Author Archives: Marion McGovern

Independent Contractors and the Bubonic Plague

Katy Steinmetz of Time Magazine had a great piece this week summarizing a joint Aspen Institute /Time study on the future of the gig economy. http://time.com/4169532/sharing-economy-poll/?xid=tcoshare  She discussed what may be the first attempt to quantify how many Americans are participating in the various aspects of the sharing world, from shared car services, to rented rooms, to odd jobs, as either a buyer or seller.  As you may imagine, the numbers are fairly staggering, with more than 44% of Americans taking part.

She also gets into the implications of the employment status of those who offer services.  In most cases they are classified as independent contractors (ICs)  rather than employees.  ICs, of course are not subject to withholding taxes and ineligible for benefits typically accorded employees.  Ride sharing giant,  Uber, is facing a class action lawsuit, where drivers are claiming they should be employees not ICs, an action now scheduled for June of 2016.

The IC versus employee  issue is a murky one and Steinmetz does a good job explaining the accurate and curious fact that there is no one legal definition of an employee. The IRS has 20 points which define employment status, but the primary factor comes down to who directs and controls the work.  That subjective framework is why the subject is fraught with abuse from both sides of the transaction.

Later in  a brief comment, she explains that the ambiguity of this body of law is inherent in its origins in 18th century England.  She didn’t quite get that one right…it was a bit earlier.

Our current employment structures are based on  the Master Servant body of English Law which is actually from the 14th century. As the bubonic plague, also called the Black Death, ravaged England, there was a need to identify who was the master of a particular area and who was the servant — hence the name.

Although the Uber case and others in the sharing economy have put the IC vs. employee question in the forefront, it has been an issue for years. Issues can create opportunities; companies like Collabrus Inc., which I founded, as well as others like MBO Partners, have created business models to eliminate the ambiguity inherent in the misclassification of workers.

Issues also create investigations. In the mid 90’s, I testified about the problem at hearings in Sacramento. At the time , the state of California was ardently pursuing anyone who was paid with a 1099 (an IC) versus a W2 (an employee), claiming that those receiving 1099s were just trying to skirt taxes. I explained there in the new world of just in time talent, old employment designations  and the social contract that goes along with it  were no longer relevant.  I ended my remarks pointing out that the bubonic plague ended a long time ago, so maybe it was time to update our regulations,

The wonderful State Senator, Milton Marks , of San Francisco, who served in the California senate for more than 30 years at that point chimed in and said, “She is absolutely right .  I know because I am so old, I was there  in the Middle Ages.”

I have to smile when I think of that hearing.  I also have to agree with my original assertion, it is time to rethink our employment law structures as the gig economy grows. IC status shouldn’t have anything to do with the bubonic plague, rather it should have to do with empowering individual business pursuits.

An Exercise in Goal Setting for 2016

I facilitated a peer group meeting today of CEOs  where the topic was personal goals for 2016. Given that they were all running companies, most of the goals focused on  achieving revenue, profit, share price  or fundraising targets for their companies.  There were a number of objectives that involved load balancing the management team, i.e., making sure that the right expertise was in the right role, correcting a mismatch that exists now. Several of these executives also sought to improve their leadership skills either by being able to focus on higher order tasks, like thought leadership, or successfully instilling a common leadership framework and language in the management ranks.

Much to my surprise, all of them offered at least one personal goal as well.  And although there was the obligatory, “get in better shape”, (it is just post New Year’s Resolution time after all…)  there were also some audacious aspirations, everything  from learning acrobatic flying to completing a series of 8 abstract paintings.  I asked each CEO which goal  was the most at risk for the year, and many times it was that personal goal. That was due in part to the fact that the time allocation for the personal goal was totally dependent on the success of achieving the business goal; if product releases don’t happen on time, golf handicaps won’t go down, and if revenue stalls there won’t be a personal best in one of several half marathons.  Common sense  demands the business priorities come first.

On the other hand, my surmise is that for some of these busy folks, setting personal goals may have been a new exercise. We  have all had to live and die by business goals — that is the way of the world.  But how many of us plan to accomplish what some may deem less important or even frivolous goals? There is a power in saying what you want out loud. It gives it import; it makes it real. Years ago I did this exercise and I said I wanted to get on a corporate board.  Within two years I was. In reality, the fact that I said it out loud had nothing to do with my ending up on that Board, but there is the power of  intention.  To me, speaking it helped make it so.

So I am very optimistic about the goals set by my CEO cohort.  Certainly there will be bumps in the road for some, but I am eager to hear not just of the revenue targets achieved, but also about the abstract paintings.

