Excuse Me, but Your Preparedness is Showing

What better way is there to build your confidence and increase your odds of success than by being prepared?

I took piano lessons when I was younger, and my teacher could usually tell how much I had practiced during the previous week simply by observing my progress (or lack thereof). My preparedness showed clearly through my performance and confidence.

Whether your task is a job interview, a negotiation, a job switch, or anything else that’s new or involves uncertainty; you can prepare by thinking through your scenario in advance.

For example, if you are preparing to negotiate, you need to be armed with the facts of the situation and demonstrate a thorough, confident, and conversant command of every relevant factor. You need to be able to immediately spot and correct errors of fact or perception before the conversation starts to be built upon faulty foundations.

Consider laying out various scenarios within the realm of reasonableness — from best case for you to best case for the other side. If you can demonstrate a command of the facts, you can be more confident and prepared for the tricks that the other side might throw at you.

Take some time beforehand and discipline yourself to think through what you might face:

  • What might the other side say?
  • What will their talking points be?
  • How will they try to divert the discussion from a focus on your legitimate interests?
  • What is their best alternative to a negotiated agreement (BATNA)?
  • What illusions might they have that you can dispel such that they view the situation more realistically?
  • How will they respond to your talking points?
  • What is your end game, and what happens if you cannot get them to play ball?

Work through a systematic process of thoroughly considering these and other related questions. You will no doubt encounter surprises in any new or uncertain situation, and you might have to scrap all your plans in the midst of the process. The point of preparation is to start off with the confidence you need to carry you through the twists and turns, ups and downs.

I have found that confidence grounded in reality helps me stay focused. It is so easy to get thrown off track when unpreparedness leads to confusion and lack of confidence. I have never been one to easily “fake it until I make it” since that often borders on unethical conduct (i.e., lying or acting confident even when incompetent) and can easily lead to loss of credibility when the “faking” is exposed.

I can convert the challenge of not being able to “fake it” very well into the advantage of disciplining myself to be better prepared. In this way I can demonstrate a more a thorough, confident, and conversant command of every relevant factor as compared to my counterparts. And I can spot and correct errors of fact and perception by having mastered the big picture and details through preparation.

This doesn’t all happen by default; it takes time, thought, and work.

As with the teacher at a piano lesson, your business colleagues and counterparts can tell how much you “practiced” or prepared by observing your confidence and performance. The better prepared you are, the better you will be perceived as ethical, competent, confident, and reliable.

To Confront or Not to Confront?

Would you rather confront or appease someone in a conflict situation? Do you prefer to fight for a cause and for what you believe is right or try your hardest to avoid a clash?

Depending on the decisions you make and the roles you choose to fill, you might be able to navigate through life with a minimum amount of conflict. However, if you plan to take on a significant level of leadership over projects and people, such as the role of Chief Financial Officer, you will quickly find that conflict is inevitable. Customer complaints will find their way into your office. You will have to negotiate over defective products from suppliers. You will spend large portions of your day handling conflict and drama among your team members and among others within and outside of your organization.

Business leadership expert and blogger Michael Hyatt says he used to prefer to stay out of conflict by keeping his opinions to himself and going along with the system: “This was a pretty good strategy for a while. But it didn’t really work once people were counting on me to lead.” Furthermore, Hyatt notes: “Courage is not the absence of fear. Courage is the willingness to act in spite of my fear.” If you fear conflict because you want to maintain your personal comfort, you still have to be willing to step outside of your comfort zone by acting for the good of your team and those who rely on your leadership.

John Maxwell advises leaders to keep two points in mind during confrontation:

  • Be honest and realistic – don’t try to deceive people into going along with your position, or you will lose credibility and damage relationships.
  • Be sincere – have the right motives, and truly try to help the other person you are confronting. The person you confront might not like what you tell them, but if they sense that you have the right heart behind your words, they are more likely to accept your confrontation.

Doug Van Dyke encourages leaders to confront problems in order to set the right tone for both the troublemakers and the team members who rely on you for leadership. As with the book on negotiation that I am reviewing, Van Dyke advises being tough on issues but soft on people. He also says to focus on controlling your own behavior while you influence others, be specific and detailed about the problems you are confronting, and build collaboration with people to solve problems.

