By Ray Niekamp

It’s the second largest check most businesses write: healthcare. The United States spends two-and-a-half times more to insure its citizens than other countries – to the tune of $2.4 trillion a year. But Americans are not necessarily any healthier than citizens whose countries spend far less.  The healthcare reform law signed in March by President Obama aims to put 30 million more Americans on health insurance and hold down costs.  And that is the basic problem.

“What got us here was a lack of understanding of where our costs are coming from,” said Dr. Spencer Berthelsen, Chairman and Managing Director of Kelsey-Seybold Clinic in Houston.

Kelsey-Seybold’s “Kelsey Care” plan aims to identify those costs, and put measures in place to control them. It’s a system called an “Accountable Care Organization,” or ACO, and Dr. Berthelsen says it’s the solution to out-of-control health care costs.

The founder of Kelsey-Seybold, Dr. Mavis Kelsey, patterned the clinic after the famed Mayo Clinic in Minnesota. A number of doctors with different specialties under one roof bring all of their expertise and resources to bear to solve patient problems. “Other examples of ACOs include Scott & White in Central Texas, Kaiser Permanente in California, and the Cleveland Clinic in Ohio,” Berthelsen said.

“We offer a higher value for healthcare services in an accountable fashion,” he added. The ACO is based on four characteristics: an evidence-based approach to medical care; using the body of medical evidence available in clinical trials from the past 50 years; heavy investments in information technology to organize data so that caregivers have the most accurate information available; and quality and cost reporting — the ability to actually report on costs and how quality is affected.

Those characteristics distinguish ACOs from traditional plans such as PPOs. “A PPO has none of those four characteristics,” Berthelsen said. “They may have investments in electronic medical record systems, but there’s no requirement that they follow an evidence based practice, and it’s largely left up to their own judgment. There’s no requirement for reporting of quality of costs–only the total premium or the expected costs in the case of a self-funded employer. PPOs also have no accountable form of payment, and since they are fee-for-service based, the providers are incentivized to provide more healthcare services, irrespective of whether or not it’s beneficial for patients.”

Furthermore, said Berthelsen, accountability can only be measured by coordinating the care for a defined population. “That requires patients and employers to make a selection that they are going to be taken care of by their chosen ACO. Caregivers operating in the traditional system don’t know what patients are actually active, so they can’t be held accountable for their outcomes.

“Also, we are better equipped to handle wellness initiatives because we know which patients have not yet received preventive services such as mammograms, colonoscopies and immunizations, and we can alert them to receive these procedures. Since a PPO has no defined population and individuals commonly rotate between physicians, they have no way of knowing what procedures need to be taken to prevent future problems.”

Pay for physicians is another differentiator. Kelsey-Seybold pays its doctors partly on salary, partly on performance. That eliminates the temptation to order a battery of tests or procedures that may not be necessary. It’s those unnecessary procedures that drive up medical costs, and have not been shown to improve patients’ overall health.

“Because we have a defined population combined with an electronic medical record system, we’re better able to see all of the procedures and tests that any one patient has received,” Berthelsen said. “Right off the bat, we can eliminate much of the redundant testing that goes on in the traditional systems because of lapses in the health record. This is a huge driver of increasing healthcare costs.”

A 2009 study by Hewitt Associates that evaluates the quality and the cost of care in many of our nation’s healthcare plans found Kelsey-Seybold to be the most cost-effective of all plans offered in the Houston area. “Last year, we were 19 percent more efficient than the average PPO, the dominant form of insurance in Houston,” Berthelsen said, “and we consistently rank superior in terms of the quality of our services.”

Other Houston-area providers are looking into the Accountable Care model, including Methodist, St. Luke’s Episcopal and Memorial Hermann. Berthelsen welcomes the competition. “We believe that ACOs are the only proven model that moderates cost and elevates quality and therefore advances value, which is what we’re all really after,” he said. “In any one community there should be more than one ACO — enough to develop a competitive environment. Without that competition, there’s no impetus to improve beyond where we are today.”

But even the presence of multiple competitors is not enough. “To be successful, we need to have the willingness from the purchasers of healthcare to distinguish between the highest value of all the ACOs in that market and direct their people to those organizations.”

There’s another reason to encourage other organizations to move to the Accountable Care model. It’s to prevent government involvement in healthcare costs. “Price controls or premium controls are based largely on issues created by PPOs and not based on quality and cost reductions that we’ve been able to demonstrate through data on a defined population,” Berthelsen said.

Insurance companies appear to be favorable to ACOs. “Employers have been reluctant to change anything in their current plan structures. But if we don’t change, we’re going to continue to see double digit increases in cost from one year to the next,” warned Berthelsen. “The prediction is that we’ll continue to have a nine percent increase in costs where inflation is approximately three percent.”

Businesses interested in adopting an ACO healthcare model for their employees should have little trouble. “Typically, these offerings can be made along side a traditional PPO,” Berthelsen said. “The reason that they would want to take advantage of an ACO is that they would get a richer amount of benefits at a lower out of pocket cost both from the employer and the individual side and better data. H-E-B is a great customer of ours. And in fact, they’ve expressed interest in us expanding to San Antonio. Our KelseyCare plan has been extremely popular with H-E-B’s Houston-area employees and we’re expecting large enrollments year-after-year. The employees have the same out-of-pocket premiums with KelseyCare as other plans offered yet they experience richer benefits.”

With all the benefits of Accountable Care, why would any insurance plan be opposed? Some healthcare providers are reluctant to see the need to change, said Berthelsen, or they benefit by the current system. But that system rewards a host of services that don’t relate to value.

“Of all the different types and styles of practice right now, the only one that has been successful at controlling costs are the ACOs,” Berthelsen said. “We think that the accountable care concept will become more of a movement across the country, and it will answer many of these questions about doing more with less — we know we can do it.”

You’re more apt to find the latest John Grisham novel on most of America’s nightstands, than the 449-page tome Landmark: The Inside Story of America’s New Health-Care Law and What it Means For Us All, penned by the Staff of the Washington Post. But this is the exact title that healthcare providers are buying in bulk in effort to gain a better understanding of what the landmark health care legislation means for individual Americans and them.

In many ways, Texas is a progressive state where healthcare is concerned. The MD Anderson Cancer Center in Houston and Central Texas, the Houston Medical Center, and an emerging interest in Accountable Care Organizations put Texas out front in many areas. But there are problems, too. A widely-quoted New Yorker article on medical costs cited McAllen, Texas as the most expensive place in the United States for healthcare. The article laid the blame for the situation on the rampant overuse of medical procedures that may not be necessary. These procedures cost businesses in the state millions of dollars for employee healthcare. The New Yorker concluded that many people in medicine don’t see why they should work on cutting waste and improving quality if it means a loss of revenue.