 

A Reminder of the Primacy of Succession Planning

Valeant Pharmaceuticals appointed an interim CEO today following the hospitalization of the CEO, Michael Pearson, who is suffering from sever pneumonia.  Although a temporary leadership structure had been put in pace at the onset of his illness, as it worsened the Board moved quickly to name an official interim manager.  A current Board Member and prior CFO, Howard Schiller, was tapped  given his key role in the implementation of the company’s current strategy.

This news item should be a lesson for every  public or private company Board, that succession planning is key.  How would your Board handle the sudden medical leave of its CEO?  Are you prepared if you suddenly need to fill his/her  seat?

15 years ago, a Board on which I served faced the same issue, although our situation was more dire, as our CEO lost his battle with pneumonia.  Like Valeant, we had appointed co-Presidents to oversee the organization during the illness.  Once a permanent solution was needed,more challenges arose. As an organization, we learned many lessons during that period, and as a Board we built new muscles to strengthen and constantly flex executive development and succession planning.

Some key thoughts I offer when a CEO takes ill are these:

Recognize that the interim solution may need to be in place for quite a while, so it needs to be workable.

Although no one wanted to think that our CEO would not return at the time, that eventuality should have figured into our calculus. Asking a few direct reports to shoulder more of a burden for a month or so is one thing, asking them to do it for up to a year is quite another.

As a Board, demonstrate support for the interim team.

Unexpectedly losing a CEO is like losing the captain of a ship; the crew and passengers need to know that the course ahead will be safe and sure.  The Board needs to support the interim  team without micromanaging their efforts.  The Board Chair or Lead Director can play a critical role. Board members should recognize there may be a need for more frequent meetings and or conference calls.

Gain consensus on the breadth of the process

In some cases, an unanticipated vacancy can prompt someone to up his/her game and assume a new senior role with vigor.  Alternatively, such a vacancy may provide an opportunity for new eyes and new leadership from outside the organization.  The Board needs to agree about whether there is a bias for  internal or external candidates.  There also needs to be agreement on the nature of the process; if external candidates are considered, will existing firms be used or will firms be interviewed; who will comprise the search team; will the job specification remain the same as for the prior incumbent or will it change.

Know that communications to all stakeholders for the next 12 – 18 months  is key,

The Board needs to communicate regularly to shareholders, management and staff about both the current business  and the succession process ahead. Over communicating is not possible in this situation.   To ensure we were capturing as much feedback from the rank and file as possible, the Board  instituted a 360 degree employee survey, assessing sentiment 6 months into the interim structure and then 6 months after the permanent successor. We wanted to make sure that certain shifts to the organization had not created unforeseen problems.

Develop your succession plan to include sudden events

Most people consider succession in a more deliberate way, noting the development needs of key  managers and the steps they needs to take to grow into a new, more senior role.  A sudden illness or death precludes that deliberation.  As such, you need the “hit by the bus” section that outlines what happens if the unthinkable does.  For those of you who have that already in place, Bravo!  For those of you who don’t, add it to your Board agenda.

Flunking Retirement Celebrity Style

One of our holiday traditions is seeing some version of the Grateful Dead at the San Francisco Civic Auditorium.  As we watched Dead and Company this year it occurred to me that Bob Weir deserves a spot in the “Flunking Retirement” celebrity Hall of Fame.

Here you have a guy that had a tremendous reason to retire, when his Grateful Dead co-founder, Jerry Garcia died in 1995.  But the music would not be stopped and he continued  playing and touring with his own band Ratdog, The Other Ones, a group of former Dead players and then Further, a partnership with Phil Lesh, the Dead bass player.  This year during the 50th anniversary of the Dead, the players created yet another variant, Dead and Company, with younger , and some might say hipper, John Mayer at lead guitar. So at the age of 68, Bobby is going strong.

But like many other Boomers, Bobby has also parlayed his industry knowledge into an enterprise to support his passion. In 2011, he founded Tamalpais Research Institute, (TRI), a world class audio, video streaming and recording facility.  It provides the best sound experience possible and can emulate the acoustics of any music venue in the world.

“TRI was kind of built on the principle that it was going to be a fun place to be,” explains Weir on the TRI website, . “The ultimate playpen for a musician.”

So thank you, Bob for the encore career you have chosen.  It is perfect for you and all of us music lovers.

How mentoring strengthens your edge

Most people think of mentoring as a way to share the expertise gained over a long professional life.  That is a true statement, but not nearly comprehensive, since mentoring can expand your horizons in so many ways.

Fr those of us who may be semi retired, or flunking  retirement in my case, being an active mentor keeps you engaged in an ongoing business, like being a board member without the fiduciary obligations.  Moreover, it can keep you current in what is going on in the business segment today.  That currency is so important and so seldom appropriately valued.

Back in the M Squared days, I had a framework for evaluating consulting expertise, the “4 Vs”.  It frustrated me that so many people interviewed consultants as though they were hires, when by definition they are not. As such, it is important to screen for other factors, like the ability of the consultant to work in different environments, i.e., their Versatility.

