Employers Take Note: FTC Releases Notice of Proposed Rulemaking Banning Worker Non-Competes

The Notice would ban all existing and future non-compete agreements with workers, with a narrow exception in connection with the sale of a business by any individual holding at least a 25% interest in such business.

January 9, 2023
Thanks to Pillsbury Winthrop Shaw Pittman LLP


  • The FTC has published a proposed rule for a nationwide ban on non-compete agreements with workers, including non-employees who perform work for employers.
  • The proposed rule includes an exception for owners of at least 25% of a business in connection with the sale of such business, but the FTC is soliciting comments on whether the final rule should include additional exceptions.
  • Any final rule is likely to include additional changes and face legal challenges to the FTC’s authority.

Citing its interest in promoting competition and opening up “better employment opportunities” for workers, the Biden Administration is moving forward with a proposal to prohibit a feature of many U.S. employment relationships valued by employers and of significant importance in M&A transactions; non-competition agreements.  Rather than looking to Congress to enact legislation to achieve this goal, the Administration is relying on the authority of the U.S. Federal Trade Commission (FTC) to enforce and engage in rulemaking under existing antitrust laws.

In July 2021, President Biden signed an Executive Order directed at promoting competition in which he encouraged the Chair of the FTC “to exercise the FTC’s statutory rulemaking authority, under the Federal Trade Commission Act, to curtail the use of non-compete clauses and other clauses or agreement that may unfairly limit worker mobility.”  The FTC was listening.  In November 2022, the FTC releases a policy statement to reinvigorate Section 5 of the Federal Trade Commission Act (FTC Act), which bans unfair methods of competition.  Then, on January 4, 2023, the FTC announced that it found that three firms had engaged in unfair competition by using illegal non-compete agreements with their workers.

The very next day, on January 5, 2023, the FTC released a Notice of Proposed Rulemaking (NPRM) proposing to ban all non-competes entered into between employers and workers.  If ultimately adopted, the rule will apply both prospectively and retroactively, including with respect to the estimated 30 million Americans who are currently subject to non-compete agreements.  This proposed rule has implications for companies across the entire country – even companies operating solely in jurisdictions like California that already ban non-competes – and for the merger and acquisition process.  The proposed rule contains only a single, narrow exception for non-competes in the sale of business context: a person selling a business entity, or otherwise disposing of all of their ownership interest in the business entity, may be bound by a non-compete only if they own 25% or more of such business.  This narrow exception is far more restrictive than even California’s sale of business exception.  The proposed rule also applies beyond the employment context, covering workers who fall outside the traditional definition of “employees.”

The FTC voted 3-1 to publish the NPRM, with Commissioner Christine S. Wilson voting no and issuing a dissenting statement attacking the rule as a departure from “hundreds of years of legal precedent” and arguing that the rule “will trigger numerous and likely successful legal challenges regarding the Commission’s authority.”:  The FTC seeks public comment on several topics, including whether the rule should impose a categorical ban on non-compete clauses or a rebuttable presumption of unlawfulness, and whether certain categories of workers should be exempted from or treated differently under the rule, such as senior executives or higher wage workers.  Comments are due within 60 days of the rule’s publication in the Federal Register.

The rule proposes an effective date of 60 days, and a compliance date of 180 days, after publication of a final rule in the Federal Register.

The Substance of the Proposed Rule
According to the FTC, researchers have found that use of non-competes has negatively affected competition in labor markets, resulting in reduced wages for all workers across the labor force, both those with and those without non-competes.  The FTC estimates that the proposed rule could increase workers’ earnings across industries and job levels by $250 billion to $296 billion per year.  The FTC further asserts that researchers have found that non-competes have negatively affected competition in product and services markets and innovation.The FTC, therefore, pursuant to Sections 5 and 6(g) of the FTC Act, deems employers’ use of non-competes an unlawful “unfair method of competition.”  Specifically, the proposed rule provides that it is an unfair method of competition for an employer to enter into or attempt to enter into a non-compete clause with a worker, to maintain with a worker a non-compete clause, or, under certain circumstances, to represent to a worker that the worker is subject to a non-compete clause.  In addition, the FTC intends for this to be the governing law of the United States.  The proposed rule contains an express preemption provision noting that the “Rule shall supersede any state statute, regulation, order, or interpretation to the extent that such statute, regulation, order, or interpretation is inconsistent with the Rule.”