If this happens, then employers will be the biggest losers, which is exactly why Texas CEO Magazine gathered a roomful of the most influential players in the Houston healthcare market for a truly rare meeting of the minds, which included Spencer Berthelsen, MD, FACP Chairman and Managing Director of Kelsey-Seybold Clinic; Thomas W. Burke, MD, EVP & PIC of MD Anderson Cancer Center; John Cassidy, MD, CEO & CMO of Nexus Health Systems; Osama Mikhail, PhD., Sr. VP, Strategic Planning of University of Texas, Health Science Center at Houston; and Ben Raimer, MD, Sr. VP of Health Policy & Legislative Affairs of University of Texas Medical Branch – Galveston.

Moderators Texas CEO Editor-in-Chief Jason Myers and Mike Cress, CEO of healthcare advisory firm MD Cress & Associates, posed a series of questions to the panel ranging from the importance of IT infrastructure to the growing physician shortage as well as the role of tele-medicine and social networking in today’s healthcare operations. But the overall purpose was to help frame the discussion for the business community about the complexities involved in gaining control over our healthcare system both pre- and post-reform.

From a business perspective, even the experts don’t really have the answers yet – but they have lots of questions, too.

Moderator: Healthcare providers were touted as being one of the “winners” in reform because they’ll be getting paid for those that have been uninsured in the past. At the same time everyone knows that reimbursement will continue to ratchet down. Advocate Healthcare President and CEO Jim Skogsbergh was recently quoted as saying, “We’re all scared to death of healthcare reform.”  Do you feel you’re a winner, and are you equally scared?

Cassidy, Nexus Health Systems: It’s too early to declare winners and losers. Most of the provisions in the healthcare reform act have not been mandated this year, and there’s obviously a lot of work that needs to be done between now and 2014 that will ultimately determine how things are going to go. From the provider side, much or our uncertainty lies in the preparation for an increase in the number of insured placing demands on the system.

Berthelsen, Kelsey-Seybold: Healthcare reform is actually a response to a different problem that existed long before our current system. The discussion largely centers around escalating costs, and when viewed from that perspective, healthcare reform was inevitable. Over the long term, it’s going to be a positive–we may not like some of the changes and mandates, but it’s the start of an active process that will ultimately mold our healthcare system into something that is better than what we have today. It’s definitely better that we start now, rather than 10 years from now. Ultimately, value will be rewarded, and it’s a simple ratio: quality over costs. So as providers of healthcare, both before and after reform, we have to concentrate on improving the level of our services and taking out unnecessary costs wherever we can find them.

Raimer, UTMB-Galveston: I agree. It’s a first step largely about payment reform and it sets the tone for general guidelines about payment. But those guidelines are still at a 30-thousand foot level. Those of us that work in health systems must be very active in the creation in those rules and regulations that are going to govern how they work, including patient advocacy groups. There are not any winners or losers yet, but the clear losers will be those that fail to get involved and shape the future of medicine. And the winners will be those who step up and say that the first step is about payment reform, so what can we do within the healthcare delivery systems now to create the delivery system of the future.

Burke, MD Anderson Cancer Center: The devil will be in the details, and how these discussions at a national level then get translated at the local level. I agree there are no winners and losers at this point—it’s all about a micro process development that will really determine what we end up with.

Mikhail, UT Health Science Center-Houston: I’ve found that all too often, organizations use the uncertainties and ambiguities of healthcare reform as an excuse for not doing anything and waiting to see how it’s going to play out. Regardless of how the reform takes shape, there are three operational considerations that must be attended to under any circumstances. These are: improving efficiency (cost), quality and access.

Moderator: What are the top three strategic imperatives that you are focusing on in the next year?

Burke: I think we absolutely need to know how much treatments are costing, and it’s tough to get to that level of granularity. Ultimately, we’re going to have to put patients, providers and payers in the same room, and figure out how we make that work financially. Understanding your costs, understanding what outcomes you’re expected to deliver, and how we develop a system to support that type of interaction is really critical. From the provider side, if I don’t really know that, I can’t really be a legitimate participant.

Cassidy: The other thing that we have to consider is end of life care, which is one of the most expensive aspects of our current system. And as a practitioner and a CEO, everyone wants to have great end of life care for their mother, but they don’t want to pay for anyone else’s mother. I suspect that we will come to some sort of national guideline that is going to have to determine how much end of life care is included.

Berthelsen: We spend twice as much as the average industrialized country on healthcare, and we aren’t getting double the value. In fact, because of the maldistribution that we have, we’re actually last out of 19 in terms of medically preventable mortality. If you have insurance, you’re fine. If you don’t that’s what draws the overall aggregate down. It’s our belief that there’s enough money in the system, it’s just that we need to spend it more wisely, and take out the part of medical care that doesn’t produce as much benefit. Most of the public believes that the relationship between cost and benefit are linear. In other words, you get what you pay for and that the more you spend, the better care you’re going to get. But those of us that are in healthcare have a better understanding that it’s not linear and much more complicated.

Mikhail: And to that end, another trend we see accelerating is physician consolidation and integration with hospitals. Three models that may see growth are: multi-specialty groups, hospital employed physicians and medical school practice plans.

Moderator: Leaders in healthcare (like Mayo Clinic or Cleveland Clinic, have started to embrace wellness as a key differentiator. What is your view?

Raimer: I think there’s some potential for hope in this healthcare legislation because there is money designated for prevention and wellness activities, as well as education of providers of primary care. There are also dollars allocated to increase the number of federally qualified health centers, which should contribute to the overall public health infrastructure. This emphasis should lead us to more awareness in the general public about disease prevention.

Moderator: Given the current environment of reform, do you feel that information technology is now in the driver’s seat? What are you working on relative to IT?

Raimer: Technology is important not only as a competitive strategy but to improve quality and efficiency of care. At UTMB, we have implemented an electronic health record which makes the patient’s health history more readily accessible, eliminates unnecessary duplication of tests, helps in preventing medication errors and supports population research.

Cassidy: We are also pursuing electronic medical record technology at Nexus Healthcare. Whatever the future holds, it will certainly include electronic access to health records.

Moderator: These same leaders are also starting to embrace social media strategies and tools to drive connections to “others like me” that want to share their experiences and, in turn, drive patients to their institutions.  Do you have a social media and mobile application strategy?

Burke: At MD Anderson, we have embraced many social media strategies. For example, we have a system called MyMDAnderson, and it’s password protected so we don’t incur any HIPAA violations. Patients can log on and view their clinic schedules, and they have the opportunity to interact with their caregiver team. They can also view their own medical records, so if they happen to be in a remote location, the patient can share their medical records with the treating physician. We’re also working on an MD Anderson application where patients and visitors can get a map of the institution, parking locations, and search for area hotels. We’ve also put our educational materials on iTunes U so patients can listen to information about their disease and treatments.

One of the biggest cost savers for us has been the shift from telephone referrals to electronic. We guarantee a 24-hour response time to the electronic request. We’ve seen a dramatic increase in patient satisfaction because of these initiatives and a decrease in staffing needs because of automated scheduling.

Cassidy: We’ve experienced a lot of success using an internal blog rather than a newsletter. We’ve had an enormous improvement in employee participation and been in better touch with employee concerns, and our ability to address those issues.

Moderator: What is your view about tele-medicine and its potential to curb costs?

