EP33 - The Accountant - The Need For Accountability

Thank you so much for joining us. I'm the ESOP Guy, and we are on this journey to an ESOP. For those that are joining for the very first time today, I just wanted to say thank you and welcome to our podcast. If you like what you hear and you are interested in other episodes, please go to journey to an ESOP.com, which has all of the episodes there that you can tune into. If you've continued on this journey to an ESOP or you've listened to other episodes, I just wanted to say welcome, and today's title of our, of our podcast is going to be the Accountant, the need for Accountability. The question here is, how important is it in your organization to have accountability? And is it a culture? Is it a system or is it a an incentive? Perhaps it's all of those things and more. And as business people, we all kind of know that, that accountability is important in your organization, whether it's be the accountability of your leadership team or all of your employees, a company that is running very well is a company that has good accountability throughout the organization. As you consider an ESOP for your company. I want us to all consider the level of accountability in our organizations. And I believe, as you look at this issue, It really does mean has a meaningful impact on your business. Companies that have strong accountability, you really do know kind of as evidenced in their financial statements, um, that that comes across in their business valuation. And so companies with stronger accountability, I believe are going to have most of the time higher business valuation. So you're, as you think about your company moving into an ESOP or selling your company as an ESOP, I do think that You do, you do need to think and measure your accountability because the transaction, if you're, if you're looking at just a simple issue of what you're going to get out of the business from a, from a purchase price, this will actually have an impact on your company. The other side, the other side of this is also having an impact on the long term plan. If your company is moving into an ESOP, and there are, you're transitioning new leadership and other leadership is coming out of the organization. The sustainable companies, the companies that go on and on and and outperform others are ones that have strong and ongoing strong accountability programs. So it's a powerful strength and without accountability, there's an incredible weakness in an organization. If you like what you hear today, please subscribe to the podcast. And if you think it would be helpful, share it with a friend and also rate and review the podcast, that'll be very helpful for all of us. So here's the deal, folks, my accounting people, because I work for a CPA firm. have taken for, for, I don't know, as long as there's been accountants, I guess, all of the bad jokes. And I'm talking about the pocket protectors, uh, these guys that are accountants, they stare at their shoes, they can't really look at you while they're at networking functions. Um, they call them bean counters. Um, They didn't, the accounting firms didn't even get any of the tax breaks through the, the last Trump tax legislation. So, um, these are the, these are the kind of people. But finally, guess what happens, we finally um have a movie about our profession that makes accounting people look good. The absolute and only Ben Affleck movie that I would say is any good is the Accountant. So, the accountant puts into perspective, the idea behind what an accountant really does. And, but the cool part about it is, is, is they create this movie where uh this guy, he can pretty much fight anyone, large groups of anyone's, he can shoot pretty much anyone. He lives dangerously, collects really cool art. He understands the underworld like nobody's business. So this hero grows up in a very tough situation, and he's got autism and he has a father who's. Half crazy and a military father who trains him to be as, um as he grows up to be one of the most dangerous people on the planet. He chooses the dangerous profession of accounting. And this is where he helps people with taxes, but he also chooses to be a forensic accounting person for the underworld. So he's plunged into this plot, um, to expose those companies that are not accountable, and he gets hired um to be and paid very large sums of money to find the issues of really what forensic accounting does is it finds the issues behind the numbers, um, and where people are trying to cover up things. So he's, he's being hired in this movie. By this bioscience business, and he discovers their um illegal cover up of what they're doing in their business. And so eventually, um, he ends up exposing them and then, uh, you know, because he's so dangerous, gets to fight everybody. Um, but what this does is it shows us as we start to connect the dots that, um, accountability is, is critical in every business and organization. In everyday life, we're not dealing with the types of stuff in the movie as dark as those themes are, but there are all sorts of accountabilities issues across the spectrum that affect your business, and of course, it's transition. So as I mentioned, for companies converting to an ESOP, the goals are to have a strong organization that can be sustainable with an ongoing business plan that supports operational efficiencies, growth of the company, continued building and retaining talent among many different things that business does. These factors matter and are typically evidenced in how business runs by its financial performance. But sometimes with transition as folks leave, there definitely can be an erosion of accountability and sometimes it can happen with success as key managers or owners becoming