The Worst Week Ever

When Bad Things Happen to Good Companies

Record Setting Plunge for the Dow Jones Industrial Average. Picture Source

The DOW just lost 1874 points last week. That’s a staggering 18.15%, marking the largest one week loss ever both in absolute point value and in percentage points.

I have to admit, I was glued to the television on Thursday, the morning of October 9th. I sat in awe as I witnessed a good portion of my wealth evaporate in a matter of hours. I’m lucky I didn’t get into an accident driving to my office as I floated around all day in a zombie-like daze.
Well, that’s life I guess. This isn’t normal. Friday we’ll see a correction, right?

Wrong!

When I woke up, I was nervous to turn on the TV, so I left it off for a while. I went through my typical morning routine, wondering how the market was doing. Finally, after realizing that the market is going to do whatever it’s going to do, regardless of whether or not I turn on the TV , I flipped it on.

Unbelievable -- down another 700 points! Holy smokes (okay, okay, I had more colorful explicatives, but this is a family newsletter)!

Then up 300, Go! Go! Go!

Finally the bell rings -- down 89, whew thank God it’s over. No wait, down 111, down 125, down 128. Okay, now it’s over – did it stop? – Okay, it stopped.

By Friday afternoon, I had a hangover without the fun drinking party the night before. Several records were broken last week – and not in a good way. As mentioned, it was the work week ever for the Dow, both in point value, and in percentage drop. On Friday, the one day trading range was 1,018 points, the largest swing ever. The volatility index ( VIX ), also known as the “fear index”, saw an unprecedented intra-day high of 76.94.

Wow, what a week!

On the seven year anniversary of the September 11th attack on the US, I wrote an article on my blog at Quest Software, entitled “The 3 Key Meetings to Hold Once Disaster Strikes.” In the article, I characterize a disaster as “a risk event that hasn’t been previously identified (otherwise known as an “unknown unknown”), that carries an extremely high degree of impact.” In other words, really bad stuff just shows up sometimes. Of course, back then I was talking about an unprecedented attack on US soil. Today, I’m talking about an unprecedented tumble in economic health. And tomorrow, you may be dealing with an unprecedented compliance disaster. What should you do?

If a compliance disaster strikes your company, the first thing you should do is – PANIC!

That’s right – scream, yell, grieve, curse out loud, shake your fist at the sky – anything that makes you feel better about the situation, just don’t take any action to fix the problem. Not at first. When disaster strikes, you will be “tilted”, like a pinball machine that’s been roughed up too much. If you try to take any action at this point, you will do more harm than good.

It might take you some time to get everything out of your system, but once you do, take swift action with your team to construct a brand new plan of action. Make absolutely sure everything is out of your system. You know you’re ready when you’ve truly accepted the situation for what it is, and you don’t really feel terrified anymore. You’re still concerned, and there’s a sense of urgency, but no real panic or disbelief. Do not try to salvage old plans because they were based on old assumptions. Everything’s different now, just start over. Everything will be okay pretty soon.

In your plans, make sure you allow for some quick successes early. Once your team starts experiencing success, your confidence will start building, and good things will start happening, and you’ll start experiencing more successes. Once this cycle is set in motion, it will logarithmically pull you out of doom and gloom.

Remarkably unfortunate things can and do happen to companies. To be fair, remarkably good things happen too. Perspective is the key to getting through everything. Just like the Great Depression, the S&L fallout, the Dot Com bust, and the September 11th attack, life continues beyond disaster.

Store this progression in your memory banks, just in case one of these unfortunate events shows its ugly face. If it happens to you, flash back to this framework, and take appropriate actions at the appropriate times. Knowing and understanding is half the battle.