Raimer: UTMB is one of the world’s largest users of telemedicine, and we’ve definitely seen the potential, especially in rural and other medically underserved areas. We also use technology extensively in our educational programs in simulation labs, distant education and other hybrid approaches to educating tomorrow’s healthcare workforce.

Moderator: Do you believe we have enough physicians in Texas to accommodate the increase in anticipated patient volumes?

Raimer: We already have a physician shortage in the state of Texas. Everyone’s aware of the nursing shortage. We do, however have more licensed vocational nurses than any other state, but we severely limit their scope of practice, and they are not as employable. I can’t stress enough how potentially big our physician shortage can become. There was originally a promise in the legislation that said we would see a redistribution of unfilled graduate medical education slots (residency programs) from programs across the country into other states, but we were a blatant loser and we’ve been left out of this health reform plan when it comes to graduate medical education. We can only do so much ourselves here.

As a whole, we do not have enough graduate education slots in the state of Texas to accommodate the number of students that graduate. So we pay to educate physicians, but when they want a residency, they go out of state. Only half of them return to Texas to practice. There is absolute furor for everyone to build a medical school in their city. But unless we build some graduate medical education programs, we’re just educating those doctors to go practice in another state.

California figured this out a long time ago. They have six times the number of graduate medical education slots as they have graduates in medical schools. So they attract residents from other states and they stay there.

Burke: And not only do we have the problem of educating new physicians, we have problems at the top as well. If the transition becomes too onerous, we have a real fear that a lot of these experienced physicians will retire, and others may look for other lines of work. The lead time to bring people on at the front end of the workforce is probably a decade, and fewer people are going into the medical profession because of the complexity and diminished expectations of pay and benefits.

Mikhail: The scope of practice battle is a huge issue, and it’s going on between physicians and nurses, nurses and paramedics and in a slightly different way between physician specialties within the hospital. For example, paramedics are authorized and licensed to do all sorts of procedures in the street and in an ambulance, but once they set foot in the hospital, they can’t do anything because of licensing restrictions often driven by competing professional interests. There are similar issues between nurses and physicians.

Raimer: We’re heading towards a day of reckoning where we have to take a look at all healthcare professionals and their scope of practice so that we can provide the quality of care that the public demands for the cost that they want.

Moderator: So is that a legislative issue or a cultural issue?

Raimer: There have been very little restrictive instructions from the legislature about scope of practice issues, but we don’t want them to step in either because it then becomes an issue of who’s got the best lobbyists.

Moderator: What state does it right?

Raimer: Colorado. They removed the control from the licensing boards and structured a scope of practice mediation group that isn’t owned by the legislature or licensing boards.  They make decisions based on evidence-based data and what’s best for the patient. The results are clear–for example, they allow dental hygienists to practice independently and not under the scope of a dentist. So you can go to any shopping mall in Colorado and get your teeth cleaned. They can’t fill a tooth, but they can refer you. And in instances like this, scope of practice is a huge public health benefit, and we’re not doing that right here in Texas. It’s another example about how evidence-based medicine would really help us.

Moderator: Overall, what are your biggest concerns about the future of Texas healthcare?

Raimer: We have the fastest growing population, the highest fertility rates and one of the highest immigration rates, not to mention we’re a leader in obesity. We simply do not have enough resources in our state to accommodate the growth of our population from births and immigration in addition to the number of the population seeking healthcare that were previously uninsured.

Cassidy: People need to be aware that the health reform legislation does nothing to address the illegal immigrant population, and they account for almost 50 percent of the uninsured in Texas. Overall, I think the US is going to find out what Massachusetts did when they went to universal access, which is that we do not have enough primary care doctors, and that access to care does not address the cost issue. The primary care physician shortage is a huge problem and the only way to address that is to adjust the compensation inequities that exist between primary care and specialties because without that we’re going to have an imbalance. Most physicians opt for specialties since the opportunity for compensation is so much higher. Since most PPOs are largely based on primary care physicians as gatekeepers, it potentially undermines the entire system.

Conclusion:
At the end of the roundtable, the Who’s Who of healthcare CEOs unanimously agreed healthcare reform is at a crossroads, and realized the onus falls upon them to help shape the type of healthcare system that ultimately works for patients, healthcare providers and businesses too.

Many states have identified the opportunity to build and attract life sciences companies because of their high paying jobs, clean manufacturing, significant growth potential and high profile successes.

Texas is no exception, and many resources have been dedicated to encourage startups and entice larger companies to relocate. What’s the real commitment to fuel and grow a life sciences sector throughout the state that will establish Texas as a biotech hub?

Several of Central Texas’ life science leaders sat on a panel in June to talk about the expansion of the sector. While most agreed we’ve done a good job of fueling startups, they also said a lot of work needs to be done to get the companies over the hump and to the next level.

What We’ve Done Right
The most prominent win for Texas in fueling startups in the life science sector has been the Emerging Technology Fund (ETF). The purpose of the ETF (according to its website), provides capital awards with priority to “proposals that involve scientific or technical fields that have a reasonable probability of enhancing this state’s national and global economic competitiveness . . . and are likely to create a nationally or internationally recognized locus of research superiority.” To date, 44 percent of the companies funded by the ETF have been in the life sciences, with North Texas and Central Texas firms receiving the greatest number of awards.

“Given today’s challenging venture capital markets,” said Dennis McWilliams, CEO of Apollo Endosurgery, “the ETF has been critical in helping life science companies get further down their commercial path, as well as incentivizing good deals outside the state to relocate their operations to Texas.”

Over the last several years, Central Texas has seen a growth in the number of Life science companies. “We count 117 in Central Texas alone,” said Bill McLellan, Executive Director of BioAustin.

The other advantage to the state is the quality of life. “Our exposure as a life science sector is expanding and the number of companies is growing very quickly,” said Ron Baker, CEO of Patton Surgical. “I’ve worked both in Silicon Valley and in Austin, and the quality of life is definitely something we have going for us here. It’s true that if you do well in Silicon Valley, you can work there in perpetuity, but in my opinion, it’s not the most delightful place to be because of cost and crowding. It’s much more conducive to having an entrepreneurial life here in Austin.”

Where We Need To Go
Many executives on the panel advocated building a medical school to supply research and fuel the sector, others admit that it would be nice to have, but don’t see it as a necessity. “You always hear that absence of a medical center being an issue for life science sector development,” said Mark Chandler, Chairman and Chief Executive Officer of Biophysical Corporation. “But Dallas has been somewhat unsuccessful at spinning out life science commercialization from Southwestern, and I could go either way on the subject. It seems axiomatic in the life science industry that you need a medical school, but I’m not so sure that’s the case.”

“In Central Texas, we’ve seen Seton and St. David’s taking a more active role in research for entities like ours to increase grant funding and undertake new projects,” said Craig Benson, President and Chief Executive Officer of Rules Based Medicine. “It will certainly increase their exposure, and I think that’s at least a positive sign for more research in the area.”