less passionate about the business as the business grows and become successful, you can have leaders become less and less accountable over a period of time. So there's always, I think, always an issue of accountability in every business organization. And whether you're small or large, I think this is something that has to be developed in your business plan and to assess where you are with your accountability is going to be part of the journey to an ESOP. In an article published by Forbes magazine, it was entitled Why Accountability is vital to your Company, it referenced some statistics. According to an author and transformational leader, Anne Lower, 93% of employees don't even understand what their organization is trying to accomplish, so they can align themselves with the goal. Additionally, 85% of leaders aren't defining what their employees should be working on anyways. And 84% describe themselves as trying but failing or avoiding accountability even when employees know what to fix. So these statistics are startingly very high when you start thinking about uh any type of statistical study. What this means is that accountability really is a major issue with most businesses and And I, I don't think that's a surprise to us when we're in business and if we're really working through a lot of the, the issues that come up, um, especially as you start working through issues that come up, um, and planning for an ESOP and prior to due diligence and really going through the numbers and looking and interviewing management team members about multiple things, you're going to start to discover issues in your business relative to accountability. So let me go over a few. That I believe are important to, to think about a few pitfalls, I would say relative to accountability. First, I've kind of alluded to this, but really is this idea in a business where there's unclear responsibility. It's probably, I guess, the most common pitfall. Um, most of the time, what's happening is you have these goals and um the goals become very misaligned among managers, and there's a very vague responsibility. And I think sometimes I see this when we ask, actually ask people to set their goals. And what you find a lot of times is when people are setting their goals, And whether whatever they're in, if they're in sales or finance or operations, um, department leaders set their goals around improvement types of things that aren't really specific. So when you're starting, when you're starting to set goals in the, in the organization, a lot of times those goals, first off, aren't specific and measurable. And so they're just very vague and they don't, then the goals themselves don't really when you start asking the real question, do those align with the goals of the business? Do the strate is the strategic plan being represented in these departmental goals? And I think that's part of the problem is the goal setting isn't really clearly aligned with the goals of the organization, but I think also, um, They're so vague that they don't really, um, aren't meaningful enough. So I think there's definitely an issue there in terms of accountability. And, and I think that could be the bottom up this issue, the top-down issue is, is the top-down issue is you're not really setting clear goals and specific goals for your people. The second issue with accountability is just this general lack of follow up. Uh, this is definitely happens within organizations and it, and and the problem is, is that, is that follow up when it starts to, um, it might be present in somebody's, you know, professional career as they start working up the organization, but maybe as they get higher and higher in the organization, then it starts to kind of settle in because they hate, they've arrived, they become, Um, they they've been promoted to senior vice president or some major title, and it starts to then get diluted. Some people pretend like they follow up, but they really don't. And so there's sometimes not enough time to um check everybody's business until, you know, you go back and you you realize you've we've wasted a ton of time by having to do that. So lack of follow-ups a major accountability issue in your organization or in in organizations in general, and I, and I think it's always something that has to be um measured. Because many times companies don't have the right measurement or the scoring system to look into where um their individual employees are supposed to be following up and and hitting those specific goals and targets. The next one I'm going to call the slide or excuses, and it's this idea with an accountability, hey, that's not my job. You know, that's somebody else's job and that's their department or um they start to create these job descriptions or, or start adhering to very narrow views of their job. I think this is super problematic for smaller businesses where everybody has to jump in and figure things out. There you might one day be um dealing with business, a business development issue, but the next day you're dealing with something on the operational side to um get the work out or get the the actual product out. Um, I think excuse driven people are should be flagged in your organization as problematic. And I think that should be something that if you start thinking about accountability issues. I definitely feel that there are people in your organization that will always run to an excuse as opposed to have jump in, and I think the opposite is true too, you're going to have people jumping in on things that they shouldn't even have anything to do with. And that can create as much chaos and accountability issues as well. The next one that I would say is an accountability issue that you should think about is how compensation plans are created, and