Finally, since business relationships rapidly continue becoming more international, Erin Meyer shares tips to manage confrontation cross-culturally. For example, understand the distinct approaches toward conflict and negotiation among various cultures, and learn to work with a variety of people who are different from yourself. Prepare for your confrontations. Develop tactics for depersonalizing conflict and emphasizing the problems and solutions rather than the parties involved (again, separate the people from the problem). Set a proper tone by asking open-ended questions rather than making direct statements of disagreement.

Like it or not, confrontation is inevitable for finance professionals who wish to become key members of their organizations’ management teams. Set the right tone and have the courage to lead. Be honest and sincere when you confront others. Tackle problems rather than attacking people. Prepare for the different types of people you will confront, and be solutions-oriented the whole way through the conversation.

Four Ways to be a Principled Negotiator (Part 1 of 3)

Negotiation tactics are often thought of like secret weapons. You want to keep your counterpart guessing, never divulge your bottom line, possibly find ways to intimidate your counterpart, and use the element of surprise. Under this paradigm, the less your counterpart knows about the books you’ve read and the conditioning you’ve undergone to enter the negotiation, the better.

There is an alternative approach: “Principled negotiation is an all-purpose strategy. Unlike almost all other strategies, if the other side learns this one, it does not become more difficult to use; it becomes easier. If they read this book, all the better” (p. xix).

Does this sound intriguing?

The quote comes from Roger Fisher, William Ury, and Bruce Patton, authors of Getting to Yes: Negotiating Agreement Without Giving In (Penguin Books, 1991, 2nd ed.). They describe their approach as principled negotiation, distinguishing it from positional bargaining in which the negotiator uses either a hard or soft stance.

To understand the approach and distinctions better, consider two elements of a negotiation: the substantive issue and the process. Each assertion you bring to the table and your demeanor throughout the process reinforces rules (often unspoken) about the process you are undertaking. You can take a hard or soft stance in advocating for your position, or you can step back and propose — explicitly or even implicitly — a principled approach.

Rather than deciding beforehand what position to take in order to best serve your interests — and then advocating for this position more or less robustly or timidly — you can negotiate on the merits of the situation. The authors boil down this principled approach to four points (pp. 10-11):

  1. People: “Separate the people from the problem.”
  2. Interests: “Focus on interests, not positions.”
  3. Options: “Generate a variety of possibilities before deciding what to do.”
  4. Criteria: “Insist that the result be based on some objective standard.”

The authors describe this approach as hard on the merits and issues but soft on the people and relationships.

The first step is to be sensitive and recognize the humanity of your counterpart. We don’t negotiate with machines or animals but with other humans who have real emotions, fears, values, beliefs, and elements of unpredictable behavior. We want to come through the negotiation having reached a wise agreement, as efficiently as possible, and with an ongoing relationship still intact. Rather than throwing around your weight by making personal attacks or appeasing your counterpart with substantive concessions, fundamentally deal with each issue on its merits. There will be no need for shouting, name-calling, or any other personal attacks; the hardness will be reserved for keeping the negotiation on a principled course.

A Key Gem to tuck away regarding the people aspect of negotiations: “The ability to see the situation as the other side sees it, as difficult as it may be, is one of the most important skills a negotiator can possess” (p. 23).

The second step is to be clear on the difference between interests and positions. The analogy that came to mind is a familiar marketing distinction between benefits and features. An average salesperson can talk all day about a product’s features. The remarkable salesperson can discern what benefits I’m looking for and show me exactly how the product will give me everything I need (and more). Rather than saying, “This has a nice touch screen,” the salesperson could say, “You can utilize the touchscreen to save time and spare yourself the frustration of pressing buttons and scrolling through menus.”

A negotiator who focuses on positions is like the salesperson who focuses on features. Instead, a negotiator does well to focus on underlying interests — i.e., the objectives to be achieved, which could be accomplished through a variety of means. A principled negotiator recognizes that features (positions) can vary as long as they provide ultimate benefits (i.e., preserve legitimate interests).

