I Ask Gordon Gekko- Is Greed “Really” Good?

By Rick Gould, CPA, JD

Today is the anniversary of a day most Americans want to forget.  December 11 is often called “Madoff Day”, in celebration of the arrest of Bernie Madoff, who was convicted of the largest and most costly corporate fraud in U.S. history.  $70 Billion dollars is estimated to be the amount his clients lost.  For many of them it was their life savings.  Madoff was arrested on December 11th, 2008.

There were other major Ponzi scheme frauds uncovered in 2008.  Two that stood out: Mark Dreier, Managing Partner of the Dreier Law Firm was arrested for defrauding clients of three quarters of a billion dollars, and R. Allen Stanford, ultimately convicted of a $7 billion dollar fraud in his Houston, Texas headquartered bank. 

These three men, as well as others who found similar fates, would have been wealthy in their own right; certainly multi-millionaires.  But instead of being satisfied with that hard to fathom amount of money, they wanted more.  They believed that, as Gordon Gekko coined in the 1987 movie “Wall Street” -- “Greed is Good.”  Their only goal seemed to be to make more money, no matter whose lives they financially crushed in the process.

The only message I see here is this: those who invest their hard-earned dollars must thoroughly check out the track record and reputation of who they are investing with, whether it be a financial institution, advisor, investment counselor, or a “trusted” Managing Partner of a law or CPA firm.  Unfortunately, the few that believe “Greed is Good” taint the credibility and reputation of the rest of us that are ethical and honorable.  December 11, 2008 should not be forgotten.  It should serve as a war cry for increased transparency and accountability, and a sobering reminder of the importance of due diligence when choosing investment partners and business advisors.

The “Science” Of Benchmarking

By Rick Gould, CPA, JD

We study success. We study what makes firms “model firms”, even during a recession– keeping labor below 50% of net revenues: operating expenses below 25%.

Our “scientific” process, as it has been coined, is Benchmarking. Most world-class firms study benchmarks to improve their operations.

Our benchmarking is a continuous exploration of and application of the best practices that lead to excellence in competitive performance. Benchmarking has been our niche, without any competitors.

We believe both success and failure in the PR industry are largely the result of pinning down the process and making it better each year. It will never be perfect, but maybe “more” successful. Working smarter, not harder is the goal. The “science” of benchmarking is the method.

To get more on Benchmarking

Please visit our website www.stevensgouldpincus.com       

 

and our corporate blog www.stevensgouldpincusblog.blogspot.com/ 

Ten Years Later-Harvard Business Review Article Affirms “Entrepreneuring”

By Rick Gould, CPA, JD

The article by Carl Schramm in the July/August Harvard Business Review supports a concept I promoted ten years ago, but just appears to be catching on.

In 2002 I created and taught a graduate course at the Parsons School of Design in New York City. The course was called “Entrepreneuring- The Business of Creative Businesses.” It was geared toward very smart, creative graduate design students that dreamed about someday starting their own design firm.

As was almost universal in academia offering a course on “Entrepreneurship” was non-existent. Thousands of MBA’s were turned out every year but few universities and colleges offered a practical, no-nonsense course on starting a business, running a “profitable” business and “selling” that same business. Yes, “selling” the business not yet started. I have often said that if you run your business as if it will be sold in the immediate future it will automatically become more profitable. You will learn how the business is valued and the models a buyer may use in an acquisition. You will become a sharper business person and street smart.

In my 15 week graduate course that I taught for three and half years. I started with the formation of the business- the legal and accounting requirements. I then went through the various operating issues. Billing and collections, cash flow projections, key benchmarks of a service business i.e. total labor cost should not exceed 50% of net revenues, operating expenses should be no more than 25%.

We went through how to calculate billing rates, what percent of each level of staff’s time should be billable (productivity benchmarks) and other very key operational concepts of running a successful business and building value to that business. We researched several case studies using real firms with actual situations.

The article in HBR by Mr. Schramm questions the way we teach our students the business of Entrepreneuring. He challenges “a system that leaves the education of entrepreneurs to school teachers (whose choice of profession displays little appetite for economic risk taking and thus may be ill-equipped to convey what entrepreneurs actually do). He asks if they have what it takes to get a business up and running, none the less making it profitable.