A Healthy Government Compliance Program

3 Steps for Avoiding Huge Government Penalties

I’m proud to announce that as of this month, I’m a Premium Member of the Coalition for Government Procurement. The Coalition is the preeminent association of companies that contract with the US Federal Government, and the people who support them. Of course, government contract compliance is no stranger to me as I’ve spent a significant amount of my recent past working through General Services Administration (GSA) issues with both schedule holders, and law firms supporting schedule holders. Now as we kick off the new US Government fiscal year, I wanted to spend a few minutes on some simple things you can do to take care of your relationship with the US Government.

The Coalition of Government Procurement - The Preeminent Association for GSA Schedule Holders. Click Here to navigate to the associations's website.

Government contracting is just good business sense, and can be a very important part of your overall business strategy. It may take a while to get started, but once you’ve proven yourself as a viable business partner either with quality products, or outstanding service, it can be a very good way to steady through turbulent times – like the kind we’ve been experiencing for the past few months. If you don’t already have a GSA schedule ( the de facto standard for doing business with the US Government and related agencies), take some time to look into it, and then call a good lawyer to help you get one. To find a good lawyer, call Bill Petkovski or Larry Allen at the Coalition and they can point you in the right place. Please tell them that I sent you.

However, with all the benefits comes a level of accountability that is sometimes underestimated. Although there is currently some talk to negotiate this with the US Government, currently the government wants to be – as they put it – your Most Favored Customer (MFC). That means, whenever you sell anything to your MFC, they get the best discounts. And as much as our government likes doing business with you, you can believe this arrangement will not be done on a handshake. There are specific provisions in your contract under the Price Reductions Clause (PRC), which mandate this policy – “all things considered.”

The “all things considered” (my terminology) part is where you can really get tripped up. For instance, it’s not fair that your business with the Government be compared with sales to resellers, as the discounts will obviously be large. Also, what about sales to academic institutions? What about very large deals? All these are legitimate exclusions from PRC analysis.

So as it goes, PRC is a thicket in everybody’s contract and for obvious reasons a place GSA auditors love to focus on in an audit. After your GSA contract is awarded, they may show up periodically for a “contractor assisted visit” – an audit conducted by an Industrial Operations Analyst (IOA). This may seem innocuous at first, however understand that these people are more than just auditors. They are also trained by the Government as investigators, and they will be on the lookout for things that don’t add up.

Before long, they will find their way to your PRC, and look for a way to trigger a Price Adjustment – the official “penalty” for an improper PRC analysis on your part. These price adjustments are the most benign of your problems.

If the auditors see something they don’t like, they can also recommend a termination of your contract – without reason. A GSA contract is a contract of “convenience”, and if they don’t think it’s convenient to do business with you, they can just end it there.

If things look really bad, they can move for a suspension of contract while they determine whether or not you should be debarred. If you are debarred, you cannot do business with ANY government agency. What’s worse, if these “investigators” suspect fraud or anything that smells like it, you might find yourself in a lawsuit with the Department of Justice (DOJ) under the False Claims Act and / or the False Statements Act. As you can imagine, these penalties are very steep, costing up to $10,000 per Government invoice plus treble damages. This can cost your company several million dollars or more.

Believe it or not, all this can happen by just not being organized. I actually have a name for companies that are doing the right thing and just not organized enough to prove it – “The Innocent Prisoners.” The good news is, it doesn’t take much to stave off the more serious symptoms, but you must make a commitment to get organized. Here’s my three step shot of Penicillin for every company:

Step # 1: Analyze your Commercial Sales Practices for Exclusions

You must be clear in your own organization what constitutes a valid comparison for PRC reasons. Do a very thorough analysis of all the current and possible sales situations that might be a reason for exclusion, and have the backup ready to justify a challenge.

Step # 2: Create a Government Contracting Policy and Code of Ethics

This serves two purposes. First and most importantly, it sends a clear signal to the Government that you are making an honest effort to run your company in an ethical manner. This is extremely important, as the more serious allegations and penalties come as a result of alleged unethical conduct. Don’t give the auditors an opportunity to go this route.
Second, it clears up the language of the contract (which is purposely ambiguous) into a lucid and objective statement of contract terms. Your policy should reflect your findings in Step 1, and among other things clearly document all reasons for PRC exclusion.