A Key Gem to tuck away regarding advocating for your interests in a negotiation: “It is your job to have the other side understand exactly how important and legitimate your interests are” (p. 50).

To Be Continued . . .

Know Your Enemy: Think Like Fraudsters to Beat Them

The famous ancient military leader and war theorist Sun Tzu is noted for his clear dictum:

“Know your enemy.”

Although the concept can make many people uncomfortable, finance professionals understand that combating devious financial schemes requires not only an understanding of system vulnerabilities. A battler against fraud has to learn how to think like a fraudster:

“If I wanted to steal from this company or misstate financial results, where would I look for weaknesses that would enable my scheme to succeed undetected.”

Of course, beyond concocting potential fraud schemes as a mental exercise, the careful and diligent finance professional is quick to pursue the ultimate aim of this process: Devise countermeasures to combat vulnerabilities.

The consulting firm WorldCompliance published a white paper entitled, Fraud and Money Laundering: Can You Think Like a Bad Guy? by Dennis M. Lormel.

Expanding upon the fraud triangle concept, Lormel lists five elements that characterize frauds:

A potential fraudster who 1) lacks integrity, 2) sees an opportunity due to a poor control structure, 3) has a motive such as greed or a pressure such as a financial hardship, 4) rationalizes the scheme (perhaps by reasoning that he feels underpaid and overworked), and 5) possesses the capability due to positioning and skills; will no doubt execute the fraud.

Certainly, as previously discussed, effective internal controls can mitigate the opportunity for fraud. However, sometimes it is possible for fraudsters to circumvent controls or to collude with partners in their schemes.

Lormel notes: “The elements of fraud include a representation about a material fact; which is false; and made intentionally, knowingly, or recklessly; which is believed; and acted upon by the victim; to the victim’s detriment. The ability to be deceptive and avoid detection is one of the fraudster’s primary keys to success.”

Bad guys are proactive about manipulating the system, even as those who combat them are often reactive. Among other factors, fraudsters look for environments with unethical culture due to poor tone at the top. Fraudsters understand the importance of laundering funds through financial institutions and maintaining a reasonable appearance and a story of legitimacy.

Lormel points out: “Over time, spin and deception get much more difficult to disguise. The veneer of reasonableness tends to fade. A good fraudster usually watches intently for signs that their scheme is unraveling. At that point, they will implement their exit strategy. However, often times, fraudsters are blinded by their own greed and arrogance. They either miss or disregard the warning signs of detection. Instead of following an exit strategy, they find themselves in jail.”

A finance professional, whether an auditor, controller, CFO, banker, investment manager, or someone else entrusted with fiduciary responsibility; has to think several steps ahead of the fraudsters. Know what warning signs to look for, ask questions, don’t believe everything you hear, and be ready to act quickly when something doesn’t look right.

Lormel concludes: “There are two prominent end games. One has a private sector focus, the other, a public sector focus. On the private sector side, the end game is to prevent or minimize monetary losses and reputational risk. On the public sector side, it is to seek prosecution, recover illicit proceeds and assets through forfeiture, and/or bring enforcement actions. Both end games could carry significant consequences. In either event, understanding how the bad guys think and taking preemptive steps to stop them makes the end game easier to handle.”

Know your enemy. Combat a fraudster by knowing how a fraudster thinks and operates. This is especially important with regard to IT-related frauds due to the importance and sensitive nature of electronic records and system access points.

Three Ways to Keep Your Head Above Water

When was the last time you felt overwhelmed? We all have those days, weeks, or even longer seasons of life when we struggle to “keep our heads above water.” Having worked in public accounting, I am all too familiar with the tax time “busy seasons” when the work is piled up high.

