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Annual Reports – SEC filings

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On April 26, 2016

In Accounting and Reporting, CFO

I started long enough ago that an annual report used to mean the nice marketing annual summary with pictures and a letter to the shareholder and the financials summarized with some graphs and commentary.  Very few companies do that anymore as the Internet allows for a much more direct and continuous medium for communication.  Today, the annual report means the SEC filing – the 10-K or the 20-F (for foreign private issuers).  I have prepared and filed both and there is not much difference between them.

The annual report as filed with the SEC has several main sections.  These are the business description, the risk factors, the management discussion and analysis and the financial statements themselves (which includes the auditor’s report).  As the CFO, you are the person most responsible for the accuracy of the annual report and when you sign and file it, you will be taking significant personal responsibility should it be wrong.  In a larger company you probably will not be preparing the bulk of the report yourself, but you will be reading every page and making changes where relevant.

As an individual shareholder, if you consider yourself to be a fundamental investor, you really should read the annual reports of the companies you invest in or want to invest in.  You don’t have to read every page in detail looking for errors like the CFO has to, but I recommend at least skimming through all the sections.  As I give advice throughout this blog entry to my fellow CFOs, I’ll also have an aside or two on how individual investors can use the information as well.

My first CFO advice is that there are no copyrights on other filings.  WWW.SEC.GOV has the filings from other companies, both in your industry and outside of it.  If you want to see how others word common accounting items or risk factors, you can find it there.  Do not be ashamed to steal shamelessly.  My second CFO advice is that the annual report is not just a required disclosure document, it is a marketing document as well.  It is your chance to clearly explain your strategy, what risks you face, and to clearly present your financial results and what information you think is needed.  You need to get the SEC and legal details right, but the annual report is going to be incorporated by reference into any capital market deal you do and will be read by the counterparts in any private deal you propose, so you might as well get it right.

A typical division of effort of the 4 sections is this:  1) Business section is senior management, investor relations and maybe the marketing department. 2) Risk factors is Legal with senior management review  and 3) and 4) MD&A and Financial statements are Finance, mainly the Controller.   You’ll be project managing the preparation and you’ll do the final quality control but you should have a fair amount of help on this.  In a smaller company you can expect to do a lot of this yourself, but this is a company filling and your boss and other senior management should help somewhat.  You should have prior year filings to act as the template for this year.  Even if this is your first annual report, you should have the S-1 from the IPO to be the starter for the annual report.

I came up to CFO from a Corporate Controller role, and I had previous experience at preparing the financial statement part of the annual report plus some experience in the business section in previous jobs.  So reviewing the report as CFO came naturally to me, but all CFOs should pay a lot of attention to the report.  It is easy to delegate the report down to your reporting staff and there are outside lawyers and accountants that review the report as well.  This makes it even easier to assume that all is well with the report.  However, the outside parties tend to be ignorant of the business conditions you are operating under and they will not necessarily have only your interest at heart when they word certain sections.  In particular they will be very conservative on sections like the liquidity section.  Make sure you are comfortable with the wording.

What I do when I review the annual report is sign and date the front page and then initial each page even if I make no other changes.  I handwrite edits unless they are long in which case I type up a rider.  Version control is important and I find that handwritten edits make it easier for my controller to maintain control of the master copy.  The signed report and initialed pages and handwritten comments are also good proof that the report was reviewed.  Some lawyers want all working copies to be destroyed after the annual report is filed, but I think they are good to keep in case there are questions later.

When I review all sections, I look for grammar and spacing or missing words mistakes.  Even with a lot of eyes looking at it, it is surprising what will slip through.  I try and read important sections backwards one by one as that helps isolate words and aids in proofreading.

I also review for meaning and to ensure the English is smooth and natural. Even in the USA, many people on your staff might speak English as a second language.  It is quite possible that people reading this blog speak English as a second language.  If you don’t consider yourself to be very strong, have a native speaker read the business section and see if they have any suggestions.  We circulate the business section within the different functional areas to see if they have any suggested changes.  Usually we get a good edit or two just by doing that.

The risk section is useful in two ways.  First is the ranking process.  You should have the most serious and relevant risks first in your list and they should be listed in descending order of importance.  The very act of ranking risks often leads to additional risks being identified and included.  The second value to the risk section as it gives you a list of threats that you need to ensure you have countermeasures to.  Look at the top risks that you and the management team think are the most serious and ask if you have any countermeasures in place.  If you cannot think of a credible solution to reduce or eliminate the main risks identified in your filing, then you have a critical issue that needs to be addressed by the management team.

As an individual investor, the business section can be interesting, but the descriptions tend to be somewhat top level.  You usually can find employment numbers, including by function and some geographic and segment information on their business, but I normally do not get all that much purely from the business section.  If you are brand new to the company or the industry it certainly helps.  One test that I do when looking at a new company is ask myself if I understand what they are selling and what their strategy and strengths are.  If I can’t articulate it after reading the business section then I need to test my assumption that I understand their business well enough to invest long term in them.

The risk factors are more interesting to me.  The can be boring legal boilerplate, but the order the company lists the risks and the way it is worded can provide valuable clues.  What is extra valuable are new risks added compared to the prior years and/or changes in risk order.  This is the section where management is trying to warn you about what might go wrong.  It is pretty much the only section where what might go wrong is discussed.  I find it valuable to weigh how likely the risks are and what a reasonably prepared management team can do to prevent the problems.  If the risk seems likely and there is not much that can be done about it, then I worry about investing.  I also try and think of what risks are not listed.  If I can come up with some that are reasonable and management does not address them in the risk factors, then I worry.

I find the MD&A section the least useful.  For years the SEC has tried to make it better, including insisting on more detail and better use of plain English, but almost all MD&A are a dry recitation of this year versus last year with one or two top level reasons given for the change.  The liquidity section can be interesting, and this is an area that I try and watch my outside service providers closely.  They like to make it sound conservative and more risky than it actually is.  I have worked at companies with large cash balances and virtually no conceivable liquidity risks and the auditors are still trying to change the language to something that implies that there are real risks of a crisis.  If you are working for a company that needs access to the debt market and the capital markets, then you don’t want an overly conservative section here.  Obviously you need to accurately portray your true situation, but the auditors stress test going concern assuming lots of bad things that are unlikely to happen occur, and then want to reflect those tests in the liquidity section.  Those risks belong in the risk section, not in MD&A.  The commercial paper market crashing like in 2008/2009 is a risk, not something that needs to be discussed in detail in the liquidity section, for example.

As an individual investor, I find MD&A to be dry and not that useful as well.  If I am trying to build a top level model, then sometimes I can find explanations of one time items to exclude, but normally I just skim read that area and check to see if there are any time bombs in the liquidity section.  I don’t find income statement models all that useful as an investor and tend to concentrate on the balance sheet and the cash flow statements anyways.

The last section is the financial statements and if there is any section that is the “CFO” section, this is it.  The three main areas here are the auditor’s report, the financial statement tables and the notes to the financial statements.  Sometimes Sarbanes-Oxley matters as well, but only if there are a failure.

The audit report is simple.  Either it is a standard report or there is a big issue.  If the auditors have to modify their report, then there is a problem.  If your auditors tell you that they have to modify their standard report, then you know you have a major problem.