The Vigor factor, was the idea that to be successful, you need to keep current with your craft.  Various professional disciplines achieve this by having continuing education requirements, whether it be in medicine or the the law .  But how does a marketing consultant keep current, or a CFO, a compensation consultant etc? There are ways, like attending conferences and doing research. When hiring a consultant, it is important to understand this dimension of their expertise.

Being a mentor can add vigor to your experience, because you are staying current with your mentee’s business.  Slack wasn’t around when I stepped down ( the second time) from M Squared, but I understand its power because of my connection with other ongoing businesses.  Similarly, I am getting new insights into how companies must recruit and manage millenials which differs from how I dealt with the gen-xers.  Having those new perspectives arrayed against the depth of experience makes for some very powerful insight to share.  It’s all good.

As for the other Vs, feel free to guess…

 

 

Unexpected Returns from Mentoring

We all hear that as successful business people we need to give back and we should be mentors. Cheryl Sandberg has made an industry of women mentoring up and coming women in all sorts of organizations.  The value proposition to the mentor though has been presented as a duty by virtue of our experience and expertise, and that is doing the role a disservice.  The truth of the matter is being a mentor is a tremendous  learning experience as much for the mentor as the “mentee”.

When I started my business, I was in the Young Entrepreneurs Organization  or YEO  (now just EO, since they lost the young part…).  Through an affiliation with  WPO, the World Presidents, of which I am now a member, I was matched with two great mentors.  One was my go-to-guy on financial management issues, and the other was a great marketeer who was invaluable to me years later when I sold my business. He was the one who at a wonderful dinner of YEOers and their mentors, toasted our relationship saying that  being a mentor was in ways more rewarding  than being a father, because unlike his children,  I actually listened to everything he said.

Now fast forward some 20 years and in the spirit of turn about is fair play, through WPO,  I have a few mentor relationships of my own.  They are  with entrepreneurs who have very successful professional services businesses, different from M Squared but still in the human capital space.  At times we may talk about difficult or unforeseen issues, but typically we focus on moving the business forward.  It is wonderful to make a suggestion or an introduction that could strengthen a new direction.  Similarly, sharing tough moments  can often resonate for my younger colleague  as he/she faces a difficult decision.   In those conversations you learn about yourself for in the telling is the lesson.

Yesterday I learned even more, for yesterday I discussed my new business idea with one of these exceptional leaders. Her perspective was very valuable, and fresh, since she is in an adjacent business constantly.  She let me know about quasi-competitors or substitute services of which I had been unaware.  She questioned certain premises and raised new issues.  I learned not only more about the business segment I am exploring, but I learned more about  her critical thinking processes, the questions she would ask and the approaches she might take.  It was enlightening, refreshing and energizing.

They say mentoring is a way to give back  But, with an homage to the holiday season, it is in the giving that you receive.

1099 Questions about the gig economy

Professor Laura Tyson of the Haas Business School published a great piece  last week about the challenges of the gig economy.https://agenda.weforum.org/2015/11/how-can-we-protect-workers-in-the-gig-economy/

She focused on digital labor platforms, noted that nearly 400 million people have posted resumes on Linked In The problem, and of course there always is one, is that as this contingent workforce has grown through the likes of Uber, Taskrabbit and Upwork, employment has not, since most of the work is done on an independent contractor basis. As such,these individuals are  paid on a 1099 not a W2, and separated from the employment based benefits which provide the proverbial safety net via health insurances and retirement programs. She goes on to discuss the policy implications as well as the interesting coalitions being formed around this issue.

Although Professor Tyson discussed the independent contractor (IC) issue as a relatively new phenomenon, it is not. Independent consultants, and other professionals like  real estate agents  have faced this issue for decades.  For many, creating the answer to the safety net issue was part of the calculus of starting their independent business in the first place. These individuals were making a deliberate choice to create an independent, professional  lifestyle , another point that often gets lost in the IC debate.

From my research several years ago ( which clearly needs to be updated) a significant minority of ICs were able to secure benefits through a spouse.  Further proof of that is that when we set up benefits programs for ICs the greatest interest was in tax deferred income and retirement products.  Granted, the sample we were targeting included the highest paid ICs, so they would have had arguably the greatest economic flexibility.  In the last 5-10 years, the IC ranks, thanks to the new digital platforms,  have grown to  include lower wage workers.

Conversely, according to a recent article in the Economist, the data does not support amazing growth in this IC economy,  with the caveat that labor statistics are egregiously poor in both the UK and US .  (Indeed, the US government discontinued the tracking of contingent workers  in 2005 by eliminating the Contingent Work Supplement . Senator Mark Warner  has requested  that  the Bureau of Labor Statistics, and the IRS reinstate it.  ) In a 10/23 article, the author, Laura Gardiner,  notes that the number of self employed workers in the US is actually falling and the proportion of full time workers  in both countries has not decreased. Freelancers represent only 2% of the workforce in Britain.