During those times on the job or in other areas of life, we can either give in to feelings of stress and exhaustion, or we can intentionally conquer the workload with a plan of action. Here are three tips that can help:

      • Survey the Landscape — I once had a mentor tell me that he sometimes heard the criticism early in his career that he needed to more capably “see the bigger picture.” Over time he came to understand how to keep his communications with senior executives at a “high level” and focus on the larger strategic purpose rather than getting lost in the details. Whether you are a line employee, a middle manager, or the CEO, it is critical to understand the purpose behind what you are doing and how it fits into the larger context of the organization. If you don’t have bigger goals in mind than simply accomplishing the multitude of tasks in front of you, your work can be drudgery and you will find yourself burned out.
      • Determine Your Priorities — Once you understand the strategic purpose, you can translate this “bigger picture” understanding into a defined set of priorities for your day, week, month, and so forth. Your priorities will change depending on the needs of the organization. A finance professional might be inundated with day-to-day transactional details during a few months of the business’ busy season, and during slower months the focus might shift to careful cash flow management and longer-term strategic initiatives. Be clear on your priorities, and don’t get overwhelmed by trying to tackle everything of lesser importance at once when more pressing concerns loom large. 
      • Tackle the Details One at a Time — We might like to fancy ourselves to be great multitaskers who can jump from one project to another like honeybees in a clover field. However, staying focused on one detail at a time can lead to traction and momentum. Think of the difference in how you feel when you start ten projects and complete zero, versus seeing two significant tasks through to completion. Knock off your to-do items in bite-sized pieces.

I recently saw the effectiveness of this approach when I was working on a small piece of a larger project with my wife. We “surveyed” what was before us and decided how much of the project we wanted to “bite off” at that particular sitting. If we started to lose focus or feel overwhelmed with the details, we reminded each other that we would systematically handle one detail at a time until we saw the objective through to completion. That simple plan made the difference between frustration and giving up, versus the eventual satisfaction we felt in completing our task.

Manage Risks with Preventive, Detective, and Corrective Controls

Is it better to sell a prevention or a cure? From a marketing standpoint, there is likely more money to be made selling cures. People would rather not attend to the many risks in their lives that may not materialize — after all, where does one begin? — but once a contingency does manifest itself, the same people are willing to pay great sums for cures.

The world of a finance professional is different. Some of our core functions include thinking, planning, and communicating about risk. We do not have the luxury of taking a “wait and see” approach toward managing risk. We have to be proactive about foreseeing risks and planning accordingly. We think in terms of broad categories, such as regulatory and legal compliance risks, IT-related risks, political risks, market risks, credit risks, and more.

Finance professionals measure the extent of our organizations’ exposure to risks and help guide senior management in assessing the best way to effectively expose our organizations to risk and at the same time manage risks. After all, if an organization is not taking risks, it might as well shut down because it cannot grow or produce a return on investment.

Part of an auditor’s evaluation of an organization is in terms of internal controls, how they are documented, how they are communicated, how employees are trained in them, and so forth. Controls are designed to prevent fraud and material misstatements of financial results, as well as to ensure effectiveness in carrying out management’s objectives.

Here are three types of controls to consider in your organization:

  1. Preventive — Some of the best controls prevent fraud, theft, misstatements, or ineffective organizational functioning. For example, we saw in a previous post the effectiveness of segregation of duties to prevent fraud. Preventive controls can be as simple as locks and access codes to sensitive areas of a building or passwords for confidential information.
  2. Detective — A security camera is a good example of a detective control. A store manager who notices a pattern of a cash drawer coming up short when attended by a particular clerk can easily look at video of the clerk’s actions throughout the day to detect potential theft. An access log and an alert system can quickly detect and notify management of attempts by employees or outsiders to access unauthorized information or parts of a building.
  3. Corrective — Coupled with preventive and detective controls, corrective controls help mitigate damage once a risk has materialized. An organization can document its policies and procedures, enforcing them by means of warnings and employee termination when appropriate. When managers wisely back up data they can restore a functioning system in the event of a crash. If a disaster strikes, business recovery can take place when an effective continuity and disaster management plan is in place and followed.

Think in terms of preventing, detecting, and correcting risks of fraud, theft, ineffectiveness, and breakdown. The world is full of risks, and problems tend to strike suddenly and unexpectedly. Cures are great, but if you rely on finding a solution once a risk has already materialized, you might find that your lack of planning has made the risk unmanageable.