The financial tables should be the same as and your earnings release, albeit more detailed.  They were already checked by the auditors before they were released.  It is not unknown to have something change but it is a little embarrassing.  It has never happened to me so I am not 100% sure what I would do if it did happen.  When I have seen it happen, it is either a subsequent event that accrues back to the already reported quarter or a balance sheet reclass from long term to short term.

The notes to the financial statements are where the real detail is.  You need to describe your main accounting policies and then give a fair amount of detail, including segment reporting, for the different balance sheet and income statement accounts.  The rules for segment reporting are straight forward, if management runs the business as different segments and uses internal reports that do it and the numbers are material, then you need to segment report.

I think the income tax note is the one that can cause the most issues, especially the disclosure on uncertain tax positions.  Make sure you have the right technical help here and try not to paint a target on your back with your disclosure.

As a CFO, this is just another technical section and I mainly worry about getting the accounting and disclosure right.  I do focus on the actual wording, but a lot can be found in other filings and is dictated by GAAP anyways.  As an individual investor, the notes are a goldmine of information.  All the detail that is glossed over in the earnings releases and calls is there.  If there is a “smoking gun”, the notes will have it.  Read that section very carefully.

As a closing note, I have written something 2-3 times a week for the past few months.  I had a few people message me and ask about last week.  One key skill in being a successful CFO is balance.  My youngest daughter was home from school last week and I spent it with her.  I should be on schedule again for a while at least.

In the name of the ocelot – benefits of role playing

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On April 14, 2016

In Gaming, RPG

I wrote a while ago about starting the play D&D again after many years away from the game. I am using a virtual table top program called Fantasy Grounds (www.fantasygrounds.com) to play with Teamspeak running on my NAS in order to have the voice component (the company provides their own public Teamspeak server but I prefer to have a private server). My group has been playing pretty much every week for the past few months. It is a little rough with my time in Asia to make the games work but luckily I have a lot of control over my schedule.

The group I play in features three of my old friends from Montreal, including my cousin Mark who introduced me to the game when I was in high school. One is a friend I made when I started playing Magic. The final of five is my daughter Sarah who is 19 at the time of writing this blog. Sarah has heard me talk about roleplaying games (RPG) for all her life and she has been a gamer since she was a kid. She never really got a chance to play D&D except for one year in a boarding school where there was a gaming group. Since we have been back in the San Francisco area she has been unable to play. My friends were happy to include her in the group.

We are almost done with the Lost Mines of Phandelver and I have been very happy with both that module and Fantasy Grounds itself. The module is a good balance of a sandbox and a linear story and has memorable characters and a good story to run through. Fantasy Grounds is simply superior as a way to play the game if you need to play remotely. The automation makes combat much faster than what you would have sitting at a table playing with paper and dice and this is important when playing online as the social experience is different when sitting around a table.

Some of the features that makes Fantasy Grounds good are things like automating the Turn Undead feature for clerics. In open room the players were being attacked by almost three times their number in zombies and the cleric (Ed) raised his holy symbol high and turned the undead. It was very quick to target the zombies and resolve it all at once instead of saving throw after savings throw manually rolled. In combat, if a monster has a resistance to a certain amount of damage there it is automatically matched against what the characters are using against it.

Nothing is perfect, zombies do not automatically save when they go below zero from damage, Sleep spell is not automatically resolved and you need to be careful to target within the system or else you can waste a roll. You can draw on the map, but area of effect spells like Web do not trigger just because someone walks into where they are. There was one evening when the fantasy grounds server was down and we could not get the game up and running because we could not authenticate the licenses. However, the whole group is getting more familiar with the interface and the games run very smoothly now.

In fact, the games are running so smoothly using the VTT, that the immersion is very much like playing in the same room. We laugh laugh and joke and talk about our week at work or old war stories or whatever comes to mind. If someone can’t make it one week, I have the character sheet right there and I can easily run their character for them. It is a little dangerous to skip a session as something unfortunate like the rogue being used as a battering ram to open doors might happen, but at least it is easier to do and bookkeep compared to a pure paper game.

I often get questions from people that know. about RPG like D&D about why I like to play and what the benefit is. The only real answer is that they are social games and an excuse to get people together and talk and live through a story that they make together. This is nothing different than a regular poker game or golf game that brings friends together for the enjoyment of each other’s company.

Games can also be a good way to try out ideas or emotions that you will need to use outside the game in a safer environment. Corporate trainers use games all the time in training sessions. Games can teach real world examples much better than just showing a PowerPoint slide and lecturing. My favorite example is the beer game at the beginning of the book The Fifth Discipline in which the object is to react to external demand signals while running a factor that makes a specific brand of beer. The game teaches several important lessons about understanding demand drivers and how to react to them and playing the game teaches the lesson a lot better than just reading about it.

Same as well for the different team puzzle solving games that are the favorite of corporate trainers. One of the goals of such games is for participants to role play different roles, and that includes being the leader of the team. Often each participant will get their chance to assume command of the team, and the personal interaction to think through and solve the puzzle comes from how will the new leader can marshal team resources, including the ingenuity of the team members.

When playing D&D, the character classes alone lead to different roles. Some classes are better at physical combat and those will tend to be in front and the first to engage. Some are good at sneaking around and often tend to play the role of scout, sometimes indoors where one class is better and sometimes outdoors where another class can take over those duties. Other classes are best at a supporting role or are quite powerful but much less armored and thus need the stinger fighters to be in front of them to protect them.

Those are just the base attributes of the classes (fighter, wizard, cleric and thief being the main archetypes). D&D has different races, each with their own set personalities. You can play any gender you want for your characters, you are not restricted to playing a character of your actual gender. You get to invent the backstory for your character and react on the fly. You can even role play romance or other adult topics if your group wants to. My much older players are not really interested in such things, but pretty much any topic is open when playing. I always caution people that once you more into those areas you run a very high risk of offending a player, even if you are not trying to, so make absolutely sure you understand what your players want before you go down that path. I also caution people when playing in a group you do not know to tone down comments and stay away from religion and politics, but that is normal advice when doing any activity with strangers.

I recently had a reminder of how emotionally invested a player can get in to game. In a good game, there will be even more emotional investment. My daughter Sarah is playing a ranger in my game and she has an ocelot as an animal companion. Last week a monster called flaming skull casually launched a fireball at the group of party members away from the zombies they were fighting. I targeted everyone, and then Fantasy Grounds rolled the saves and then rolled damage (which was above average). Everyone saved except for the brave and cunning ocelot and the damage was enough for instant death to the poor cat.

The game speeds things up a lot, but by rolling saves it does remove a little of the sense of ownership you get when you have to save or die. It all happened very quickly, in the very first round of combat. No one had even seen a flaming skull as a monster (me included) and the party had already defeated large numbers of zombies in the recent past so no one was very concerned.

I also found out that Sarah has never lost a character that she was attached to before. All the rest of us are experienced and have lived through it, and an animal companion is easily replaceable now. However, the ocelot was well loved by the party and we forget playing online that Sarah is much younger than us (30 years younger in some cases) and the ocelot is a sign of our complete acceptance of her in the group. That and not sending her killer viruses for rolling record numbers of 1 in a row.

The ocelot had worked itself into the lore of the group. In a few encounters in earlier sessions, the player characters ran into a streak for bad luck but the ocelot hit over and over again and mowed the monsters they were fighting down. An encounter with a green dragon had gone south and Mark lost his magic user because he failed his save. The session before that the group had uncharacteristically not searched one room carefully and missed a Revivify scroll that could have saved him. I had the ocelot bound over to the party with the scroll tied around its neck (DM intervention) and Sarah basked in the glow from hero heroic cat. Sonny was so impressed with the ability of the ocelot to hit monsters that he started chanting “in the name of the ocelot” before key die rolls he had to make.