how many times they're not really rewarding, they're rewarding poor performance, not the right performance that's in alignment with the goals. And so, uh, this happens because there's a, a level of guilt when it comes to how we create compensation plans. And I think also confusion. Um, we want to encourage a team environment. So we have a team, a team bonus pool, but in that bonus pool, for instance, there might be people that are rewarded that should not be rewarded. And that is an accountability issue because what it does is it creates an incentive for people to continue to perform poorly. And one of the true parts of every really strong accountability system is that most everybody in your business, and I'd say everybody, but I, I'm just gonna kind of caution that for a second, but most everybody in your, in your business organization should have a specific target or specific measurable uh quantitative goal that they're trying to accomplish. And I, I would give you an example of that of saying across your business organization, your, um, The people that are in charge of collection should have a financial target with respect to your AR aging and their performance should be tied specifically to what they're responsible for. So their performance might be tied to a percentage of receivables, um, that your company needs to be at some threshold less than some aging of receivables. So specifically, it might be, we're going to have less than 10% and 90 day in the 90 day receivable category. Um, I believe there is a way to measure and create quantifiable data in almost every single department. And it's a matter of, of building that scorecard correctly. But again, I'm going to get too much. I just want to recognize that as a major issue in most organizations, I think compensation plans are very confusing, and they're created um many times in the wrong way that Created the problems with the accountability. The next really is management behavior, and I believe this is um very difficult to root out, especially as managers get higher and higher in our organization. And it's the the issue is, is that they've been rewarded over a period of time by promotion, or they've been brought in at a certain level, but their behavior, um, because they have so much power, they're able to um cover up underneath them mistakes that they're making and it's hard to root out because that gets um kind of filtered in based on the way that they're explaining how things are going in their department. Um, definitely an accountability issue. Um, that needs to be assessed. And this is why with sometimes you're assessing accountability issues, you do want to use a third party to evaluate your business in those types of things so you can see things that you probably can't see, um, in your current system. So I think management behavior is critical in the event that there's accountability issues with your management behavior. That means they're really not adhering to um the way the business's goals are set up, the processes are set up this way, or um the KPIs that certain metrics, and they're doing things outside of those, then it, then it basically rewards and incentivize people underneath them to do the same thing. So that's why that, that can be such a huge issue from an accountability standpoint. So I mentioned a few pitfalls and I and I want to get into some of the things that as you assess this issue in your company and you say that, hey, that's maybe one of the things we're looking at or we have multiple ones that we just talked about. What can a company that's on a journey to an ESOP do when they are facing some of these problematic issues? So the first thing I would say is you're, you're going as, as you start thinking about this from the folks that are in charge of the company, you're going to want To continually have an ongoing strategic plan. And you're going to want to use that strategic plan to build and communicate the primary clear goals that the company is trying to accomplish over the the shortest period that you can get to. So your strategic plan might be a 1 year, a 3 year, 5 year plan, but we want to communicate an organization that 1 year plan. Throughout the organization with, with quarterly incremental goals and targets that affect every single department. So if your strategic plan doesn't have a holistic approach of of collectively looking at all of the issues and the elements of your business and where the business is going, then you're not going to be able to create a clear Target for your entire business so that individuals that work for you, employees that work for you, that apartment heads that work for, for you, and then those people that work for the department heads won't be able to set those, those targets in alignment with that strategic plan. So I can't, I think I start with this so because it's so critical and I see that this is a weakness a lot of times in a lot of businesses because they're so busy on the day to day functions of their business that they don't have time. Especially in large growth cycles to get into what this looks like. So importance of setting targets for your revenue, profitability, um, I mentioned collections, the milestones, the technology improvements, all of these areas and many more need to be created for your strategic plan. And they need to be departmentalized so that your key organization or your key departments can be um looking at those and setting their own targets as they start to set their goals according to the strategic plan of the leadership. Now, that's going to then help the organization create these accountability metrics. Uh, then we're going to get into the next stage of really helping with accountability problems, is now setting KPIs or key performance indicators