Even though the number of startups has grown in the major Texas markets, the main barrier, according to our panel, was the inability to get these companies over the startup hump, and onto the next level, which usually requires follow-on funding and access to venture capital. But because many VCs have pulled back and replaced their portfolios given the tough economic conditions, companies have had to expand their searches for active investors to other states like California. This creates a much tougher proposition not only because of increased competition vying for a smaller pool of available dollars, but also because many VCs won’t invest outside their state of origin, requiring companies to move their operations if they get funded.

Many executives in the life science sector are hoping that the ETF will evolve their current leadership to include a more managed portfolio that is private-equity based. “That would mean that existing companies that have received ETF funds, especially commercialization grants, would have the potential for follow-on funding, which is the critical piece that is missing in the state right now,” said Baker.

However, McWilliams noted for the ETF, that would mean navigating the political environment because of their requirement to mitigate risk. “The first phase of the ETF was great in getting the money out there,” he said, “but the problem is moving to the next series of funding, which is going to be a big challenge because they really weren’t set up to participate in that next round.”

Another boon to the sector would be attracting larger companies to relocate to the state, bringing more resources and employment opportunities. “There are two approaches to building the sector out,” said Bruce Leander, Past President of Ambion and founder of BioAustin. “You can continue to beat the drums and try to get companies like Genentech to move here, or you can concentrate on creating and fostering an entrepreneurial startup environment, which will eventually be a self-fulfilling prophecy. That’s a much easier proposition than trying to get the big companies to move here, and we’ve done a good job in Austin in terms of creating that environment.”

A skilled labor pool is also a necessity, said Jack Hart, Ph.D., Assistant Chairman of BioMedical Engineering at the University of Texas. “Austin has a good base of labor, but once you get through the early stage and are looking for more experience, it gets thin.”

But if Texas still wants to concentrate on attracting the big companies, Leander said they would have to get behind more incentives. “If you look around the country at where the successful biotech hubs are, it’s always the universities and states that have stepped up and created incubator facilities and other incentives for companies to start up and to move there,” he said.

What We’ve Done Wrong
Benson noted he’s had a different experience when it comes to the state’s interest in life sciences. “Several years ago, we formed a foundation for genome research, and we have the opportunity to attract the National Center for Genome Research to Austin. We’ve been breaking our necks trying to keep it here, but we’ve had a hard time getting anyone interested.”

Chandler noted that the genome research project would bring a lot of jobs and exposure to the area because “it would be the most widely sold genetic test available, and every OB-GYN in the country would tell women that are planning to start a family to go get this test.”

Benson talked about visiting a group in Kansas City that was interested in the project.  “Beyond having an established drug infrastructure, several medical schools and major hospitals, they produced one point of contact that coordinated a visit with every potential affiliate in our space. Pulling approximately 50 movers and shakers together in a two-day visit was impressive.”

Benson feels the key to successfully building a life science sector would be a single point of contact to connect people with resources. Those resources would include academic and political connections, both traditional and private lenders, community resources such as chamber executives, key medical school administrators, and connections with local CEOs to help with collaboration.

We’ve not done a great job of establishing an industry organization committed to life sciences,” said Leander. “Houston has done a better job (because they have dedicated staff), and in Austin we’ve had initiatives with the Austin Technology Incubator and with the Greater Austin Chamber of Commerce. But ultimately, we have yet to find the formula to allow for a dynamic, dedicated and sustainable industry organization that is indispensable to the local biotech community”

Collaboration is Key
Timothy Sullivan, President and CEO of Mystic Pharmaceuticals, calls for more collaboration among academia, established companies and start-ups. “There is a unique opportunity to collaborate to go after federal research grants and contracts that address critical healthcare needs and provide non-dilutive funding. The federal government is certainly looking for biomedical solutions addressing a broad range of public health, public safety and medical countermeasures for bio-terror and pandemic threats  . Mystic has been developing several of these collaborations over the last few years. We’re now at a point where we see some bigger opportunities. When you are selected for these programs, it fuels growth within the Texas life science sector, brings validation for the technologies, and can set the stage for longer term commercialization opportunities beyond what’s been developed for the government.”

Baker concluded that Texas is well positioned to fuel a successful life sciences sector. “Houston has world-class  research institutions and Austin has a strong  entrepreneurial network. As a state we probably have critical mass, but the challenge is to get everyone working together to bring the much needed resources (capital and talent) into the state that will allow us to go to the next level.”

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Author:  Harry Markopolos (Wiley, 2010, 333 pages)

No One Would Listen tells of Harry Markopolos’ investigation into Bernard L. Madoff Investment Securities (BLM). Markopolos determined rapidly that Madoff’s “split-strike conversion strategy” could not produce BLM’s stated returns. However, the SEC ignored the warnings of this questioning quant and his small group of sub rosa sleuths—not once or twice but five times over nine years.

The book tells of Markopolos’ journey from being pressured by his bosses to replicate Madoff’s investment strategy all the way to testifying before Congress after Madoff’s confession about explicit problems at the SEC. Although others in the investment community sometimes indicated an agreement with the idea that Madoff was a fraud, no one other than Markopolos and his team really wanted to get involved. Had the SEC listened to his original complaint in 2000, Markopolos estimates that about $43 billion of investor losses could have been prevented!

Markopolos describes the SEC as an organization that “hires unqualified, sometimes undereducated people” and that “pays peanuts and then wonders how it ended up with so many monkeys.” These, by the way, are some kinder words that he has about the SEC! Suggestions for improvements at the SEC are succinct and sound. But, most of all, the book highlights the importance of whistleblowers in finding organizational fraud. Markopolos blew the whistle not only on Madoff’s fraud, but also on the SEC’s incompetency. The book is a must-read for anyone who has—or might ever have—money in the market.

Cecily Raiborn, Ph.D, CPA, CMA

McCoy Endowed Chair in Accounting

Texas State University – San Marcos

The Importance of Culture In High Growth Companies

Word of mouth is a powerful thing; once people start talking about something they like, others often clamor to chime in on the same experience. Finding ways to help businesses latch onto the opinion of their customers is a key to success in today’s challenging economy.

That’s where Bazaarvoice comes into play. Established in May 2005, the company uses customer reviews and other forms of user-generated content to help all types of companies increase sales by offering solutions that help capture, display, amplify and analyze customer contributions.

Most of all, Bazaarvoice has elevated the consumer voice. Today, huge companies – including Best Buy, Macy’s, P&G, USAA, to name a few – read customer input and make dramatic changes to their services, products and business practices based on that feedback.

“It’s ironic that, while word of mouth drives the offline shopping experience, it’s been devoid on branded websites,” said Brett Hurt, Bazaarvoice’s founder and CEO. “Today, advertising and marketing is so ubiquitous that it can become invisible. In the end, customers want to have conversations, hear about what people like themselves have experienced.”

The word “bazaar” symbolizes the beginning of commerce – the initial marketplaces. Bazaars were lively centers of town, buzzing with neighbors, friends and merchants all sharing opinions and building a vibrant community. Bazaarvoice, literally translated, is the “voice” of the “marketplace.” If companies listen carefully, they’ll change the way they do business – by focusing on what’s most important to their customers.