So Sarah was a little shocked that something went so south so fast. Just a normal encounter with some zombie. And suddenly the loyal ocelot was gone. It shook her pretty badly when it happened, especially since voice only does mean you miss the cues. She is a true gamer, once she rallied a little bit, the first two things she did was to ensure that I applied her save bonus to the animal companion and that it started off with full hit points for the first hit die. Even with her bonus the save was still missed and the ocelot did die. She was still a little shocked and only mechanically did the next round of combat and even ended up being the character that put the killing damage onto the flaming skull. We talked after the session and she agreed that the monster did the right thing. She is well along the normal path of grief, but the fact that there was grief shows the power of playing a RPG.

The ocelot itself can be replaced. It has brothers and sisters that will come to serve when the Ranger calls. I even have to double check the map to make sure the radius would have got everyone (I think it would have). I can do a DM intervention and save the loyal and fierce ocelot even though it dying and a sibling being called to serve is a good role playing story element. Sarah has gravitated towards that as the resolution.

The fact that we have stories like the ocelot and the fun and jokes around it is why I play D&D and why I like to DM. It is also why games and role playing for corporate training are good, but you need to watch the reaction of the people participating closely.

In the name of the ocelot I thank you for reading my blog this week and I hope you have similar stories to tell if we meet in person.

Player’s Handbook (Dungeons & Dragons)

Monster Manual (D&D Core Rulebook)

Dungeon Master’s Guide (D&D Core Rulebook)

The Fifth Discipline: The Art & Practice of The Learning Organization

A simple but career destroying problem

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On April 12, 2016

In Accounting and Reporting, CFO, Finance

The number one fundamental error that causes material errors and misstatements in SEC reporting is spreadsheet errors. There are plenty of technical errors you can make and there always is the risk of management override and deliberate misstatement but the number one way is to shot yourself in the foot because you make a basic spreadsheet error.

Spreadsheets are used by all accountants, and it is impossible to operate without them. We all know that they cause problems, but we use them anyways because there is nothing better. Here are some recent examples of reporting errors (taken from the link below, I have not used the product they advertise and the cases cited are public and in other articles)

http://www.audinator.com/Horror_Stories.html

Fannie Mae makes billion dollar spreadsheet error overstating gains
Fannie Mae filed a Form 8-K/A with the SEC amending their third quarter press release to correct computational errors in that release. “There were honest mistakes made in a spreadsheet used in the implementation of a new accounting standard…which resulted in increases to unrealized gains on securities, accumulated other comprehensive income, and total shareholder equity (of $1.279 billion, $1.136 billion, and $1.136 billion, respectively)”

Share price drops by a third, CEO resigns due to spreadsheet error
UK support-services group Mouchel discovered an accounting error in one of its key spreadsheets that led to a £8.6m downgrade of its profits. The company pension-fund deficit had been wrongly valued as a result of the spreadsheet error.

Shares of RedEnvelope fall more than 25 percent due to spreadsheet error
The online retailer of specialty gifts drastically reduced its fourth-quarter outlook and said its chief financial officer will resign. “They were underestimating the cost of goods sold”, said Stanford Group analyst Rebecca Jones Kujawa. “It is likely CFO Eric Wong is being pushed out because of this error, which could demonstrate a material weakness in controls over financial reporting.” RedEnvelope spokeswoman Jordan Goldstein said the budgeting error was due to a mistake in one cell of a spreadsheet that threw off the entire cost forecast.

Kodak restates income downward by $11 million due to spreadsheet error
$11 million severance error traced to a faulty spreadsheet. Kodak spokesman Gerard Meuchner said “There were too many zeros added to the employee’s accrued severance.” Robert Brust, Kodak’s chief financial officer, called it “an internal control deficiency that constitutes a material weakness that impacted the accounting for restructurings.”

AstraZeneca forced to reiterate earnings forecast after spreadsheet error
Britain’s second largest drugmaker AstraZeneca scrambled to reaffirm earnings forecasts after an embarassing spreadsheet error left investor confidence sorely shaken. The behemoth drug manufacturer said the spreadsheet gaffe occurred during “a routine consensus collection process.”

I can also give a personal story about a spreadsheet error that certainly caused embarrassment and could have been worse. Earlier in my career, when I was Controller of a company, we were being bought by another company and we had bankers advising us. At the last minute, right before we filed our last 10Q as a public company, our lawyers decided we should disclose the banking fee we would be paying to our advisors. We had hired the bankers in the past for the same potential deal and the letter from the earlier, failed deal had been updated to a current date and signed again by our CEO without being reviewed.

The formula for payment was based on a certain definition of enterprise value and the fee jumped as each major valuation range was cleared. I built a quick spreadsheet model off of the balance sheet spreadsheet that had been checked by us and the auditors so I knew all the base numbers were right. I entered the formula for the fees, all in one cell instead of stacking the different ranges in a cell for each of them. The number that came out was in the low double digits of $ millions, and I thought it was high looking but the bank had been working a long time and had not been paid for any work yet on previous, failed deals, so I used that figure in the disclosure. My boss did take a quick look at the number, but no one checked my spreadsheet.

I had made a formula error. For the very last range, I was off one decimal place in the formula and the spreadsheet understated the amount due by 50%. The actual amount was a surprise to everyone and had the CEO actually done a calculation, he probably never would have signed the letter. It ended up being an issue for me because I stayed on and the acquiring company was concerned that the fee was being hidden on purpose. Once I showed them my error, I then ended up in the middle of a large investment bank’s M&A group fighting with their country office overseas that was being pressured over the fee. It eventually was resolved, but I didn’t get as smooth a start as I had hoped in my new role and it was a big distraction for a while.

After that narrow escape, I became much more careful about the base spreadsheets me and my team use in SEC reporting. Careful review for errors has caught several that would have ended up being material misstatements. Two common places where I have found errors is in the tax provision spreadsheet and the inter company accounts reconciliation spreadsheet. Both are updated quarterly, the number of rows often changes as items are added or subtracted and both have multiple people inputting data into them.

The first and still main formal study I know of on spreadsheet errors is by Raymond Panko of the University of Hawaii. I have provided a link this site below. The conclusion of his initial study was that spreadsheets are large and complicated and almost never follow a formal software development process designed to eliminate or reduce errors. Therefore it was not a matter of if there is an error, but how many.

His site lists the common errors he found in his study and how to find them. He also describes a standard development process designed to reduce errors and find any that are created. He also reviews the results of several studies that were done around 2004 after Sarbanes-Oxely became the new standard for companies to follow. Control over spreadsheets is a key internal control that all public companies need to address.

http://panko.shidler.hawaii.edu/SSR/

This problem is pretty well known and it is not hard to find newer articles on finding errors in spreadsheets. For example, this one: http://www.journalofaccountancy.com/issues/2015/nov/how-to-debug-excel-spreadsheets.html . Even with the recognition that there is a problem, CFOs are still losing their job because of simple spreadsheet errors leading to material reporting errors, misbid contracts, improper internal reporting and analysis and other embarrassing issues. It does not inspire Audit Committee confidence if you present to them and they find an error.