Gardiner goes on to suggest that this non intuitive lack of growth may be the result not of  bad statistics but of improper definitions.  The gig economy, also the sharing economy, includes the 1099 worker but also encompasses the AirBnB hosts, for example, who don’t see that extra income from renting a room  as  job related. This is true for many participants in the sharing economy, suggesting that the true size of the current market activity may be significantly understated.    In some cases the income may go unreported but in most it will just appear as 1099 income. As such, that may be the better metric to track.

The  Bay Area Council Economic Institute did just that.  It compared the growth in the number of  1099s  issued ( not the dollar value)  with the number of W2 returns by year and indexed for inflation.  Although 1099s tended to peak  and then retract after recessions, as demonstrated in 1990, 2001 and 2007 the pattern has changed.  Since the financial crisis and attendant recession in 2009, 1099s issued has continued to rise, while W2s have shown greater variability. 

By 2025, Tyson suggests the gig economy will approach $2.7 trillion in global GDP. Hopefully by then we will have a better understanding of how the marketplace functions,  and a much better handle the policy infrastructure needed to support it to ensure the independence and flexibility it affords can be sustained.

 

Repurposed Expertise

At the Vision 2020 conference, Stewart Butterfield, CEO of Slack described the importance of humanity in business, connecting at a personal level with your clients. He then went on to describe a customer service exchange which was an homage to the original Star Wars movie.   Although it was a great story, I was still struck by his opening riff on the origins of the rapidly growing messaging company; he and his colleagues repurposed some software from another life, “pivoting” to the messaging space.  I fixated on this point, perhaps, because I had been in the repurposing business as well, but I repurposed expertise.

You hear about “repurposing” a lot in the software business.  Instagram had famously flopped as a platform until it was repurposed as a photo sight.  In the human capital space, though, its not a term of art.

Independent consultants ( like those from M Squared or The Talent Group or Cerius Executives)  are accomplished professionals who have a body of expertise in a given discipline.  With every assignment they take, they are, by definition, enhancing their  intellectual capital, since even though one engagement may be similar to another, each has its unique challenges. To meet those challenges – or opportunities — they need to repurpose their arsenal of management  and consulting skills. My favorite gigs were always those where the client agreed to engage a consultant who was pivoting to take the assignment, by applying expertise in consumer goods to digital media, for example.

As I think about my book project, perhaps there should be a repurposing chapter…

#GivingTuesday — pass it on

As the Chair of a not for profit Board, I think “Giving Tuesday” is a tremendous innovation in philanthropy.  Giving Tuesday is December 1 this year.  It is meant to follow the crazy consumerism of Black Friday and Cyber Monday with generosity, a benevolent opportunity for people to share their holiday largess with community organizations, advocacy groups and other wonderful causes. Now in its fourth year, Giving Tuesday has become a global movement

The innovation comes in to play because it is driven by social media.  From its start in 2012, there are now 30,000 partners in 68 countries, 32.7million Twitter impressions, and most importantly a 470% increase in online donations since it was begun.

 

Special campaigns are now being launched around the social media power of Giving Tuesday.  A generous donor to ReSurge International, for example, has offered to match 2 to 1 every dollar donated on Giving Tuesday, meaning gifts will have 3 times the impact, enabling 3 times as many poor people to receive reconstructive plastic surgeries which will transform their lives.   If you feel so inclined, gifts can be made safely and securely online at http://tinyurl.com/oxvyd4g.  

Be sure to give to some organization on #GivingTuesday.It is a wonderful way to begin the holiday season.

Thanksgiving Thoughts

M Squared alumni may remember this message, since I was often asked to repeat it year after year.

When my son, Kevin, was in 1st grade, his class made a quilt of all of the boys’ notes explaining the things for which they were thankful.  Looking at the 20 scrawled missives, its amazing how many of the boys were thankful for vegetables. The funniest was the son of a liberal, syndicated radio talk show host  who was thankful for “food, his family, the government and the Pentagon.”My favorite, of course, was Kevin’s, and it went like this:

“I am thankful for books, my friends, my family, my voice, my food, markers, my brain, and toys.”

His litany of thanks is so complete, it can suit all of us. To paraphrase him, may we all be thankful for knowledge and the wisdom of the ages; for the people we love and care about who are so central to our lives;for the ability to articulate ideas and/or celebrate in song; for the abundance we are so lucky to share – especially in our country; for all of those things that make our world colorful and alive; for our own ability to create the future; and for the wonderful things that bring us enjoyment and fun.

Happy Thanksgiving!

 

 

 

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