Bazaarvoice was founded in Austin with venture capital funding from Austin Ventures, Battery Ventures and First Round Capital. The company has been on the list of Best Places to Work in Austin since 2007 (including a #1 ranking in 2009, and they’re a finalist for 2010), has been recognized by ClickZ and Red Herring, and Hurt was named Ernst & Young’s Entrepreneur of the Year in 2009.

Texas CEO Magazine sat down with Hurt this winter to discuss his company, the road to its success and ways all companies can learn from their customers.

Texas CEO: What drove you to found Bazaarvoice?
Brett Hurt: My co-founder, Brant Barton, and I were both infatuated with customer reviews and how they drove sales. There was no data on whether or not it actually worked, whether or not it drove sales. At that time there were only four retailers in the entire United States which had customer reviews online, which is hard for most people to believe because a lot of people shop at Amazon. Of course, they are the largest e-commerce site in the world and they have had customer reviews for over 14 years. Coincidence?

Texas CEO: Tell us a little about the company and its success.
Brett Hurt: Long story short, at this point in time now we have grown into a company that is only four years old, but we have around 550 employees and serve more than 800 brands globally. We are in 25 international languages now. We have recently expanded our offices in London, Paris and Singapore, and opened new offices throughout Europe and in Australia. We also announced an exciting partnership with Google in April, which lets the massive number of reviews on our clients’ sites drive rich, relevant traffic from Google. We’re very proud to be Google’s first publicly integrated partner for this program, which will be a game-changer for consumers researching purchases online and will truly set our brands apart from the competition.

I feel very fortunate, especially in this economy. I feel like we are almost in this very strange place where I am reading about all of this economic turmoil in the paper and we are not experiencing that at Bazaarvoice. However, we are certainly mindful of the fact that a lot of clients are experiencing it and we are not letting any of the success go to our heads, having the humility day to day and really staying very paranoid about being successful. This has the potential to be one of the largest, if not the largest, Software as a Service companies in Austin.

Texas CEO: With that fast growth rate, what are the biggest issues that you have encountered scaling up that quickly?
Brett Hurt: Well, one of the things that we have had to be really mindful of is not diluting our culture by letting down our guard in hiring the very best people.
From the beginning we set up a process where we test every single candidate for a specific job. Candidates spend upwards of 12 to 16 hours preparing for their tests – this is in the midst of just the hiring and recruiting process; they don’t even know if they are going to get the job. It’s very helpful, for example, in hiring salespeople, which is the hardest job because it is the most measurable and it’s where there can be a lot of turnover in most companies. Having high retention is incredibly important for culture. New team members come on board and they can all say they made it through the test – it creates a bond in and of itself.

Texas CEO: And they are automatically in the club once they are hired?
Brett Hurt: Exactly, and they know that the quality is that high. Really, at the end of the day there are three things that matter the most when you are talking about culture. First and second, it’s about how you hire and how you promote people. If you promote, for example “brilliant jerks” (to borrow a phrase from Netflix), there is nothing that will destroy your culture faster. If there is someone who aces their job but everybody knows they are a jerk and you promote them, that says what your culture is about, that you let jerks survive in that type of environment. Everybody knows that if you think that you are the only one that knows it and everybody else doesn’t, you are absolutely wrong. People are much smarter than you give them credit for. Third is how you let people go, how you fire them. Do you take care of the problems? That is a big burden of management.
At Bazaarvoice, we assess employees’ performance every single quarter and we have never missed a quarter. There is no one that can take care of that problem but management. There is no one that can take care of the management problem but the department heads. There is no one that can take care of the department heads except me. For example, a year ago, I had to move on from two of our executives, and we got much stronger people on board. There is this huge ripple effect to having the wrong executive in place. The higher up you are and you have someone in the wrong role, the more destructive it is to your culture because it is this chain reaction that goes down the whole chain. Of course, you’ve got to be compassionate and you’ve got to figure out how to get that person training and determine if there is another role for them. Those three things – how you hire, you promote and how you fire – say more about your culture than anything else.

Texas CEO: How did you come about these methodologies for testing and building your culture?
Brett Hurt: That is a really good question, on the culture front, how did we ultimately evolve it? The truth of the matter is that it has been a team effort, with our entire executive team working together. Every quarter we meet to discuss strategy. Some companies do it once a year. Some companies do it every six months. We do it every quarter. We are in a fast-moving space, in a rapid growth company. We need to think often about our strategy, so every quarter – since the beginning of the company – we spend two days as a team off site. Twenty percent of that agenda since our inception has been for us just to rip on culture for three or four hours. We debate strategy a lot. It is a really tight team, but we are not afraid to disagree with one another. We have to have that kind of mentality. We have to care a lot.

For example, we had a debate really early on, when the company was about six months old, on what our vacation policy would be. We ultimately decided to have a policy completely based on trust, where someone could come in and that first year, if they wanted to, they could take four weeks. There is no accrual; there is no tracking. It is completely based on trusting our employees and trusting ourselves. That has become one of our most radical cultural policies. It has been this lightning rod because people look at it as a form of radical trust. When you treat people like adults, when you treat them with radical trust, they in turn do the same for you. If you treat people like they are in jail, then they will act like they are in jail.

Texas CEO: Tell us a little about your book and the methodologies and things you write about in it.
Brett Hurt: The working title of the book – I am not sure if this will be the final title – is How To Make Your Company Suck Less, because we all spend 70% of our waking time at work and it is a real tragedy, in my opinion, that most people don’t like their jobs, that all they can think about is getting back to that 30% they love. Life becomes all about that 30% and not about the 70% of your time that you are at work, which is crazy to think about. This being my fifth company and is the one that, by far, has focused on culture the most, and my thesis was that by focusing on culture the most, I would create an environment which I would also get caught up in it. There is some legacy and some self-preservation in there in terms of you getting caught up and having fun with the 70%, but I also see that it drives our performance too.

Texas CEO: It really sounds like the focus on culture and building culture is what you are saying are the best way to manage a high-growth company.
Brett Hurt: Absolutely. There is no doubt in my mind. Now, there have to be some givens. The givens are that you are in a fast-growing market that actually has the potential to be a big market.

Texas CEO: The lessons are applicable too.
Brett Hurt: The lessons are applicable in any business, but I will say that fast growth challenges you. If you are growing over 100% a year, that challenges you much, much, much more than if you are growing at 10%. You have to hire faster. You have to train faster. You have to change your processes faster. You have to specialize jobs faster. You have to do a lot of things at an accelerated pace, so it really ups everybody’s game and brings out either the best or the worst in people. You hope it is bringing out the best and 99% of the time it does that. So the book is basically this culmination of what I have learned about why you need to focus on culture and how culture drives performance. And it will include other CEO interviews, so it won’t just be the Bazaarvoice way.

