This post is prompted by a number of conversations I’ve had over the past several weeks with friends and colleagues in the technology and investment industries. As year-end approaches, the primary topic of these discussions has been how they should approach compensation, bonus, and promotion discussions in their respective situations. For the most part, we’re in a pretty good cycle. The stock market is up. The IPO window is open. Technology is hot. Things are good. For the most part, these specific individuals can make a strong claim that they have performed really well. And, for the most part, they come with the mentality that they expect to get rewarded generously for their performance. At the highest level, I don’t have any issue with this point of view.
That being said, my guidance in these conversations is rarely about money, but about mentality.
First and foremost, we need to remember that it’s easy in the good times for us to take too much credit for our success. While undoubtedly we may deserve a lot of credit, in reality, our successes are probably dependent on other factors as well. Our success probably begins with someone giving us the opportunity to be successful, even when it might not have been obvious that we deserved that opportunity. There are probably many people around us who have contributed to that success – whether professional colleagues, family and friends that supported us, or that one person whose vote of confidence made all the difference. Our professional success almost always has some dependency on the assets of the company that we work at – assets which we may have largely inherited. Especially in the investment business, our success is also influenced by external factors completely out of our control like economic growth, Fed policy, the stock market, and consumer sentiment. Before we claim full credit for our success and expect to get paid accordingly, it’s important to be grounded in the reality that our success is never solely our own. It would be a healthy exercise to thank some of the individuals that helped us achieve our successes this year, before going into some of these compensation discussions, to help get into the right frame of mind.
Secondly, we need to maintain perspective. In the good times, especially in this business, it’s important to remember that bad times are inevitable. None of us will have careers without hard times. Therefore, we need to remember to represent ourselves during the good times in a way that we will still be proud of and not regret when the bad times come. If we claim all of the credit and operate with a sense of entitlement during the good times, it’s very easy to erode the foundation of support from longstanding relationships that we all need to sustain us through the bad times. Once we lose that support, we have lost something that is far more valuable than any near-term compensation. It’s hard to see that when we’re in the moment, but it’s the most obvious observation in hindsight.
Finally, we need to remember that in the long run, it’s not money that will bring the most happiness. The fulfillment of increased income is typically a fleeting fulfillment. It’s often other aspects of a job that drive a person’s joy in their careers. It’s working with people we enjoy and respect. It’s being in a position to learn and grow as a person. It’s about being part of something we value. It’s about having fun and contributing. It’s about being able to achieve professionally while still being able to be the person we want to be at home and with our families. If we’re fortunate enough to be in a situation where all of the intangibles line up for our enduring professional fulfillment, it would be unfortunate to compromise that over something like money that will never quite fulfill us.
That being said, this doesn’t excuse people making compensation decisions from being generous with the talented people around them. They absolutely should be. This is more of a reminder for us not to lose ourselves in near-term financial decisions when over the long-run, so many other things matter more.
I am excited to be co-hosting a monthly webinar to introduce International Justice Mission (IJM). IJM is a human rights agency that works with victims of violent oppression among the global poor. Their clients are victims of bonded labor, sex trafficking, sexual assault, false imprisonment and other forms of violent crime. IJM works with their clients to represent them in the legal process to secure justice against their perpetrators as well as to provide the appropriate aftercare services for them. IJM also works to bring systemic change to the public justice systems in the areas that they work to help protect the global poor from further victimization. I wrote a blog post called “The Rule of Law and the Global Poor” which captures the problem and their work in greater detail. After visiting the IJM field office in Guatemala, meeting with their leadership and Board members, I have become a big believer in IJM and hope that others can learn about IJM through these webinars.
2012 Webinar Schedule
- July 27, 2012 at 12 Noon EST / 9:00am PST (COMPLETED)
- August 31, 2012 at 12 Noon EST / 9:00am PST (COMPLETED)
- September 21, 2012 at 12 Noon EST / 9:00am PST (Topic: Guatemala Field Visit. Click Here For Recording)
- October 26, 2012 at 12 Noon EST / 9:00am PST (Friday)
- November 30, 2012 at 12 Noon EST / 9:00am PST (Friday)
- To participate, you must access the meeting website and call into the dial-in number.
- Meeting Website: Click Here or use this link - http://www.readytalk.com/?ac=8302305. After reaching the website, click “Join” in the Participant Box, then submit the participant registration form to join the web conference.
- Dial-In Number: 866-740-1260 or 303-248-0285. Access Code: 8302305. (International Toll Free – Click Here)
- Test your computer for compatibility: Click Here.
Please feel free to invite your friends who may be interested in the work of International Justice Mission.