Eight Steps for Leading Change

John P. Kotter of Harvard Business School has written extensively on change in articles and books, including Leading Change (Harvard Business School Press, 1996) and The Heart of Change (Harvard Business School Press, 2002).

In Leading Change, Kotter lists eight reasons why organizations can fail in their transformation efforts (pp. 4-14):

  1. “Allowing too much complacency.”
  2. “Failing to create a sufficiently powerful guiding coalition.”
  3. “Underestimating the power of vision.”
  4. “Undercommunicating the vision by a factor of 10 (or 100 or even 1,000).”
  5. “Permitting obstacles to block the vision.”
  6. “Failing to create short-term wins.”
  7. “Declaring victory too soon.”
  8. “Neglecting to anchor changes firmly in the corporate culture.”

According to The Heart of Change (pp. 2-3), making big leaps forward (rather than mere continual and gradual improvement) is essential. In addition, changes must focus primarily on behavior, with strategy, systems, and culture secondary. Change is about influencing feelings more than providing analysis to impact thoughts. Corresponding to the eight categories of failure, here are the eight key steps for creating effective change (pp. 3-6):

  1. Create a sense of urgency, which “gets people off the couch, out of a bunker, and ready to move” (p 3).
  2. Put together a qualified and effective guiding team.
  3. Create a vision and set of strategies.
  4. Communicate “simple, heartfelt messages sent through many unclogged channels” (p. 4).
  5. Provide empowerment, not by “handing out” power, but by removing obstacles.
  6. Create short-term wins to produce momentum. Otherwise, “the cynics and skeptics can sink any effort” (p. 5).
  7. Don’t try to do too much at once, but don’t lose momentum by letting up and quitting too soon.
  8. Behave consistently to create a culture that helps change stick.

As opposed to the pattern of “Analysis-Think-Change,” much more frequently the progression is “See-Feel-Change” (The Heart of Change, p. 11).

In conclusion, Jack Welch once reportedly said, “You’ve got to talk about change every second of the day” (p. 14). The world is constantly changing, and one can either choose to effectively lead the process of change or let change sneak up by surprise.

For a Successful Career be Aggressive from Day One and Don’t Let Age Hold You Back

What are the keys to success for a finance professional?

Can one expect to achieve success at a certain age or by reaching a set number of years of experience? Given that some professionals achieve more by age 30 than others achieve by age 50, the clear answer is no. There must be something more to the equation than simply putting in long, hard hours of work, year after year. Without traction and forward momentum, professionals can “spin their wheels” rapidly while staying in the same place.

Ben Mulling is a good example of a finance professional who took on significant responsibility relatively early in his career. As a Certified Management Accountant (CMA), Certified Public Accountant (CPA), and Certified Information Technology Professional (CITP), he became CFO of TENTE Casters Inc. at age 28.

Forbes ran an interview with Ben in which he revealed some of the keys to his success. Here is a summary:

  • “Soft skills” such as communication, as well as leadership (i.e., taking initiative), are rare yet critical distinguishing factors for young finance professionals.
  • Problem-solving ability, i.e., knowing how to solve a problem without a how-to guide nearby, is a technical skill set that finance professionals need to develop.
  • Continuing education is key for professional development, even for those with many years of experience. Finance professionals need to constantly push themselves and learn new things.
  • Professional certification, such as the CMA credential, is helpful and important in developing skills and advancing one’s professional career.
  • Get involved with the profession by joining professional organizations. This helps build your network and develop leadership and team building skills: “The constant refinement of skills – communication, leadership and teamwork – is key to career development.”
  • Think through your personal branding, and protect your brand. For example, be careful about what you do online that prospective employers can see.
  • Explore different opportunities, such as tax, cost accounting, IT-related work, and so forth, so that you can specialize in an area that interests you.
  • Get involved in seminar and other learning activities to build your skills, meet people, and development your ability to communicate.

And here’s a final gem to tuck away: “In the end, strong communication and leadership skills will set apart a senior accountant from a CFO and a good candidate from a great candidate.”

What is Your Employee Retention Strategy?