Texas CEO: What’s next or what do you see in the future?
Brett Hurt: I don’t look at going public as the destination for the company but rather a milestone along the way in this journey. I look at us as building an enduring Software as a Service business, like a salesforce.com, which recently achieved $1 billion in revenue. I’m confident that Bazaarvoice is going to be one of Austin’s best long-term companies, and I was very proud when we got rated Austin’s number one place to work last year.

Texas CEO: Any parting thoughts?
Brett Hurt: Well, I do think that as trying as the economy is that things are healing and 2010 is going to be a great year. I think this is the most exciting time in Austin’s history for entrepreneurship. I really believe that. I feel that there are a lot of people here that have that same mentality as I do. People should be very bullish on Austin in general and on technology specifically.

Texas CEO Magazine, in conjunction with Austin company RFG, an employee engagement advisory firm, conducted a CEO roundtable with companies that are consistently voted as the best places to work in the Austin area and are trying new top-down initiatives designed to keep employees engaged, develop better leaders and increase retention rates.

WHY THE DISCONNECT?
Workforce motivators have changed substantially in the last 20 years, and keeping employees engaged and motivated requires not only changes in leadership practices, but also a commitment to develop individuals in a holistic way. The bottom line is: If your employees aren’t engaged, your initiatives are bound to fail.

To facilitate this roundtable discussion, we brought in experts from LeaderLabs, an organization dedicated to Leader Development and cultural effectives whose founders, facilitators, and faculty are largely made up of graduates and former professors from the United States Military Academy at West Point.

When most people think about military leadership, they think authoritarian, autocratic, command and control—as in “do what you’re told and don’t ask questions.” Similar to most corporations, this leadership style has been around for decades. But the Military Academy, long considered the preeminent leader development institution in the world, and, according to a Forbes magazine article in March, boasting more Fortune 500 CEO’s than any other institution, has begun looking at leadership and engagement in a different way.

LeaderLabs and its facilitators, drawing from their West Point, business and military experiences, have developed a model based on character, empathy, trust and accountability to develop the “whole person” as opposed to an attrition model. In many respects they have moved well beyond the traditional 20th Century “Management” practices still so pervasive in industry.

At one recent CEO roundtable, LeaderLabs quizzed CEOs about developing employees.

Facilitator: In military leadership training, we talk about the whole person concept. When a cadet comes into West Point, they may identify themselves in a one-dimensional way, such as, I’m an athlete, or I’m a math whiz. But there are many facets to every individual—we classify them as social, intellectual, physical, moral/ethical. Our job from the onset is to develop all of these simultaneously to move them away from the one-dimensional identification.

What are you doing in your organizations to develop individuals beyond training for the jobs that they perform?

Henrik Johansson, CEO, Boundless Network: Industrial era leadership treated employees like followers, in that they did not need to know what was going on, they were there to do a job, and they either did it or not. But these people are not stupid—they run families when they leave the office, and they take on many responsibilities, and you have to treat them accordingly. Micromanagement is over.

Facilitator: So how do you develop leadership in your organizations that achieve these goals?

Henrik Johansson: Cultural initiatives require a top-level commitment. If you communicate something once, no one is really going to care about it, hear it or incorporate it. We’ve made that mistake in the past by having one big webinar or company meeting where everyone gets fired up and ready to go, and then it gets quiet and not much happens.

Brett Hurt, CEO, Bazaarvoice: One of the first things that we have our employees and managers read is the book, “Total Leadership” by Stewart D. Friedman. It’s about developing one’s self as a total leader, and it contains many of the same concepts that the military has identified. It’s not a fast read, and the concepts are challenging, but it’s all about achieving work/life balance and if your leadership takes it seriously, it will have a big impact on your organization.

Facilitator: We know from surveys and experience that many people come to work unhappy. What initiatives have you implemented in your organizations to curb this?

David Rubin, CEO, ProfitFuel: We decided early on that we had to create a great environment to work in because most of the work that we do (mostly telesales) is difficult, and there’s not a lot you can do to make cold calling fun.
So, all sales managers in our company are required to get on the phone and lead by example. We have a cook that prepares free food for our employees every day, and that came from a suggestion that said that if they didn’t have to leave the facilities for lunch every day, they could be more productive. We have a full-time person whose job is to figure out how to make this place fun, and come up with creative ideas.
We also ask in surveys what our management team can do to be better, and ask for real feedback on an individual basis of what they do to keep you motivated every day, and then aggregate the responses.

Facilitator: So what were your managers’ responses to these ideas?

David Rubin: Naturally, our managers were very nervous about this program, but I told them that no one would be fired over this. I didn’t really care about how the responses came back in the beginning, because it was simply a starting point. We wanted to take a long-term view and have incremental improvement along the way.

Brett Hurt: We also do quarterly surveys where every employee ranks specific managers by name (me included). They are ranked on what we call the five stars of leadership: passion, execution, excellence, teamwork, and openness. Every manager in the company can articulate the five stars, and it’s really important for our culture. Over time, if you have a B player, you’ve got to move on.

Bjorn Billhardt, CEO, Enspire Learing: I think the easy part of this scenario is to identify when you have a B player and take steps to remove them from the organization. What I’m struggling with is how to acknowledge the top 10 percent for their performance and continue to motivate them at a high level without alienating the other 90 percent who are still really good and engaged?

Brett Hurt: Just to clarify, we don’t publish the staff rankings and no one sees that except the executive team. As far as motivating the top 10 percent, they get by far the biggest raises both in equity and cash, and then they win a lot of the awards that we have publicly so they serve as a beacon for the others as we publicly celebrate them.

Facilitator: How do you define culture in your organizations?

Henrik Johansson: We’ve been fans of the book, “Good to Great” by Jim Collins, and we try to do everything according to that book. In my experience, the most important thing that you can do to define culture is to be very clear about what the objectives of the company are, have a very clear plan, and break those into team goals and individual goals, so that every individual on your team knows how they are contributing to the overall success of the company. If people know that, then they come to work, they’re engaged, and they work hard.

Paul Bury, CEO, Bury + Partners: I agree—we’ve done the happy hours and the charity events, but what we’ve figured out is how to be transparent about company goals and continuously communicate those to employees. There isn’t a financial document in our company that our employees can’t see (with the exception of payroll). We’ve found that not many employees actually review the information, but when we show up at staff meetings and hand out financial statements, everyone understands where we are and where we need to go. We’ve gotten better results out of this transparency because everyone understands what we want to achieve and how we are doing in that process.

Facilitator: What other initiatives have you found successful in motivating and engaging participation?

Paul Skeith, managing partner, Richards Rodriquez & Skeith: Lawyers are by nature difficult to manage. Even though a big part of our lawyers’ compensation is based on new revenue that they generate, we find that 80 percent will not generate much new revenue. So we decided to test out a competition. The prize was a flat screen TV, which as a portion of their revenue, was very small. But we found that these people were more motivated by the thought of winning a flat screen TV than the fact that they could be buying a new car out of their increased revenue.

Facilitator: What are your markers for employee satisfaction?