in the business so that those targets can then be measured accordingly. Now, the KPI is always going to measure the outcome of what, what has gone into, um, the input. So the input, the output, the input is going to be Um, if I'm, my KPI is to grow the business with 10% to 20% more revenue, then, um, I might have a KPI of how many new clients or new customers or how many new products I sold in the last quarter. But the input of that is how many actual sales calls were made in the last week. So you're going to have accountability metrics that are going to include KPIs, they're also going to include weekly activity metrics that are going to be important. To be connected to again, all of the KPIs that are then connected to your strategic plan that helps the organization set clear targets to grow, or whatever the major issue is. So if you're asking folks to do something within an organization, this is going to be incredibly important because it's only fair for you, for them to get a very clear understanding of what they're actually being asked to, what targets they're actually asked to hit. So as we move into the COVID, there might be businesses out there that are really going through a revenue problem. And they're really stretched with now, I've got to figure out how to recreate my business revenue. And their targets may, may be really primarily in the revenue area. And so, again, I kind of mentioned this is holistic, but I think there are support functionality to every department when it comes to revenue targets. So I could have a technology, um, strategic plan. That supports my revenue targets as I'm trying to grow my revenue and might, that might be to in this next year, we're going to implement a CRM system. And that's the new technology. That will be implemented. So my technology folks are on board, how we use that CRM system might affect other departments as well. So, so as you start building a holistic approach to that, you do need to understand that those KPIs and those weekly activity measures should always be connected to your strategic plan, which should always be addressing the key issues that the company is going through. And I think this is a perfect example of how we need as we as we change our strategic plan. Through the COVID crisis, we're gonna need to change. Um, a lot of business plans and strategic plans are changing. So these KPIs and those weekly activity measures can change as well. Now, this is going to set us up to, and again, to improve accountability and organization, is to really focus on now our communication. So, ultimately communication throughout our organization, I would say needs to be continually assessed in terms of how well we are communicating in our organization that can be done by a survey that can be done. Um, you know, just asking the questions and seeing as key management interact with everyone, of how well they're understanding what's happening in the organization, how well they're understanding their role in the organization. So, uh, the communication side is so critical to building accountability because without it, there is absolutely a gap and people are like, I didn't know that that's what we were supposed to be working on. And how How terrible to hear that when a year later when you're when you're going through as your as a business goes through a crisis, you did not know that we were we were down this much in revenue or we did not know that this was such a major initiative or a major issue. So the onus I think is always on the leadership to communicate well. And there also needs to be a development, I think, of strong communication throughout the organization, culturally. So how does your culture um embody good open communication needs to be discussed and addressed. And again, I think this is another area where it really helps to bring in an outside adviser consultant that can really help. Um, I had an episode recently with Jack Vale, who wrote a book called Creating Strategic Innovation. Um, that's a great example of somebody that really helps businesses, um, from an outside perspective, challenge the notions that they're under. So some of the things that specifically need to communicate better is you need to have better progress reports with your people. They need to understand what's expected of them and they need to have a better, maybe you need to move more towards a quarterly progress report where they're getting better feedback throughout the organization on a real-time basis. Sometimes um departments do need to meet on a weekly basis and the departments need to give each other feedback on a weekly basis to say this is what we're, we're aiming for, um, those would definitely improve communication. I think companies definitely suffer and especially as we start to tighten some of the costs, um, this becomes more difficult, but we as businesses all need to invest constantly in leadership training, and that could be internal, that can be out external, but I think an ongoing investment into training is partly an investment in your communication because You got to train your people to be better at at communicating and you also have to um train internally as well for your folks to all be better at communication. So part of it's a training issue. Um, there's definitely a need for organizations to stop on a quarterly basis and have um an employee staff meeting and get everybody together. And I think quarterly is um definitely necessary only because so much can happen over the next quarter and people don't understand. Now, as a quarterly meeting, I'm gonna take that strategic plan and I'm gonna update everybody on where we're at with the strategic plan, that that's got to be done. So people know where we're at every given moment and they're hearing it