I suggest that you take a look at the Planko articles and do a little search for more articles on what can be done to reduce errors. Call a meeting with your staff and review this issue and discuss what they are doing to make sure they are getting their spreadsheets right. Hopefully they all know about the danger already and you already have a robust process. If not, get one in place ASAP. Even if you do, spot check a couple of the more complex spreadsheets they use and make sure you cannot find any errors.

An ounce of prevention now can save you from a $25M fine later after an error is found and you have to restate your results.

Book review – Dragonflight by Anne McCaffery

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On April 10, 2016

In Book review, General

As always for my Sunday book reviews, I am reviewing a book meant to help base time while traveling. The idea is that you are at the airport and want something to entertain you on the flight. I provide a link at the bottom to purchase a kindle version of the book so you can download it and read if you want (or sign up for Audible.com and download a spoken version of the book to enjoy it that way).

This week I will review the book Dragonflight, by Anne McCaffery. It is book one of the Dragonriders of Pern series. In the many years since this book first came out, she has written many sequels and some prequels as well, but Dragonflight is the book that started the series. It is now called number 16, but it really is the first book.

Despite having dragons in the stories, the book is a SF story, not a fantasy story. It is set on a planet called Pern. The inhabitants are colonists that settled into a pretty hospitable place to live, but one that has a planet or moon that passes close enough every several hundred years for a type of spore called Thread to pass from that moon to Pern. Thread multiplies quickly into something that devours the land where it grows and which is inimitable to life. The only space that is safe is bare rock with nothing organic for the spores to feed on. Every time the other planet gets close enough for the spores to travel from planet to planet is called a “Pass” and the story begins after the last regular pass did not happen and Pern has almost forgotten why the dragon riders are needed.

The dragons telepathically bond with their riders. The only viable dragons that can lay eggs are the female, golden dragons and the last one is dying with only one queen egg left. Lessa is a scullery maid and drudge at a holding and is noticed by a group of dragon riders out searching for women that have the telepathic potential to bond with a dragon.

The story is both a straight forward romance between a strong dragon rider named F’lar who is bonded to a bronze dragon and Lessa. The spores missed a Pass and the Holds and the people have forgotten the dangers of the thread and why they need to support and help the small group of dragon riders that help them. The dragons can, after digesting the right rocks, breath fire and kill most of the thread before it reaches the ground. There always are some thread that make it to the ground and teams on the ground use flamethrowers to burn out the infestation.

The story is also one of political struggle between the Holders who no longer want to support the dragon riders via tithes and men and women to bond with the dragons and the leader of the dragon riders F’lar . Lessa bonds with the last golden dragon and whatever bronze rider’s dragon can catch her dragon on a mating flight forms the ruling pair with her.

Finally, the story is one of discovery as the people of Pern have lost hold of their history and do not know that they are colonists and not originally from Pern, even though they have legends and oral history that says they are. You discover more about the planet and the dragons and their powers and origin as you read through the books in the series.
I recommend the series as a fun, escapist way to pass time. The writing is good, the characters interesting the the villains and the heroes are not one dimensional. The love story between Lessa and F’lar is a classic boy meets girl, girl does not like him, but boy wins her over story. Simple, but still works well when written well with a good story behind it with good characters. Anne McCaffrey certainly delivers that.

I recommend the series and have read all of the books in it. Some are better than others, I find the first three to be some of the best and the prequels not as good as the original timeline books, but still ok. I hope you enjoy them as much as I did when I first read them.

Dragonflight (Pern Book 16)

A Squire and their Knight

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On April 7, 2016

In Hobbies, SCA

The one regret that I have for my “career” in the SCA is that my actual career has made me move all over the place, every two years or so. These moves have taken me to Asia and back twice and across the country several times. Because of that. Even though I have been asked a few times, I have never been able to properly commit to a knight/squire relationship. I was squired to a Master at Arms before I was knighted and I have observed several decades of relationships over the 30+ years I have been a fighter, so here is my blog on this topic. Much of what I will discuss applies to choosing a mentor outside the SCA for career or other pursuits, but this is mainly targeted at the core SCA relationship – Knight and Squire.

I generally try to avoid the discussion of which Peerage in the SCA is better. As a matter of pure fact, we are all equal. As anyone who has been in the SCA long enough to really understand us, you know it is not just the legal paperwork that says it, the SCA would be a poor sports club without the arts and service that adds to what the SCA needs to be special. One thing that is true about the Chivalry is that we are the most visible Peerage doing what we were selected for. Most SCA events are built around a tournament or war and that means fighting. The fighting Peers and the storybook Peers are the Chivalry. Deeply engrained into the storybook are squires to knights. The humble page that becomes a squire and later a knight is the coming of age story for centuries and centuries and the SCA provides an excellent stage for the play to be shown to a new audience.

I am going to use Knight to mean Chivalry for the rest of this blog. I was squired to a Master-at-Arms but I don’t think typing out both for the rest of this blog will add to this discussion.

It is my firm belief that almost all bad Knight/Squire relationships are the fault of the Knight. The problem is normally caused by a Knight accepting the relationship without making sure they are the right person for the squire. Sometimes in less populated areas there is no choice as there is no one else closer, but there are some Knights that are too concerned about building a household and not enough about training a future Knight. Some cannot commit the time needed. This is not to say that the squire may not work out for reasons particular to the squire, but in a teacher/student relationship you need to be able to commit the time to teach. Often times you are not showing a particular technique, you might just steer them to the right person to learn from. You should always be able to work on the soft skills as well as the physical ones. I have seen to many cases of someone becoming a Squire and then their Knight moving away 6 month later and the Knight knew it was coming. I have seen a little too much of Knights trying to grab hold of someone that starts showing promise without remembering that the Squire should benefit the most from the relationship.

For me, I have had to satisfy myself with teaching at practices as I have moved every 2-3 years for the last 20 and no move has been reasonably local. I cannot take a squire that I cannot commit to. I need to be there. In a company, I can train and mentor someone and rely on the company process itself to do the rest of the work if I move on. Since the training is not physical, I do not to do a lot of in person time and I can continue a mentors hip even. If we do not work at the same company, I can continue a mentor relationship. It does not work so well for a squire. At worst, you need to be there when they finally come up for awards.

I started in Montreal and was pretty much in the first small group I was (and am) quite driven and I wanted to be a Knight. The Knight/squire relationship was very public and obvious in the first few events I went to and I wanted that relationship. I had hit is off with another suburban guy that was quite driven that lived in Rhode Island. He was suited to Master Feral, who to this day is still legendary. I went to my first Pennsic and served as “man at arms” to my new friend Jaye Brooks (Duke Sir Lucan now). I liked it and liked the spirit of the Northern Army group. Feral was pretty far away (6 hours drive) so I needed to find someone local to squire to.

The two choices (both in Vermont) were Master Randal and Master Tearlach. They both had traveled up to Montreal to do some training and to hang around and get to know us. Randy was driven, fought hard, wanted to win Crowns. In my mind, what I needed and certainly what I wanted. Someone I figured would push me very hard and who I could learn the fastest from. Little did I know, but Randal and Tearlach had already talked to each other and Randy thought he was a little far away and not really interested in a new squire as well but Tearlach was. So Tearlach asked Sonny (Master Allyn – my best friend from before we even found the SCA) and me to be his squires. I turned him down. Sonny came to talk to me and told me that Randy was not interested in taking me on as a squire and to think about who showed up more often, made more armor for us and who was actually interested in doing something for us to the point that he had just offered his highest commitment of time.