He mentions two programs Startup Weekend and Launch Pad (U of Miami, founded 4 years ago). The instructors are successful business entrepreneurs.

I agree with Mr. Schramm that we need to change the University Model in teaching entrepreneuring to rely less on textbook theory and more on the proven business models and benchmarks, taught by those that have been successful in attaining these objectives.

Ten years later- Have we learned from ENRON?

by Rick Gould, CPA, JD

December 2, 2011 was the tenth anniversary of the bankruptcy filing of Enron. The demise of Worldcom, Healthsouth, Tyco International, Global Crossing and other high profile public firms followed soon after that event in 2001. I recall vividly the time I taught the Entrepreneuring graduate course I created at Parsons School of Design and how I specifically chose these firms as model case studies. The relevance was there 10 years ago. But I wonder in the context of today’s business environment… have we really learned from these examples?

The downfall of these firms and the liquidation of Arthur Andersen, the CPA firm for many of these firms, generated millions of dollars for other companies. The bankruptcy law firms, the movie industry, as well as the cable specials and books that chronicled the drama, all profited from the failure of these firms and their corrupt executives.

For these past ten years, those of us in the business community and corporate governance heard about and preached about the importance of ethics, transparency and integrity. But have we really absorbed the lessons learned from the ‘Enronrisque’ culture? Have we fully addressed the fallacies that so devastated our feelings of trust and accountability in large companies? That distrust exists more than ever now, as fully exhibited in the NYC Zucchotti Park Wall Street protest and the wider “Occupy” movement.

What is really in place to stop the cover-ups and off-balance sheet transactions that Enron’s Ken Lay, Jeff Skilling and Andrew Fastow so neatly orchestrated? How can the practice of using a business as a personal piggy bank, replete with illegal and immoral abuses that Dennis Koslowski was convicted for as CEO of Tyco, be eradicated?

In light of all the rules and regulations imposed by the SEC, by FINRA and the “Enron Act,” renamed as Sarbanes-Oxley, I have to truly wonder: how effective are they, and how far we have truly advanced in the areas of ethics and transparency?

The Revolt of the “Masses”

By Rick Gould, CPA, JD

It has been a little over two months since the start of the “Occupy Wall Street” movement. In that period, the protests have spread from a local origin on Wall Street to a nationwide show of dissent. Billed as “A Day of Action”, 5,000 protesters marched into Foley Square in NYC as similar protests took place in Chicago, Boston, DC, Berkely, LA, Portland, Las Vegas, Philadelphia, Dallas and other major cities.

New York City mayor Michael Bloomberg’s decision to raid Zuccotti Park at 1A.M. last Tuesday morning was, in my opinion, both inevitable and correct. The safety implications, the tents, the garbage, the lack of toilets, the sleeping bags, the loud chanting and the drum circles in the park made his order a necessity.

I live, work and breathe in this New York City-world of mergers and acquisitions and investment banking. I fully understand public frustration with the many inexplicable abuses on Wall Street. My stomach churns and fists clench at the thought of all the pain and suffering that the abuses of Bernie Madoff, Sylandra, MF Global and other Wall Street greed has inflicted. It is blatantly obvious: we need better controls.

Strip away the drama and it is clear: we need to get people unemployed back to work. We need to curtail the big bonuses given to Wall Street fat cats when they have led their companies to large losses and/or bankruptcy.

However, I don’t agree with the methods being used by the protesters. Tearing down barriers, torching cars, theft, storefront window-bashing, blocking subways and office buildings, and organizing riots… these will never get the protesters what they want. The patience of residents, business people, store owners, NYPD and the Mayor’s office has worn thin.

The protesters need to do a sanity check on their goals, the results desired and how they will get there. What they truly need is a quality PR firm to guide them in communicating their message.

The goal of the protesters seems to be to inconvenience the millions of people trying to get to work, to school, or to the colleges in the area. The protesters feel they themselves are the “exploited masses”. But those that the protesters are ultimately hurting are the hard-working middle class, the 99%- NOT the 1% they claim to be so angry at. This is a misdirected rage that is counterproductive and will not inspire support for the creation and redistribution of wealth they seem to be championing.