from multiple layers of management, including the CEO, the department heads, or anybody else outside, um, the organization and different, you know, consulting factors. And then ultimately a communication plan as it goes through, um it's going to need to be updated annually and there needs to be this, this kind of ongoing process with communication. So, the 4th thing I'm going to mention from an accountability standpoint, I believe is just very practical. And this is the 3rd party assurance. I'd say most ESOP deals, um, when you're looking at them, need to have some type of CPA prepared financial statement. Now, the CPA firm needs to, they go in on an independent level and they test the financial functions of your business. Uh, they on an audit level, they're going to be interviewing folks and they're gonna, you know, they're going to create some help and really analyzing from an accountability from a financial perspective. I believe that is really important in the event that you have a third party assurance and other aspects of your business, I think that's very important and sometimes your banking relationship will Require you to have a field audit and other and other companies coming in to look at investigate the processes and systems. I think those are all very helpful. Now, again, with COVID, we need to be very careful how much money we spend on different things, but It's got to be mentioned that um the third party assurance creates um stronger accountability in your, in your business. As you move towards an ESOP, one of the truths is that you're going to move towards this, this, this governance that you might not have had before where you have a new independent board member in the, in the, um, on the board of directors that helps. To establish stronger governance in your business. So that's another example of, of accountability and third party assurance of somebody else asking questions about your business that that's really helpful. Some companies already have a board of advisors and they already use that type of approach where companies, um, a board, a board of advisor might come in and ask questions and um I just think that's a very healthy approach to um to creating and sustaining good accountability. And the final solution or the final one I'll mention again, I think there's obviously always others, but the final one I'll mention is this practical tool from the book called Traction. I've mentioned traction before, it's um written by a guy named Gino Wickham. So if you Google EOS accountability chart, um, I think this is a very helpful tool to build an accountability chart. The difference between an accountability chart and an organizational chart. Um, is based on the functionality and the roles and responsibilities of each one of the departments. And it's built around what needs to get done in your organization. And it helps you get away from the idea of on an organizational chart, which you tend to see our names and titles, what the accountability chart is, it focuses the organization on what is it, what is, what is the actual role and responsibility that that department is accountable to accomplish. And it helps you to create um systems then around that accountability chart that will help, as I talked about a little earlier, this needs to develop specific metrics, this needs to develop KPIs and scorecards. The accountability chart will help you create those. So, so look at that and Google that, it's a great tool and I can't say enough about that type of approach, because what you Sometimes don't see, but when you do accountability chart, you start to see that there's actually things that need to get done and prioritized in your business. That are not being measured, and that are kind of going um by the wayside. So for instance, I had a client once and we we did this, and we realized they're really in their sales department, there really weren't a priority placed on outside um sales calls that of, of new business. So they were only servicing existing business and. And the obvious question, if you're going to grow, you're going to have to bring in new customers. So if there's no outside sales calls or there's not being prioritized, you're certainly not going to accomplish the goal of bringing in and diversifying your, your new revenue base. So, so definitely, I highly recommend that and I believe, of course, there's always other tools to look at that are available. Those are just ones that, that I've seen that have been very helpful. So as we wrap this up, at the end of the movie, like I said, the accountant, uh, the accountant starring Ben Affleck. You know, that all of the bad guys get taken out and he, you know, there's no way it would be possible, but he does, he takes out everybody and there's this huge big mess to clean up and it really does tell you the story of, look, from a very extreme standpoint, the message here is with a lack of accountability, there is going to be chaos and disruption in your business that's going to cause major, major problems. Whether you see those now or you see them down the road, they are going to have to be addressed and dealt with. So look for the signs in your business as far as where you are within accountability and use these suggestions and others to strengthen the accountability of your business as you go on this journey to an ESOP. This is going to take time and it's going to take some commitment for you to go through that process, but I do, I do strongly suggest it and I know it's worth it. So with that, I would like to close and say thank you again for listening to this podcast. And if you like what you hear, please subscribe to the podcast, share it with a friend and rate and review the podcast. Look forward to our time next for the next episode.