I did not know it then, but the one that looked to be a strange fit for me ended up being the right person. That was solely due to Tearlach keeping his end of the commitment even in the face of the challenges my personality and drive added. I did my part for sure, I put the hours in, travelled and did not dishonor myself or him on the field. Sonny and I became one of the now many “Northern Region Death Twins” (the first were actually twins or at least brothers so it fit a little better) and killed prime target after prime target as directed by our commanders.

Even though Tearlach has always been known as a polearms fighter more than any other weapon form, he had a huge influence on my main form which is sword and shield. Early in our relationship and quite possibly even before I became his squire, I broke the strap on my heater shield and he leant me one of his shields. Tearlach has a pretty unique shield shape and to this day I use it. We explained to me where the shield came from, but that was a while ago and he was good enough to remind me.

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Master Tearlach: “In my early days as a fighter, Feral would come up a few times a year with the then cutting edge techniques from Siegfried’s practices. Partially a moulinet from a hanging guard then a strike to the opposite (weapon) side then a shot to whatever opened up. My technique was therefore always 6 months stale. I borrowed the double ended kite from the much earlier Celts and Roman auxiliaries. Those were typically center gripped but some were strapped. I then developed my own style as a counter, using this shield and an opening strike to the weapon side, totally nullifying the hanging guard attack.( I invented the “fan strike” which had been used by the Filipinos since at least the 15th century) While polearm is my usual weapon I am probably just as good with sword and shield. When I was doing tournaments I used sword and shield to go as deeply as possible. If I made it to the quarter finals I usually would switch to pole, which I could use more effectively against top tier swordsmen.”

A lot of what I do today is still based on this. I rely more on a timing shot, a sort of “flip snap” designed to skip a little to get over a shield edge and hit the target. The shot is pure timing and works by being where the block is not. My other main shot is an opening strike to the weapon side which Tearlach’s shield is very well suited for. To be honest, the shield is not very efficient as it is thin near my head and legs, I could do almost everything I do now with a regular kite and a kite is much more defensive.

Returning to my main point, Tearlach was a Knight who was willing to make the commitment he needed to so I would develop to my potential. I rejected him and he took it in stride. About a year before I was Knighted I told him that I thought we were no longer Master and Squire, that he and I were close friends and equals and I stopped wearing my baldric until my Knighting ceremony. Even today the influence that relationship had on me is apparent. I came from a Catholic family right down to attending an all boy Jesuit High School. Tearlach certainly was alternative in religion and other lifestyle choices that only my liberal parents had done any work preparing me for (the Jesuits actually did a good job of opening my mind to the many ways people can see God).

I certainly frustrated him on a regular basis. I listened and tried what I was being taught, but I always insisted on doing other things my way. He was way stronger than me and much larger, but I always tried to fight him super close where he could use his weight to maximum advantage. The thing that made Tearlach different was that he simply punished me in practice until I developed a style that worked well in close. I was not lectured, told I was wrong or asked to stop. I was doing the other things I was being taught, and then I figured out how to merge with the polearm haft and grab it. I then spent years beating him in singles fights, most of which involved him throwing me from side to side as I threw shots whenever my feet actually were touching the ground.

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(A much younger Tearlach.  At that time I was a short hair suit wearer.  I guess I still am that, now that I think of it.  he was the closest to a “hippy” I had ever met.  Don’t think he was ever actually a “hippy”, and he was kind of serious and bookish when relaxing at home.)

I have seen many other styles of Knight to Squire work. I have seen very military houses with everyone stepping in formation and pretty much saluting. I have seen the loose style that Tearlach and others up North used in which the joke amongst the Squires was teasing the more traditional relationship where the Squire would carry their Knight’s gear by telling them that it was expected of us to tell our Knights to carry their own damned armor bag.

If you are going to take someone on as a Squire, I really hope that you are up to the commitment. I learned a lot of how to be successful off the field from Tearlach. Successful in my accounting career, not just in the SCA. My parents laid a good foundation, but Tearlach and his friends showed me what being accepted into a group where prowess mattered meant. If you take a Squire, you are not only accepting them, you are bringing them into your close circle of friends and you need to be sure that is the right thing to do. Outside the SCA, if you are mentoring someone, then make sure they benefit the most from the relationship and that you bring them into your circle of peers so they can see what that feels like and what they need to reach to truly be part of it.

Going beyond the headlines

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On April 5, 2016

In CFO, Finance, Investing

Every day, at the end of the day, there is a series of articles wrapping up the market. There always is some sort of facile explanation in the headline and then a few facts in the article around the headline. Every market day and usually a wrap up on the weekend. There normally are a couple of pithy comments and reference to some news item of the day. Typically there is a comment on the Fed, or the latest job news, of maybe a reference to Asian markets or some economic item in Europe.

There are similar news items on individual stocks, especially famous ones, just about every day as well. Some little news items is grabbed for Apple and attached to whatever the stock price movement is that day. Even for lesser followed stocks, when they do their earnings release any movement is attached to the market’s reaction to something in the release or a comparison to analyst expectations. Often there is a quote from the latest analyst report supporting the reasons cited for the stock move.

I can tell you, if you want to be a better individual investor, you need to learn to ignore such articles of reasoning. They tend to be very shallow and are written more to fill space than they are to offer any sort of thoughtful response to what actually has happened. Same thing for much of the instant analysis that is on the live financial news shows.

I am not saying that real news does not move stocks. If a company genuinely releases unexpected news, either good or bad, then the stock may immediately react. If there is a major geopolitical news item like a terrorist bombing in a financial or political center or some surprise currency move, then markets can and often will react and that news will be the cause of the reaction. However, news of that nature tends to be pretty rare and even rarer for an individual stock.

In my first substantial blog post for this site, I discussed my strategy of selling puts to generate income and profit. In that blog I listed several long tables of share prices that I suggested should be studied before deciding on a stock and committing to an investment. In my blogs on investor conferences and non-deal roadshows, I talked about the process the typical fund uses to decide to buy and sell and emphasized that the process tends to be slower without an immediate reaction causes by one conference meeting or visit in their office.

The same thing can be said about the analyst reports that appear right after an earnings call. Normally the analysts are rushing to get something written and they have call after call during earnings season. Their time with management is normally limited to. The questions you can hear on the call and about 15 minutes afterwards are all the time they normally get with the company and then they publish. Quite often what is written is a rewording of the press release with a highlight or two from the conference call. Earnings calls can be catalysts but they are more of a retail investor or a fast trading hedge fund play than the longer term investment trends that give stocks their underlying values.

If you want to learn about the market or a company, you need to do more than just read headlines or look for one answer to what something is happening. A good example is oil prices and energy stocks. There is a connection between the two, but small changes in oil prices that are within the range of normal expected volatility are almost for sure not causing the move in one particular stock or sector. An above average increase or drop is more likely a larger investor increasing a position or decreasing a position, and the chances that it happened that day because of the news item being identified is almost zero. A .5% move in Yen value is not going to change investment decisions on a company that gets some of their revenue from Japan.

This goes back to my advice to CFOs on doing the outlook section — you need to look past your spreadsheets and listen to the other functions and what they are telling you. When you are making long term capital commitments, you will a lot of simple answers to questions. These answers may sound right, but when making an investment decision you need to think a little more on it. Make sure that your question was really answered. Try and look at the question from a couple of more angles and ensure that you are making the right choice for your company.