The protesters should be targeting the following as their causes: corporate greed, big bankers, home foreclosures and the 9-20% unemployment rate (depending on method of calculation and geography). Pointing out specific problems and proposing exact solutions may lead to actual reform and legislation and the advancement of their cause. Anger, violence and the deprivation of others’ rights will not. Be careful: the world is watching.

Review of Billing Rates Should be an Ongoing Process

By Rick Gould, CPA, JD

Our 2011 Billing Rates & Utilization survey clearly showed that firms are focusing on raising rates. Billing rates are now averaging $513 per hour for CEO’s of agencies with $25 million or more in revenues, and $291 among smaller agencies, Agency VP’s average $261, with the highest among Washington DC agencies averaging $306 and SVP’s $356. I believe this uniform spike in billing rates is indicative of a marginally improved economy and is consistent with growth of the industry in both net revenues and operating profit.

Productivity, measured by billable time utilization has been far below optimal levels. Senior VP’s are billing out only 63% of their theoretical yearly capacity of 1700 hours. And while some rank and file account managers are averaging as high as 99%, some are averaging as low as 70%. The goal for account executives should be at least 90%, a goal reached by almost all firms achieving 20% profitability.

For our full report please email me at rgould@stevensgouldpincus.com

The Myth of the CEO President (of the U.S.)

By Rick Gould, CPA, JD

It was not surprising to learn this week that Donald Trump finally decided not to run for president. I, for one, never expected him to run; too much to lose, too little to gain.

I respect and admire The Donald for his entrepreneurial energy and his razor-sharp ability. Thinking big and turning adversity into business triumphs are his strong suit. He has created a brand second to none. The legacy of his name is a cash-cow. His buildings are among the highest quality. He has done much for New York City. He is a creator, an innovator, a true visionary. The list goes on.

I am happy for him to continue in this role, as well as in his very lucrative prime-time role in “The Apprentice” and “Celebrity Apprentice”. (Yes, I’m a viewer.) However, his idea of a CEO President, in my view, is a dream. A myth. Far from reality. Let me explain.

His concept is fueled by wealth, power and, yes, a very large ego. It is further fueled by those who support him and by people who want to identify with him, and with the buzz. With the glamour and excitement. These things are subordinate to what a successful president really needs to be focused on. Does The Donald, or any other high-profile CEO, really have the humility to put this aside in fulfilling the job description of U.S. President?

Many dynamic and successful corporate CEO’s dream of ascending to high political office. In addition to Mr. Trump, there is Mitt Romney - a founder of Bain Capital in Boston (for President), Carly Fiorina - former CEO of Hewlett Packard (for Senator of California), and Meg Whitman - former CEO of E-Bay (for Governor of California) to name just a few. But can these CEO’s and former CEO’s withstand the media and public scrutiny that comes with the territory of running for elected office? Can they handle the requisite financial disclosure, the dirty laundry and skeletons in the closet being aired? The divorces and love-children playing out in the media? The incredible number of political surprises and resignations from candidates and elected officials of the past few years shows running for any office a challenge, one that is well beyond an accumulation of votes. The possibility of being smeared by the media, right or wrong, true or untrue, always exists.

I, being a product of the business world, wonder if these successful CEO’s can truly run the country as well as their own companies. Would they be as effective as a CEO President as they are as Chief Executive? It takes extremely different skill sets to run a country. In addition to their charisma, which they all seem to have, being President requires diplomacy and the ability to inspire and engage people of all walks of life... both friends and enemies. The Chief Executive is not accountable to voters, only to his/her board of directors and investment bankers. The President is accountable to his/her cabinet, to congress, to special interest groups… and ultimately to the voters.

Few American Presidents have the background, experience and ability to run a large Fortune 500 company. And even fewer CEO’s have what it takes to handle the realm of personal exposure a presidency brings. Those who believe that our country can be run like a corporation and by a corporate Chief Executive are in for a long wait. I doubt if it will ever happen.