Step # 3: Create and Execute a Communication Plan

Having a policy on the desk collecting dust will do you no good in an audit. Once your policy is created, ensure that you have plans in place to effectively communicate the policy to all persons involved (email, meetings, training, etc.) on a regular basis. Be diligent on your execution, and be diligent about collecting the evidence of your execution.

Government contracting can be an intelligent business choice, as long as you steer clear from the big pitfalls. I’ve just shown you a three step plan that should help with the more severe types of penalties. Of course, there’s still more work to do, but get started today on building your policy, and communicating it to the right people. You don’t want to be caught in an audit without one.

Where Have All the Good Ones Gone?

Finding Top Consultants in Turbulent Times

How do you find a good consultant in bad times?

September 2008 showed the steepest US payroll cuts in over 5.5 years, according to a recent Reuter’s Report:

“U.S. employers cut payrolls at the steepest rate in 5-1/2 years in September, slashing an unexpectedly large 159,000 jobs as employment contracted for a ninth straight month, suggesting the economy may be in recession.”

This is alarming, but anybody who lived in the Silicon Valley during the late 1990s knows a little something about downsizing. Times like this put companies in very challenging positions. Seeing your human resources leave in mass quantity is a scary situation. Your productivity will sink, and there’s a good possibility that you will permanently lose precious intellectual property. The people who remain will be forced to pick up the slack, and their morale will be very low because of it.

The answer for most companies is to turn to consultants for help, and of course it makes a lot of sense. Consultants are a very good option for maintaining business continuity during difficult times. Your situation is temporary, and so is their engagement. Once you get back on your feet, you and your consultant can part ways amicably.

As nice as this sounds, it can also be a disastrous time to hire a consultant. Consultants can be two to three times more expensive than employees (or more). If you make a move with the wrong consultant, it could cost you a fortune before you figure out it’s not a good match. To add, you’re back to square one, and you’ve lost a lot of precious time.

I’ve been a consultant now for about 20 years, and I’ve had the great privilege to work with some great companies. Throughout my engagements, I’ve been asked on several occasions to hire other consultants to help staff a project, and I’m going to be perfectly honest with you. Most consultants over-promise and under-deliver – and it starts with their resume. I’ve had supposed Oracle “experts” get stuck on simple questions like, “How do you log into Oracle?” This is no joke.

So how do you make sure you get the most out of your consultants? Let me share with you my key tips for finding and engaging a consultant.

Tip #1: Make Sure to Hire a Consultant, and Not and Employee in Transition

Hiring a consultant and hiring an employee are two completely different things. That’s why I never understood “contract to hire” offerings. You have to be clear on what you want, because the two think and act very differently. A consultant is an entrepreneur with a high degree of skill and professionalism. They are independent and responsible – perfect for assigning jobs where you’re only concerned about the outcome.

Employee minded people are task oriented, and will need to be managed. Their skills won’t be as well-rounded, and they won’t have as much perspective because they’re accustomed to learning only their job at their company.

Determining the difference is easy. Employees in disguise will have been employed somewhere for most of their career, possibly with some short breaks between jobs as a consultant. There’s nothing wrong with a long employment career followed by a consulting career, as long as the break is clean and it’s clear that a purposeful transition was made. You can also ask the potential consultant directly, “How would you feel about working here as a permanent employee?” I real consultant will respectfully decline. It’s just not what they want.

Tip # 2: Concentrate on Results, Not Resumes

Forget about resumes, they’re a waste of time. Even if they’re accurate (which is not likely), they are largely irrelevant. What you really want to know, is if they can help your situation. If they’ve been able to attain tangible results with other people like you, they can probably help you as well. Be diligent about checking their references and testimonials. You should objectively validate both the results that they’re claiming and other soft skills, like their work ethic and the personality.