Of course, most individual investors don’t have the training or the background to understand what is happening with the markets. From reading books like Flash Boys by Michael Lewis, even my understanding of the trading in the markets is somewhat shaken. With all the “Dark Pools” and algorithm based trading that is happening and the speed and velocity of dollars being committed, even the basic fundamental reasoning for stock valuation might be broken down. Individual stocks may get caught up in this trading and change pricing for no reason other than it was traded.

I try and keep my financing deals as simple as possible and avoid derivative collars or enhancements to them because even after I study carefully I cannot account for all of the factors that might move their deciding valuation factors more than expectations. If I cannot reasonably assess risk, then I do not commit. It is the same for me for investing decisions. If I do not understand and agree with how a stock is being valued, then I do not invest in it.

This blog entry is the reasoning I use when I encourage people that ask my advice on what to invest in to avoid individual stocks and buy low cost index funds. You have little chance of getting rich quickly but you’ll at least make the market average returns which are quite compelling. If you want to gamble with a stock, accept that you are doing no more than buying a lottery ticket or pulling a slot machine handle. Nothing wrong with dreaming, but recognize that you are dreaming. As a CFO, you need more than a dream. Lottery tickets are not a good strategy to make sure that you can meet payroll and pay suppliers.

I am not saying that you should not invest in individual stocks. With careful reasoning and some luck you do have a good chance of beating average returns. As a CFO you will be asked to greenlight new products or business areas. In the short run saying no is more safe but you may not have a long run if you say no to everything. Just make sure you understand the ways you can lose money on the deal and what you would do if that happened. If it does happen, you will at least have a plan. No different than if you were acting as CFO. You can take the risk and say yes to a new area of business or a new customer, but have a back-up plan you can execute on.

If you do want to invest in a particular stock, investing in something you know and maybe not in the industry you work in (to avoid concentration risk). Try and understand the product you like and other investing reasons for the company. Try and figure out who owns the company and why they would want to own it. A classic example of this for me is Hasbro. They own Wizards of the Coast and they own Magic the Gathering and Dungeons and Dragons. I play and like both games and think that Magic is important to Hasbro and I can at least tell if that game remains popular. They pay a dividend and raise it annually which I like. They have the rights to Star Wars for toys. They have been able to monetize their other properties in the form of movies that have done well at the box office. All were good reasons to buy. That stock is up almost 100% for me and continues to pay a good dividend. Every quarter there is a news article of two update based on the earnings release but because I keep track of the company, I know that the news articles are very superficial. I think I understand the main valuation drivers and what causes short term swings in value (short term is usually tied to movie releases).

Musashi tells you to study well. Not just your sword work and strategy, everything you do. Don’t be fooled by what is on the surface and easy explanations. Understand your decisions and make them as well as you can. People are depending on you.

Book review – H.P. Lovecraft and the Cthulhu Mythos

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On April 3, 2016

In Book review, General

As always, my Sunday books reviews are meant to be suggestions of something to buy right before you are on a flight. I give links to Kindle editions so you can buy and download them right away. I try and error on the side of entertaining or easier to read and for books that will help pass time.

“The most merciful thing in the world, I think, is the inability of the human mind to correlate all its contents. We live on a placid island of ignorance in the midst of black seas of infinity, and it was not meant that we should voyage far.” – opening lines of Call of Cthulhu by H.P. Lovecraft

The Cthulhu Mythos is a collaborative universe featuring the idea that there are Great Old Ones that greatly predate mankind that have been waiting to return and take power over the universe. Of course, for purposes of stories within that universe, that time is either now, or deranged cultists are doing something to hasten that time. The typical story is one set where the main characters face cosmic indifference, humankind really does not matter and is insignificant compared to the vast and mind twisting reality of our true place there. To even glance at a small portion of this truth twists your mind and drive you insane.

The author that originated this universe was Howard Philip Lovecraft, and e wrote and published horror stories in the 1920’s and 1930’s. He was a contemporary of and corespondent with Robert E. Howard who wrote the Conan the Barbarian stories. He also wrote many letters to Robert Bloch (Psycho) and Clark Ashton Smith and they influenced each other and wrote stories that while self contained were loosely connected to the overall Cthulhu stories.

Lovecraft wrote for publication in the pulp magazines of his time, so his work is short stories and novellas. You can get through a story or two on even a short plane flight, but they are horror stories so maybe they are not the best to read if you plan on sleeping right away. They certainly are period pieces and not modern at all, but he does enjoy “things that go bump in the night” as a plot convenience and maybe they are not the best in strange hotel room with sounds that you are no familiar with.

“That is not dead which can eternal lie.
And with strange aeons even death may die.” – Abdul Alhazred “Necronomicon”

It is pretty hard to avoid references to Cthulhu if you like and follow SF or Fantasy. The origins were in horror but it leapt into fantasy a long time ago. As an example, if you like the Evil Dead film series, the book that caused all the problems and the rise of the undead zombies is called the Necronomicon. That is directly from the Lovecraft story “The Hound” and appears in several more of his stories. There have been movies made directly from his stories and his works have influenced other movies, books, music and TV programs. I think part of the enduring popularity of his stories was that he was an early fan who wrote lots of letters to magazines and friends and others that wrote him. He freely encouraged other people to use his inventions and framework and during his life and afterwards people took him up on it.

I suggest starting with “Call of Cthulhu” and then reading the rest of the stories in the order they were published in. I included links below to two sources of his stories. One is free (Lovecraft’s works are old enough to be past copyright) and one is an inexpensive compilation of all of his writings. I will warn you that the stories themselves just have passing references to race that show some prejudice, but Lovecraft was more racist (and sexist) than even the norm for his time and that does come out in his letters much more than his stories. I can enjoy his works and the influence he has on modern writing without being caught up on his personal beliefs, but they are a matter of record. Funny enough, he had a fair number of personal relationships, at least in writing and fan circles, that were contrary to his written views.

Chronology of Cthulhu Mythos stories written while Lovecraft was alive

I do not think that Lovecraft would ever have won awards for his complete mastery of the English language and his ability to write, but his plotting and ideas are good and the stories are short enough that any issues with the prose itself do not intrude too much by the time you reach they end of the story.  I enjoy the details he has in his stories and he wrote during a time when people were transitioning from horses to cars.  Some of the problems in his stories would just be solved with a cell phone call today, but modern writers still can use his ideas and make them work in modern stories.

When using the free link you need to be familiar with how to “open with” a program for a phone or tablet or how to transfer files yourself onto a Kindle. Kindle uses MOBI as the format while Nook and Apple’s iReader uses ePUB format. The free source is actually slightly better edited and has a few less spelling mistakes in it.  I don’t think the link works outside the USA and it certainly will have issues inside China.  If you want to read the stories on your web browser, you can try www.dagonbytes.com.

I have enjoyed these stories for years and years and like catching the pop culture references to them that appear with what seems to be increasing frequency. I hope you like them too.

http://arkhamarchivist.com/free-complete-lovecraft-ebook-nook-kindle/

Complete Collection Of H. P. Lovecraft – 150 eBooks With 100+ Audiobooks (Complete Collection Of Lovecraft’s Fiction, Juvenilia, Poems, Essays And Collaborations)

My technology life

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On March 31, 2016

In Computer hardware, General

I think I have been the IT support person in all the households I have been in. From growing up with my parents to my current partial bachelor days (partial as having a 19 year old daughter live with you is not being alone), I have always maintained the infrastructure at my house and made the recommendations on what technology to get.