David Rubin: There are lots of ways to measure it, including having outside firms conduct interviews with individuals in a non-biased way. It’s also important to interview people early on in their tenure and have honest conversations to establish a baseline. For example, during their training period before we’ve indoctrinated them, what are your first impressions of the company? Then we are able to track noticeable improvements in the quarterly surveys. We’ve also found exit interviews to be extremely informative, because that’s when you get the most honest feedback. And I think the ultimate measurement comes across in your long-term turnover rate.

This year, corporate America will spend an estimated $2.5 billion dollars to influence federal, state and local public policies and gain access to the multibillion dollar government market for private sector goods and services. After all, legislation and regulation at all levels can significantly impact the bottom line.

But the business community is often outflanked on major public policy issues, at least in terms of communicating with the public. Corporate America is a big target and often seems content to keep its head down and not fire back.

The public remains cynical about the “backroom” world of politics (understandable given the multiple episodes of self-dealing in Washington) and our ability as citizens to impact policy decisions, which may drive down public participation in the political process even further.

In the last few years corporate America has become more understanding of the fact that they and the elected officials who shape public policy and business regulations share a common constituency–the public.

Ultimately, business must better master the art of public affairs to succeed in government affairs. The question is, how can a company communicate strategically, use its internal resources effectively, build strong alliances, and utilize the tactical “toolbox” to play the game of politics – and win?

The public affairs arena has traditionally been dominated by activist interest groups who have learned how to gain and use public support effectively. Anti-business sentiment is prevalent in the blogosphere and even though it is unclear about its eventual impact in the political arena, it certainly warrants attention.

But the recent debate on universal health care generated enough emotion and public activism to conclude that the landscape has changed significantly in the last 12 months.  Today the public – particularly political independents and mainstream Americans— may be more engaged and ready to impact important policy issues than ever before, presenting an opportunity for businesses to capture that emotion at the grassroots level to advance free market-based policy and usurp the traditional agenda setters.

Corporate America has a tremendous story to tell many levels – as the engine that drives our economy; employing millions of Americans; fueling a tax base that funds governments and its programs at all levels; making millions of dollars in philanthropic contributions to help the less privileged, and allowing employees to perform thousands of hours of volunteer work in our communities.
But the “good story” of corporate America is just not communicated effectively, consistently, nor often enough.

Corporate America can play the high-stakes game of politics more effectively with a guiding strategic communications game plan touching all aspects of their business, and engaging the public proactively, openly and honestly. Enlightened corporate leaders are looking for new ways to engage the public on issues of mutual interest—and do so proactively, rather than reacting to a crisis once the agenda has been imposed on them by others.

The world of public affairs has evolved to encompass a wide variety of disciplines, from strategy and messaging, to advocacy, alliance development and community and public relations, among others.  Distinct from public relations, for example, public affairs generally has a political or legislative objective, usually a public policy or regulation.

In terms of advocacy, public affairs professionals seek to make effective use of public support for ideas, rather than relying solely on the strength of lobbying, or “the inside game,” to move an issue forward.  Good corporate citizens have the trust of the community and its leaders and that trust often creates the necessary link to advocate a company’s position successfully or generate public support for a policy issue.

And why it is important that companies do this?  The traditional, one-track, relationship-only approach to influencing policy and regulation just won’t suffice anymore.

The most sophisticated companies will seek to make stakeholders and the public at large their ally. Such an objective is ambitious and attainable. Building that relationship – particularly one that can be sustained over a period for time – is no easy task.

Corporate America has an opportunity to create a new paradigm, a new environment, one in which companies engage the public, add some “sunshine” to the process, and make the public part of the solution to policy and regulatory challenges.

As a business, it is wise to look closely at the business plan and assess the impact of politics – particularly federal, state and local public policies and regulations – on the bottom line, and establish a long-term strategy for consistent, effective communications with key audiences, most notably the public.

Though such an assessment, companies can begin the process of building a foundation for successful communications throughout the organization and into the public arena – from the ground up. That’s the key to winning politics over the long term.

Craig Casselberry is founder and president of Quorum Public Affairs, Inc. and a former aide to two Texas Governors, including Governor Rick Perry.

In 2010, CEOs face the third round of regulatory changes in six years. Some of these changes are subtle, but not insignificant. Others are moderate and have the potential to be far reaching. Each year, Pearl Meyer & Partners catalogues the top ten executive compensation issues for CEOs and Boards.

New Challenges and More Ahead
CEO compensation will remain in the limelight again this year. Media reports continue to adapt an all too typical perspective, blaming high CEO pay for a variety of economic and financial market woes. During 2009, the general bias against executive pay was further bolstered by a perfect storm of equity price declines, earnings shortfalls, financial institution failures and a very active Congress and White House committed to going after those at fault.

When it comes to CEO compensation, regulatory controls, tax changes and expanded reporting are still works in progress. From a shareholder perspective, say on pay is just around the corner. Yardsticks for voting guidelines have expanded among institutional shareholder services groups such as RiskMetrics Group (RMG) and major institutional investors and are increasingly focused on poor, and a new category of “egregious,” practices characteristic of some CEO pay packages.

What do these changes mean for the CEO of a public or private company who has or will form a Board for either ongoing oversight of the shareholders’ interests or preparing to take the company public? Is there an upside to focusing on governance if there’s no requirement to do so or if there is already a governance committee who has that responsibility?

In reality, the CEO is the point person, parting the grass, strategically looking over the next challenge and marshaling resources. Staying on top of regulatory and institutional challenges makes sailing smoother. Furthermore, good governance, like company growth and profitability, is as much of an outcome as it is a process. The old three-legged stool analogy works well for good governance: transparency, openness and frequent communications. Employing these principles is critical to building successful programs including compensation and benefits, succession, training and readiness.

Given that the large majority of CEOs have bigger issues to cope with in running a company, one must ask: What is the upside for the CEO in these times of increased shareholder activity, reporting and regulation? In short, the answer is “run a tight ship, review programs in light of stated pay philosophy, be honest and transparent in decisions and keep pay in line with performance.” The ramping up of the administrative and control systems and structures pertaining to executive compensation are not relegated to public companies.

The boards of private companies are focusing more on these areas because doing so results in better working relationships between ownership and management and a tighter link between owners, the board and management.

The CEO as the NEXUS
The CEO is in the center of the corporate sphere and must balance the interests of the shareholders, the board and the entire organization and all of its human and capital structures. Being fully aware of the perspectives and responsibilities of the board as the shareholders’ elected representatives (of which he or she often is as well), the CEO should be aware and take ownership of those emerging forces, specifically those that can better hone the organization’s culture and improve its image in the market and community.

Issues and relative importance vary by company. We invite you to review the listings that follow as an audit tool. While all the criteria in Pearl Meyer & Partner’s top ten lists have some tentacles to reporting and compliance, some will have more relevance than others as CEO challenges.

The CEO as the principal executive officer and signatory of the management discussion and analysis (MD&A) and now the compensation discussion and analysis (CD&A) is accountable for the accuracy of filings. Misstatements have serious and potentially criminal consequences. As the SEC ramps up the CD&A to the level of the MD&A with risk analysis, accounting tables and termination costs, the proxy is no longer an informational tool it is now like the MD&A – a “filed” report and the focus for the past two years has been to continue to ramp up its scope and level of disclosure.