With increasing frequency, I hear about people in the Boston community going to work at CSN Stores. This is the mega furniture and home goods e-commerce company that everybody likes to describe as “the biggest e-commerce company you’ve never heard of” – even though now I think everyone’s heard about them. It used to be once every 6 months, I’d come across someone joining the Boston-based company. But, over the past 2 years, it’s increased to about once every 3-4 weeks.
Interestingly, there are some common characteristics of the people joining CSN Stores. They are young, bright, well-educated – and perhaps most conspicuously, they have no e-commerce experience (how could they being in Boston?). And, that’s why CSN Stores could be transformative for this town. You have former private equity professionals, recent college grads, rising stars in corporate america, and other walks of life all going to CSN Stores to learn the nitty gritty of building an e-commerce business from a company that is succeeding to the tune of $380M of revenue growing 56% per year.
In the same way DoubleClick taught a generation of New Yorkers about online advertising and fundamentally transformed the start-up community in that region, CSN Stores could teach a generation of Bostonians about e-commerce. I say “could” because the story of CSN Stores is still being written. If CSN Stores stays independent, goes public, and grows from ~1,000 employees to 10,000+ employees. I fully expect that 5-10 years from now, the legacy of CSN Stores will be a vibrant community of next-generation e-commerce companies started by CSN alumni. And, that’s exactly what Boston needs.
From what I can tell, in nearly every Volition portfolio company, the CEO is more optimistic than the CFO – and usually by a wide margin. Certainly, part of this structure is by design. But in reality, you just don’t find a lot of optimistic CFOs to hire, and a conservative CEO probably doesn’t inspire investment. So, there is some self selection far before we get involved.
But, there is a natural and necessary tension that exists when the CEO and CFO, with completely different risk orientations, have to report to a single board of directors.
- What if the CFO thinks the CEO is being way too optimistic on the budget?
- What if the CEO thinks the CFO isn’t selling enough to get investors interested?
- What if the Board is holding the CFO accountable for spending, but the CEO is pushing hard on the accelerator?
- What if the CFO disagrees with the CEO in front of the Board, is that considered disloyal and a career limiting move?
- What if the CFO drags down the energy inside the company by always focusing on the downside?
- What if the CEO’s financing plan presumes everything is going to go right, when the CFO doesn’t think that will take place?
These types of questions and dynamics take place in many of the companies we’re involved with. There aren’t easy answers, but there are some principles involved to help make things work.
1. There has to be mutual respect between the CEO and CFO.
Young companies need optimistic CEOs. Every young company will have its dark days when you wonder if things will work. Every young company has to believe it can defy the odds, and build something great from nothing. Employees who work at young companies trade off cash compensation for equity – they only do this if they believe their equity is worth something. Someone needs to inspire them with the vision of the company – with the upside. In fact, in many ways, the optimism of the CEO for a young company is the spirit of the company. It’s absolutely necessary. You never do great things if you don’t believe you are great.
Good businesses need conservative CFOs. Optimism doesn’t meet payroll. Optimism doesn’t make the financial covenants on debt. Weak balance sheets aren’t made up by optimism. Every company has a downside scenario, and someone needs to think about it to prevent it from happening. Someone needs to point out the warts, so they can be fixed. If great ideas don’t translate into numbers, then it’s a great idea that doesn’t work. A CFOs conservatism is critical to a success of the business. Good CEO/CFO combinations appreciate the different perspectives that are brought to the table. Not only do they appreciate it, they insist on it.
2. The CEO needs to support the CFO having a direct and structured line to the Board.
It’s presumed that the CEO has a direct and regular line to the Board. But, that does not negate the need for CFOs to have a structured channel to the Board. Why? The CFO has a unique and personal fiduciary obligation to the shareholders. The CFO uniquely reports to the CEO and to the Board. I often think of the CFO as the “CEO of the finances” – and to execute that responsibility, board access is necessary – and expected by the Board. For some CEOs, they are comfortable with the CFO talking with the Board on an as-needed basis. Certain CEOs find this threatening. If that’s the case, a structured email or call, on a predetermined interval, is appropriate. I often receive an email directly from the CFOs of my companies after the month-end to report financials. This should be used to raise any issues worth noting. The structure of it should give the CEO confidence that the CFO is not lurking behind his/her back talking to the Board, which is counterproductive.
3. The CFO needs to be loyal to the CEO.
Loyalty doesn’t mean agreement. Loyalty doesn’t mean blindly following every course – e.g. a loyal friend doesn’t let their friend drive their car 100 mph off a cliff. Loyalty, in this case, simply means openness and honesty in all circumstances. Loyalty means always trying to make the company and the CEO successful.
The dynamic between a CEO and CFO is a delicate balance between people often with very different DNA. It’s a necessary balance that if managed well is often the basis for very successful companies. I’d appreciate other ideas on how others have made this work as it’s clearly an art, not a science.