Since this is a Thursday and I usually talk about my interests, this week I will discuss my long term love affair with computers and similar technology. For someone that has liked accounting and finance since grade 9, I have managed to keep tinkering away with technology pretty much all my life. My first real technology project was building a blue box on a bread board using a schematic I found on BBS.

As I said in the Hello World entry that started my blog, my first experience with computers was on an Apple ][ + computer in high school. The first computer owned in my house was an Apple //c (I convinced my parents to buy it) and the first computer I bought with my own money was an Apple II GS. Even my first work computer at KPMG was a Mac. With all of that you might be surprised to know that all my computers since then have been Windows machines. I guess I can ascribe that to two reasons. The first is residual bitterness that the Mac won over the II GS (you have to be a real long term user of Apple computers to understand the Woz vs. Jobs days). The second is that I always liked to tinker with my computers and personalize them and the Mac just was not designed or built for that.

I have never owned a Windows desktop that I did not build myself. The first one was a little scary to build and overclocking my Celeron 300 to 450 (via instructions from Anandtech.com) as a big move for me. Even since then I have tended to buy the second fastest processor in the line that was the best at the time as the bang for the buck is higher. I had the AMD Athlon chip one generation of self built PC, but most of my time building PCs Intel has been the obvious and best choice. The last five years or so, the main processors have become powerful enough that there is little reason to replace them. My current processor and motherboard combo is over 4 years old at this point and it works more than well enough.

I am a very big fan of multiple screens and I use 3 now when I am home and using my main machine. I have an AMD graphics card, but I have rotated through the leaders for years. I was a big believer is 3DFx and their voodoo cards. I was even heavily invested in the early nVidia vs. 3DFX discussions on Silicon Investor and abandoned 3DFX after they invited me to their office and gave me a review unit of the Voodoo 5000. At that point I thought that nVidia just had the better graphics card and much better execution. Today AMD and nVidia go back and forth for who is best and I also buy the second best of their line and there is not that much difference right now. Having more than one screen is very important and I really enjoy having three to use. It seems like one big screen should be good enough, but once you try two or more it is really hard to go back.

The only other real change I have made in my builds in recent years is moving the operating system and the main programs I run to and SSD to I boot a little faster and the typical programs I run load faster. The technology there is pretty stable now and any of the main SSD are fine. I never pay for faster mechanical hard drives as I really don’t notice a difference. I have experimented with different mice and keyboards but for the most part think that Logitech and Microsoft make good enough models.

I do spend a little extra on my home router. The last few I have owned are ASUS routers. They have their own version of DD-WRT which is an open source router software you can use to overwrite the basic software that comes on many routers. I like the parental control features of the router and I am sad that my two teenage girls cannot out think their dad and hack into the routers and override it. I prefer to attach my media players and main computer with a physical cable instead of relying on wireless. I already wrote a blog entry on the networked attached storage(NAS) I use, so I will not go into detail here on the same topic.

My kids are Mac users through and through, so I have had to learn that as well, but I am not as good with MacOS as I am with Windows. No disasters so far and my NAS is a Time Machine target for backup for them.

I have had friends and family members ask where I learned how to put everything together. For example, I even can make my own Ethernet cables. The real answer is what Musashi always says – practice. I spent years being patient and learned it. Google is also an excellent tool. No need to seek out the latest issue of 2600 magazine for the latest cool hack, a quick search gets you answers. I am not so cutting edge as I do not have any VR googles, at least not yet. My main machine is getting a little long in the tooth. I do have the latest Apple TV and Roku. And a Fire TV stick all connected to my 3D TV. I chose 3D over 4K as there is more media on Blueray available. I was an avowed Plasma TV buyer but have reluctantly switch to LCD.

I was an early user of PDA, I had a US Robotics Palmpilot and even was buying and reading books via Peanut Press. I liked Blackberry, but was quickly an iPhone user and have been buying a new one every two years. I am typing this up using the MS Word app on an IPad Air 2 and I type almost all my blog entries on my IPad. This blog was typed in the car too and from my office and in the Camel bar in Suzhou while I was having dinner. I use a stand I bought from Amazon and a Bluetooth keyboard as I can type much faster that way. Again, not so cutting edge. I have owned some Android tablets but I am pretty locked into the Apple ecosystem at this point with much of my media purchases using Apple DRM.

I do think keeping up with the latest technology and experimenting and doing it yourself helps in your job as well. CFOs often run IT and I feel much more confident when discussing the latest network infrastructure build out since I know how it works. It does take some time to get it right and you do have only yourself to rely on for tech support if you try and build your own PCs, but there almost never are any serious issues once it is up and running properly. Who knows, you might even impress your kids.

AmazonBasics Adjustable Tablet Stand

AmazonBasics Bluetooth Keyboard for Apple Devices (iPad, iPad Mini, iPhone)

Developing staff or fighting sharks with spoons

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On March 29, 2016

In CFO

I had a request to do a blog entry on developing staff. I have done a few turnarounds in my career and one of the key success factors in that is getting more out of your existing staff. I have always thought that one of the most important roles you have as a CFO is making your staff better.

I have joked in the past that the best way to develop staff is to arm them with spoons and throw them into shark infested waters. Whoever survives is developed and those that kill a shark are your next leaders. That is tongue in cheek, but there is a kernel of truth in that. You cannot make your staff members better without them gaining experience in tough tasks and they cannot get that experience if you take all the tough tasks onto yourself.

The first principle for me in developing staff is that development is not training. Training is to add or polish skills. You need a skilled workforce but you should be hiring professionals with an advanced skill set already. If you inherit a team that lacks basic finance skills, you are so far behind that development is not going to work. You probably need to fire and hire in successive waves until the base skills are competitive.

I am not saying that your should not make training available for your staff. Your accountants need continuing education and to learn new accounting pronouncements that come out. Your analysts can also use additional systems training. But that is just making sure that they can get the floor level of their job done. Your accounting staff should not be making accounting mistakes and they should be up to date in their knowledge. If you actually have to make that training available vs. allowing them to get the training, then you already have an issue as good professionals keep themselves competitive and ready without being spoon-fed. Your role as CFO should be to support training and make sure time is allocated and approved for it, but you also need to police hiring and performance reviews to make sure you have the right skills in your group to begin with.

The second principle is one I learned from taking over finance departments that I had been told were bad and where I would need to fire and rehire a lot of people. You can do some selective changing, but when you are in a turn around and there is a crisis mode in place, you are not going to be able to replace staff and give the new staff the luxury of coming up to speed in any great numbers. It is also hard to attract people to weak companies that are struggling. What I discovered the first time I needed to work with an existing staff is that no one in that group woke up every morning and went into work with the intention of doing a bad job and adding no value. No one wants to mess up and be thought poorly of by their peers. When I invested in developing them, suddenly the “bad” staff I had inherited started performing and I had the advantage of all their experience as well.