The increase in reporting for the CEO as the principal executive officer and the CFO as the principal financial officer now takes a multiple of the time historically spent on the proxy. Furthermore the institutional services’ governance rating scores and ability to significantly sway voting outcomes via their recommendations have taken on a momentum of their own.

Based upon client input, client board agendas for 2009 and 2010 as well as our general experience in supporting CEOs, Chairmen and their boards, PM&P has updated the list for 2010.   The new and previous lists amount to best practices for the CEO.as well as his or her Board. The new list for 2010 is more forward looking and hones in on a stronger linkage between pay and performance and being better prepared for the future increased involvement of owners and shareholders.

One thing is certain. The CEO will continue to face more regulatory issues that take time and require additional commitment of resources.  Building more transparency into the reporting process (what the regulators want) should be looked at as a by-product of pursuing the optimum levels of measurement systems, controls and information systems you need as a CEO to better communicate with management, employees, boards, and shareholders.

1 Consider the Optics
Shareholder and institutional pressures focused in on excessive executive contracts, gross-ups for golden parachute arrangements, mega-grants of stock, high fixed compensation and evergreen contracts.  SEC expanded disclosure rules of 2006 were implemented requiring not just tables but explanations of how and why payments were made.

2 Corporate Governance
Board member time commitments for the compensation committees started to approach that of the audit committee, independence of committee members, meetings without management increased and proxies lengthened by a factor of 4x.

3 Say on Pay
European exchanges and pension groups followed by U.S. pension fund administrators (followed by failed attempt in 2009 to be enacted by Congress) increased emphasis on the move to advisory shareholder votes and access to the ballot. Some elements of the effort were enacted into TARP legislation and other larger firms adopted advisory votes on executive compensation.  Say on pay in some future form is a reality.

4. Assessing Risk in Compensation Plans
The impact of adverse risk taking borne out of the design of the company’s incentive plans or compensation arrangements increased rapidly in importance in 2009 to become a disclosure item for 2010.

5 Addressing Underwater Options
With the sharp declines in the market many firms found their workforce with options significantly under water. Remedies for addressing them are limited, require shareholder approval and most often for several reasons don’t work for the CEO.

6 Adapting the Pay Program to a Down Economy
Re-tooling for working out of an earnings decline, pricing pressure for goods and services required a re-think of executive and employee programs to encourage the right kind[s] of performance, to set realistic expectations and outcomes and to adapt programs to be more realistic while keeping key talent.

7 Selecting Measures and Setting Goals
The process of re-tooling involved and still involves a careful look at value drivers, achievement hurdles or thresholds that reflect meaningful performance.  Being willing to look at relative performance in different perspectives; looking at operational and marketing goals that will or should be harbingers of increased efficiency and competitiveness;  being flexible, willing to adjust midstream and not be overly punitive or generous, and using discretion when it is the right thing to do.  Would an independent and objective analysis support the goals and rewards for the outcomes?

8 Managing Career Compensation
Boards and owners as well as CEOs most often look at the year’s performance, the executive’s performance, his or compensation and the holdings. Many boards are now looking at tally sheets or wealth accumulation pro formats that look forward in a way that helps structure and assess the current practices and shed light on different approaches regarding compensation mix, risk versus reward potential and performance over the same period as pay. Outcomes vary but a different perspective is provided to guide future pay.

9 Stock Ownership Guidelines
Stock ownership and retention programs became a check off item in the good governance list over the past three years and now is a common requirement for public companies whereby the CEO is required to hold 3-5 times his base salary in stock within 3-5 years from inception of the program. The requirement scales down with levels of the organization, most often going down through the management layers.

10 Peer Group Selection
The SEC’s expanded proxy disclosure rules of 2010, cover, among 18+ other items, one of which in the benchmarking discussion is the peer group.  As companies compare their pay packages to their competitive industry, measure their stock usage against their peers and often structure incentive programs both long and short-term that are relative, the importance of selecting the right peer group (given the disclosure and discussion of relative outcomes) has taken an extra ordinary amount of time in the board room and in the CEO and his or her team’s analysis.

With a warble in his voice, a CEO leans over and says, “How am I going to grow my business when the economy is still trying to recover?”

I can tell his trepidation over the future is genuine, and he’s petrified of not only the costly mistakes, but of making any.

My advice to him and CEO’s just like him–stop worrying about what you can’t control, and start focusing on what you can. What is in our control is how we influence the people around us. And during tough economic times, it’s even more important to be capable of courageously influencing others.
Simply stated, courageous influence means affecting someone’s thinking or actions by showing the ability to face difficulty or uncertainty without being overcome by fear.

Let me share the story of Roger Bannister as an example:

In 1903, British Olympic coach Harry Andrews made the statement, “The mile record is four minutes, 12.75 seconds. This record will never be broken.”

A fierce intellectual debate took place over several decades about whether the human body had reached its full potential. Medical evidence was even offered based on bones, muscles and joints that proved a human being simply could not run any faster than four minutes, 12.75 seconds.

On May 6, 1954, in 15 mph crosswinds and 25 mph gusts, British runner Roger Bannister broke the record of the four-minute mile. His mile came in at three minutes, 59.4 seconds. Needless to say it was an impressive feat.

What was even more impressive? Later that year, two other men ran a four-minute mile, and in the next year, 236 people also did the “impossible.”

As the gusty day proved, Roger couldn’t control anything around him. The only thing he could control was his own performance. Through that controlled tour-de-force, Roger Bannister courageously influenced the decisions and the performance of others.

The take away? To grow your business, it’s vital for leaders to take their business development teams into the scary mist of market uncertainty. Lead by participating in the sales process with them – set goals with them, listen to them, coach them, hop in the car and make calls with them.

As the Great One, Wayne Gretzky, said, “I skate to where the puck is going, not to where it is.” The same thing could be said about leadership in business development– lead them where you want them to go.

With that in mind how are you doing in the courage and influence department? Do you think your team is ready? Do you even have the right people to carry your company, not only out of this economy, but for the next five or 10 years?

Not sure? Then let me ask you some base level questions:

Is there a 90-day written sales plan, or would you need to create it?

Do you have a written and qualified master prospect list?

How are you doing in the area of appointment setting with prospects?

How many strategic selling conversations do you have in an average week?

Do you actually ask them to do business with you or is it merely implied?

What is your follow through strategy for prospects that need time to decide?

How much role playing do you/your team do in an average week?

If you hesitate for a moment on any of these questions, then ask yourself, “Am I really courageously influencing my business development team?”

If not, that’s okay – there’s still time.

The truth is Roger Bannister didn’t just wake up one day and decide to break the four-minute mile. It was only through goal setting, training and perseverance – factors in his control – which positioned him to break the record and go on to become Sir Roger Bannister.
What’s your four-minute mile?

Greg Wright is the president of The Wright Track, based in Austin. greg@thewrighttrack.com