Also, don’t be concerned if they don’t have specific experience with your tools or processes. Real consultants are professional problem solvers, and quick studies. The clients that have the best results from me are the ones who trusted me to work on subject areas I’ve never worked on before. I’ve also had clients insist that I know a certain skill only to find that when I looked at their problem, my experience had no contribution at all to their situation because configurations were different.

Tip # 3: Limit your Risk with a Fixed Bid Project

This comes from project management 101, as any Project Management Professional (PMP) will tell you. There are basically two different ways to engage a consultant; fixed bid or time and materials. For some reason, it has become a convention to pay consultants on a time and materials basis. Of the two, time and materials is the riskiest way to engage. Personally I think it’s unethical to charge by the hour, and puts you and the consultant at opposing interests (the consultant is incentivized by working slow).

To control costs, it’s much better to construct a fixed-bid arrangement with your consultant. And don’t get caught up on cost – cheap consultants are a waste of time and money. Instead, view your consulting engagement as an investment, and focus on your return on investment (ROI). Understand clearly, in both quantitative and qualitative terms, what value you will extract by having the consultant engaged, and make sure you get a good return on your money.

Using a consultant is a smart move in turbulent times, but if you’re not careful, the chances are it will backfire on you. Be intelligent in your engagements by making sure to hire a true consultant. Also, focus on results and avoid paying your contractor by the hour. Keep these tips in mind for your next consulting arrangement, and you’ll probably come out ahead.

A Simple Thank You Would Be Fine

AIG Has a Great Time with Our Money

Former AIG CEOs Robert Willumstad, left, and Martin Sullivan on Capitol Hill on Tuesday, the day before the U.S. added to its loan to the insurer. The Fed plans to appoint trustees to oversee the government's AIG stake.. Picture Source

I hope they boil at a rapid pace until they can come up with a way to give us back our money. Can you believe the nerve of these people? We bail them out to the tune of $85 Billion, and then they turn around and blow $440,000 on a sales conference at the St. Regis Monarch Beach Resort and Spa in Dana Point, California.

Are you kidding me?

If that’s not enough, we give them another $38 Billion – because times are hard!

Hey, guess what AIG, times are hard for all of us, but you don’t see me skinny dipping in lobster bisque off the coast of France.

What’s wrong with these people?

They say it was a preplanned party, as if that’s supposed to be some sort of excuse. That’s like loaning money to my brother only to find him at a rock concert the next day, because he already bought the tickets. Yeah, right!

Oh, and in an act of “good faith”, I guess they cancelled their upcoming spend fest at the Ritz. Thanks for the consideration.

The Wall Street Journal reports now, that we’re appointing three trustees to oversee AIG’s operations, now that we own 80% of the company, and they’re obviously challenged in knowing how to act right when you’ve just borrowed over $100 Billion. Probably not a bad idea to have a few people looking in, huh?

It’s senseless behavior like this that completely blows away any possibility of healthy, functioning economy without government regulation. Proper governance could have prevented all of this – but it’s too late now. Once the trust is gone, you’ll never get it back.

Now look what you’ve done, Oly. The feds are all up in our business now.

A $200 Rock

Think Before You Buy Compliance Software

Tool Selection - iPhone vs. Stone ( click to enlarge ).Picture Source

How useful is your iPhone? Well, that really depends on why you bought it.

This reminds me of when companies buy software solutions for compliance, without ever understanding what their real needs for compliance are.

Be sure to do an accurate assessment of your needs BEFORE you buy compliance software for your company. It will prevent you from spending a lot of money on something as useful to you as a rock.

Updates, and More Free Stuff!

New Article for Fall Issue of CEO Refresher

New Articles Published on John Weathington's Quest for Compliance

John Weathington was invited by Quest Software, to be an expert blogger on the topic of compliance. Here you'll find a discussion for DBA's, database developers, and IT management on compliance concerns, observations, issues, and solutions, based on the consulting work of John Weathington. Click here to visit the blog site at Quest Software. Below are links to the individual topics.