The third and perhaps most important principle is that if you do not invest the time and effort into this, then it will fail. You need to lead by example. If you don’t, then no one will take it seriously and the development plan will die via inertia and lack of real commitment from the staff. Make sure you keep the time available for this. It is a manual and relationship based exercise, so you need time. I probably spend at least 5 hours a week, every week on this. Not in meetings dedicated to “development” or performance assessments or training but in time spent with your staff helping them over hurdles, encouraging them to take on more and new tasks and in praising their successes. Development is not via a stick, it is via a carrot and the support of you and the team. Give constructive feedback. As I discussed in my blog on corporate culture, always remember that they are people, and do not allow yourself or them to be put into a box and betray yourself or allow them to betray themselves when under pressure.

This is a very hard and necessary part of your staff’s development. They need you working to remove barriers and get them resources when they need it. You need to do this while allowing them to actually do the work. You have to invest upfront. For example, if you want one of your Vice Presidents to lead a large financing, you need him on your team on a previous financing learning the ropes and seeing what works and does not work. That is a learning stage of development, but it is not doing. No one learns enough from just reading a book or a blog. It can help give you a structure and keep you from making a few simple mistakes, but you only get the knowledge and confidence from doing a task. When your staff sees you making a genuine investment of your time and effort they will know that it is important to you.

Finally, put your staff in harms way working on projects that will make a difference and don’t kill them if they fail and give them all the credit when they succeed. They should be working on projects that make a difference in the execution of your company’s strategy. If they don’t succeed, there should be large enough stakes on the line that there are consequences for failure. This means that when they do succeed, there will be even more to celebrate. Make sure the project they are working on moves them out of their comfort zone. Make them sweat, even if it is just mental sweat. I will say it again, when they win, make sure they get the credit for it. Nothing steals the thunder from someone like their boss taking credit for their work.

Giving your staff credit for their work is more than just a pat on the back and a short speech in a staff meeting (or Board meeting). You should be promoting from within wherever possible and bending over backwards to give your staff a shot at internal promotions. My rule of thumb has always been that after 2 years in a position any of my staff can move, even if outside of Finance. You cannot freeze them in position and it is your responsibility as a senior leader to replace them if they do move. If your employees believe that they are liked and valued and get first shot at internal promotions, they will have higher morale and be happier even if they do not want the opportunity.

Don’t be afraid to rotate staff from an area of their speciality to an area they are not familiar with. You want your staff to be cross functional where possible, so give them that opportunity. There is no reason why someone with a strong accounting background cannot become an analyst or a Treasury manager. They can learn on the job and the more areas of finance they know, the more useful to you they are. Help them jump outside of Finance if they want to. You’ll only benefit over time by seeding other functions with people that understand the numbers and cash flow and investment returns spread across your company. Developing staff means not being selfish. Sometimes you don’t have what someone needs in your company and they’ll leave. Trust me, the good one that appreciate and realize that your focus on their development is important will be back at some point.

This is another soft area and needs stronger people skills than pure number skills. If you don’t have good skills there, then you can develop yourself. I am an introvert by nature, so the face to face time this requires is harder on me than others. I think there is huge payback from investing time in your staff and it is worth the additional discomfort for me. You cannot win battles and wars with poor troops, so developing what you have is the most cost efficient way to multiple victories.

I sometime get asked how do I get my staff to work such long hours and really push themselves. The only answer I can really give is that they know they matter to me. I show them that by giving them opportunity. The opportunity is always beyond their job description and it means they need to commit. All I do is help to ensure that when they succeed they get the fruits of their victory. Because I honestly believe that they will succeed, they believe too. The end result is that I have a stronger team and my staff is better and we win more often. Winning is the heart of strategy and wants makes a good company great. Develop your staff. Reward them. Become great.

The Fifth Discipline: The Art & Practice of The Learning Organization

Book review – The Dresden Files series by Jim Butcher

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On March 27, 2016

In Book review, General

As always for my Sunday reviews, I am picking a book or books that I think are very enjoyable and entertaining. The idea is that you are in the airport about to fly off somewhere and you want something to read on the plane and at the hotel for your trip.

This week I am going to review and recommend The Dresden Files series written by Jim Butcher. These books are modern urban fantasy set in present day Chicago and featuring Harry Dresden a private investigator that also happens to be a wizard. The series started about 2000, so when I say present day, I mean reasonably present day.

The books are a good mix of detective noir books with a tough PI with a heart of gold and a magical world where all the creatures and monsters from fairy tales exist. Wizards like Harry are policed and regulated quite carefully by a wizards castle and using certain spells considered to be black magic carries a death sentence. Harry escaped from an abusive mentor before the setting in the first novel (Storm Front) and he carries around a suspended sentence of death with no chances of error left to him.

The existence of the wizards in the stories are important because many of the monsters, especially the vampires, are on,y held in check because of fear and respect for the power of the wizards. The series starts with a long term but uneasy truce in place and the situation quickLu spirals out from there and some of the books are outright wars between different factions while others use the detective story framework where a new client for Harry draws him into some sort of mystery centered around a magical threat.

The stories have good and bad cops, good guy knights fighting ancient evil centered around silver coins, vampires in red and white courts, the Faerie realm, werewolves and evil wizards, and that is not even all that happens. Harry is not completely alone, he has friends and at least allies and many are recurring characters that come back in many of the books. He does have some romantic interests in the books, but he is not all that skilled in that area so most do not work out so well for him.

Harry also has issues with authority figures. He is an official consultant to the Chicago police for strange and potentially supernatural crimes, but his natural instinct is to buck the system and push back against authority figures. This includes the police, the FBI and the Wizards council. It results in him having to overcome self made obstacles all the time, but his friends tend to be few but very close. He also has issues with using nay technology as magic disrupts computers and cell phones and even causes problems with cars, especially more modern ones.

I found that the series gets better as you get more and more books into it. The first book (Storm Front) is good, certainly good enough to make you want to buy the next book, but there is a bigger payback the more you read as the writing gets better. There is no mystery as to why. Storm Front was either the first or one of the first novels that Butcher sold (he wrote others but did not sell them until later). So the writer is learning his craft as he goes. As a reader, you get the benefit of interesting characters and a good story upfront and then later you get the same and ever better writing.

As a note, the Audible.com version of the book is read by James Marsters (Spike from Buffy the Vampire Slayer series). He does a very good job his voice and ability to voice many different characters with their own quirks and sounds suits the stories well. Even when I am reading books, I still here his voice in my head for Harry. The main link below is for the Kindle version (so you can easily find the book and download and read it before jumping on the plane) but in the center of the page at the bottom there is a link for Audible.com. Listening to instead of reading a book can be more relaxing and easier to do if you need to drive around. Audible has a free book as part of their initial subscription and they’re owned by Amazon as well.

Storm Front is an archetypical Harry Dresden story in many ways. He s broke. He needs work and the Chicago police brings him in to investigate a death that looks linked to the supernatural. Eventually we ends up pitted against an evil wizard with pretty major stakes at risk. The book introduces us to many of the characters that we will see in the series and we also get an overview of Harry’s basic power set. He is self proclaimed to be a strong wizard, but in the earlier books he leans on preparation and set spells rather than pure magic use. In later books you’ll get to see that he actually is quite powerful, but he tends to depend on brain power rather than magical brawn to win the day and even in his more full power, he often is against being far more powerful than him.

You can comment below, so feel free to comment here on the blog or on the social media site you found my link if you want. I am always curious what other people think of the books I recommend.

Storm Front (The Dresden Files, Book 1)

Fool Moon (The Dresden Files, Book 2)

Grave Peril (The Dresden Files, Book 3)

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