Any accountant will tell you that employee costs are some of the most significant routine expenditures that companies make. Payroll has a big impact on cash flow and the bottom line, but so do employer payroll taxes, state unemployment insurance, workers compensation insurance, retirement and health benefits, vacation, and so forth.

Although it costs a lot to hire and retain employees, don’t underestimate the costs when they leave. Either existing employees have to pick up the slack, which can cause stress and resentment when not accompanied by a pay increase (as is often the case), or new employees have to be hired and trained. This takes time, interrupts progress, and in the process of training, a new employee can make mistakes that cost the company money.

Talent is a key constraint for a growing business. Companies cannot grow without the right people on the team. A senior management team that is serious about growth and strategy makes sure to effectively manage the risk of employee turnover. When management has a well-defined vision for company growth and can articulate the potential long-term upside that employees have in the business — coupled with nearer-term incentives — the organization can be positioned well to attract and retain good talent.

Last year the Journal of Accountancy provided a summary of a WorldatWork survey. Among other findings, 65% of respondents said senior managers were concerned about retention. Even as opinions of the economy continue to be mixed, it seems that employees have felt more confident exploring options for “greener pastures” in the marketplace.

The survey found that employees leave for more money, better promotional opportunities, more equitable pay in line with market rates and in recognition of personal contributions, less stressful workloads, more work-life balance, better leadership, and more training and development opportunities.

The strategies employers use are not surprising when one considers the basic desires of workers, namely money and freedom: “Companies that have retention programs tend to keep key talent by offering above-average pay and benefits such as flexible scheduling, the survey showed.” Also, the survey showed that managers are careful to communicate future opportunities with key employees.

In short, senior management can either define and implement an effective retention strategy, or it can let others in the marketplace demonstrate a superior ability to hire away good talent. Some very effective methods of retention can be low-cost, such as giving employees a sense of empowerment and ownership. Rather than just paying more money, partner with employees in tangible ways to help them advance with the business and make progress with their career goals.

In addition, while employees will always want more money, there might be ways to implement flexible scheduling to help them feel like they have more freedom and ownership of their work and schedule. Rather than micro-managing their work and schedule with an iron fist, treat them like grownups and expect them to act as such; the results can be remarkable.

Four Key Standards for Ethical Finance Professionals

What do you think of when you hear the name Enron? How about Madoff? Other names and examples could be multiplied of infamously unethical businesses and individuals.

Finance and accounting professionals all aspire to avoid white collar prison, of course. At the same time, we hear stories and read numerous case studies and articles about those who play fast and loose with laws and regulations, thereby landing themselves in jail. Clearly, it is not enough to simply hope to avoid prison; an ethical professional must resolve beforehand to follow the highest standards of integrity, especially when times of testing come in the “real world.”

One key aspect of being in a profession is conducting oneself according to standards of professional practice. Doctors, lawyers, professional engineers, architects, and various other professionals are expected to master a body of knowledge, obtain experience and certifications, and pledge to perform their work with the highest level of integrity and competence.

The Institute of Management Accountants (IMA) is a highly regarded organization for accountants and finance professionals. Although the CPA designation is the most sought after credential within the accounting profession, the IMA’s Certified Management Accountant (CMA) designation is also well respected.

The IMA has the following four standards to which the organization holds CMAs accountable, and these are highly relevant and worthwhile for all accountants and finance professionals to consider:

  • Competence – The IMA’s standard emphasizes continual professional development, legal and regulatory compliance, effective decision support recommendations, and clarity in communicating limitations in performing work.
  • Confidentiality – The standard requires confidentiality except when disclosure is authorized or required, communication and monitoring of confidentiality standards, and refraining from using confidential information for unethical or illegal purposes.
  • Integrity – CMAs and other accounting/finance professionals should proactively avoid actual or apparent conflicts of interest, should avoid activities that would compromise ethical conduct, and should do nothing to discredit the profession.
  • Credibility – The IMA requires members to communicate fairly and objectively, disclose relevant information (i.e., information that could influence intended users’ understanding and decision-making), and disclose areas of deficiency or noncompliance with laws and policies.

Professional ethics has been and will continue to be a growing area of importance for finance and accounting professionals. We will explore this topic in more depth in future installments.