively easy to stifle debate merely by telling someone that what they have to say is irrelevant.

Why do people engage in such behavior?  Well, Justice Holmes dissenting opinion suggested a possible answer when he wrote

To allow opposition by speech seems to indicate that you think the speech impotent, as when a man says that he has squared the circle, or that you do not care wholeheartedly for the result, or that you doubt either your power or your premises.

So, allowing dissent may be an indication of doubt or uncertainty, at least in some people’s opinion?  Well, I suppose that is probably true.  At times, people hear a tentative answer and respond, “say it with conviction!” 

Does allowing opposition to speech necessarily mean that one believes less in what one is saying?  Many seem to believe that it does.  One might conclude that allowing free speech, even when one disagrees indicates that one is open minded or willing to concede that the person does not have all the answers.  What else might allowing the opposition to speech indicate?  Justice Holmes then said

But when men have realized that time has upset many fighting faiths, they may come to believe even more than they believe the very foundations of their own conduct that the ultimate good desired is better reached by free trade in ideas — that the best test of truth is the power of the thought to get itself accepted in the competition of the market, and that truth is the only ground upon which their wishes safely can be carried out.

Think about a case where someone has suggested an idea, and it is immediately adopted because the person involved is respected.  Later, the idea turns out to be a problem, or one discovers other problems that have been caused by the initial solution.  What might such results suggest about the importance of allowing free expression of ideas?  

Allowing free expression of ideas carries risks.  Think about the issue that could arise if that were done.  After all, people might have different opinions.  There could even be conflict.  This might suggest that ideas should be suppressed.  What are the consequences of suppressing ideas?   

This approach, finding value in dissent, might not work.  Justice Holmes seems to recognize this, for he continues

That, at any rate, is the theory of our Constitution. It is an experiment, as all life is an experiment. Every year, if not every day, we have to wager our salvation upon some prophecy based upon imperfect knowledge.

What would happen if we required perfect knowledge to act?  Consider the consequences of acting only if we have absolute certainty.  What would the United States look like? 

Taking chances like Justice Holmes suggests is risky.  We might be wrong.  Surely, it is okay to restrict freedom of speech in some cases?  Here is what Justice Holmes wrote on that point

While that experiment is part of our system, I think that we should be eternally vigilant against attempts to check the expression of opinions that we loathe and believe to be fraught with death, unless they so imminently threaten immediate interference with the lawful and pressing purposes of the law that an immediate check is required to save the country.

Wow! So ideas should be allowed to be expressed, unless they pose an immediate threat to the country’s continued existence?  What sorts of questions might Justice Holmes require if he were trying to decide whether or not a statement should be restricted?  Now, think about the sorts of statements that one hears in organizations.  One seldom hears statements that get close to this standard.  What factors play into this result?  What are the pros and cons associated with this result?

Significance

Most of the time, one has a right to speak, and not a duty to do so.  Suppose that an organization wishes to encourage employees to speak up and to raise issue.  Why might this be a negative? 

Think about the employees and customers who simply change companies, rather than speaking up about issues and concerns.  Why might one choose to change companies rather than speaking up? 

Today, we hear about the difficulty firms find in attracting and retaining customers.  It seems likely that there are steps that firms could take to attract and retain customers and employees by encouraging people to exercise their rights to Freedom of Speech so that people do choose against using their freedom not to speak.   What steps can firms take to achieve this objective?  How often do firms really want to see people speak, even if the news is bad?

What steps can be taken to balance the need for freedom of speech with the consequences that can result if freedom of speech is allowed? 

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Industry Best Practices Study from Oregon State University and its implications
Saturday, March 11th, 2006

A joint study between researchers in the OSU Food Innovation Center and the OSU College of Business was released this week.  It identifies best practices for food industry businesses across the US and breaks the practices down into various market segments.  Here is a link to the report.

Importance

Why is this study important? 

First, many food industry businesses fail.  Some estimate that 80% of restaurants fail within six months of their creation.  What would it mean if that percentage were reduced to 50%? 

Second, if we know what our competition is doing, we are better positioned to capitalize on the strategies that work and to avoid the approaches that didn’t work.  Or, at a minimum, we know at the start that we are facing an uphill battle on the approach.  It isn’t bad to try something that is hard necessarily.  The issue is when we try something hard, and our expectations are incorrect.  If we aren’t prepared for the challenge, we are less likely to persist and we are less likely to prevail.

Third, even if we aren’t in the food industry, the study may reveal information that will help us with our businesses.  This information could either help us directly by suggesting ideas that we hadn’t considered or it could help us help the firms in our networks - our customers, suppliers, and other friends.

Interpreting the Study Results

The study found that retail is not the most profitable strategy in the food industry.  Yet, when we think of the industry, who do we think of?  Restaurants, grocery stores, convenience stores, bars, supermarkets, Wal-Mart, Target, etc. most likely come to mind.

It turns out that industrial food businesses are the most profitable.  These might be businesses that supply raw ingredients for manufacturers.  If my understanding of the market segment is correct, this segment could include a firm that makes the noodles that go in a major manufacturer’s chicken noodle soup.

As is the case in many industries, if the firm is too small, it tends to be a weaker business.  Small firms, as we often see in other industries, either lack a strategy or are so rigid in following their strategy that they can’t compete.  The study used 50 employees as the dividing line below which the firms encountered this problem.  Most likely, there are exceptions to this situation and some firms with less than 50 employees were able to avoid the issue while some firms with 500 employees still had the issue. 

Family firms are more customer focused than other firms, although there was no statistical difference between the performance of family firms and non-family firms.  Does this mean that family firms are more likely to be part of the community and to work together with their customers?  I’m not sure.  Growing up in a tiny family-owned business forces one to think first about the customer. 

Established firms (defined as those in business for more than 30 years) were better able to react to internal and external forces requiring change and were more flexible in their responses.  Might this be the result of having built a loyal customer base and strong relationships internally and externally?  If so, building a loyal following before starting a business could be a critical success factor. 

Established firms tended to have a specific written strategic plan and devoted time to annual strategic planning.  How important is this?  Perhaps one can have a strategic plan without writing it down.  Also, if it is not written down, do all employees hear the same thing?  What about customers?  The exercise of writing one’s strategic plan down, forces one to focus on exactly what the person is trying to accomplish.  It also helps us identify options and decide which options are appropriate for us.

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