Significantly, the proposed rule applies to “workers,” broadly defined to include any “natural person who works, whether paid or unpaid, for an employer,” even if not a statutory employee.  The term “worker” includes “without limitation, an employee, individual classified as an independent contractor, extern, intern, volunteer, apprentice or sole proprietor who provides a service to a client or customer.”

The proposed rule focuses only on non-competes governing work restrictions post-employment and only on those between employers and workers and not, for example, on non-competition agreements between businesses.  The Department of Justice, however, already takes the position that business-to-business agreements not to poach each other’s workers may be considered unlawful under the Sherman Act.

The proposed rule prohibits non-competes and their functional equivalents.  The Preamble to the proposed rule states that the definition of non-compete clause “would generally not include other types of restrictive employment covenants – such as non-disclosure agreements (NDAs) and client or customer non-solicitation agreements – because these covenants generally do not prevent a worker from seeking or accepting employment with a person or operating a business after the conclusion for the worker’s employment with the employer.”  The Preamble cautions, however, that “such covenants would be considered non-compete clauses where they are so unusually broad in scope that they function as such.”

In addition to prohibiting employers from entering into non-compete clauses with workers, the proposed rule would require employers to rescind existing non-competes and provide notice to applicable workers that their non-compete clause is no longer in force and effect.  The proposed rule includes model language that satisfies this notice requirement and establishes a safe harbor whereby an employer can satisfy the rule’s requirement to rescind existing non-competes by simply providing relevant workers with a notice in compliance with the notice requirement.

As noted above, the proposed rule includes a limited exception for non-competes between the seller and buyer of a business where the party restricted by the non-compete is an owner, member, or partner holding at least a 25% ownership interest in a business entity.  This exception is likely to send shockwaves through the private equity world and will have a profound impact on mergers and acquisitions if the rule takes effect.

The proposed rule unfortunately leaves many questions unanswered.  For example, it is not clear if:

  • A partner in a partnership, such as a worker who holds profits interests in an LLC taxed as a partnership and receives income reported on a K-1, would be deemed a covered “worker.”
  • A distinction can be made between a post-employment non-compete and a non-compete that has a fixed time-based duration applicable regardless of employment status.
  • Companies could still impose restrictions on competitive acts in exchange for the grant of equity or deferred compensation to an employee, and, if such employee engages in competitive acts, whether companies would be able to claw back such grants.

Commenters should request that the final rule address these more nuanced issues.

The Proposed Rule’s Uncertain Future
The substance of this proposed rule is likely to change given the FTC itself is soliciting input on the several key matters, including whether non-competes for senior level or high-wage employees should remain viable.  Moreover, as Commissioner Wilson notes in her Dissenting Statement, the rule is likely to trigger numerous legal challenges.  Indeed, the U.S. Chamber of Commerce almost immediately issued a statement questioning the authority of the FTC to promulgate such a rule: “Today’s actions by the Federal Trade Commission to outright ban non-compete clauses in all employer contracts is blatantly unlawful.  Since the agency’s creation over 100 years ago, Congress has never delegated the FTC anything close to the authority it would need to promulgate such a competition rule.  The chamber is confident that this unlawful action will not stand.”

Commissioner Wilson highlights three likely arguments in response to the proposed rule in her Dissenting Statement: (i) the FTC lacks the authority to engage in “unfair methods of competition” rulemaking under the FTC Act; (ii) under the major questions doctrine, the rule is a major question requiring clear Congressional authorization to impose a regulation banning non-competes and such authorization does not exist; and (iii) under the non-delegation doctrine, Congress cannot delegate its legislative power to the FTC.

These legal challenges could take months, if not years, to reach an ultimate resolution, leaving employers in a difficult position with how to manage non-competes.

Employers Must Ensure Current Compliance with Applicable State Law
Non-competes are not only under attack by the FTC; they are increasingly under attack and disfavored by legislatures across the country.  While waiting for a final answer on the applicable federal non-compete law, employers must ensure that they are compliant with the increasingly varied non-compete state laws across the country.

California, North Dakota and Oklahoma, for example, each have general prohibitions of non-competes (and California and North Dakota also prohibit non-solicits of customers and Oklahoma permits only non-solicits of an employee’s established customers).

An increasing number of states permit non-competes only for exempt employees or employees making more than a statutory minimum.  As of the date of this Alert, these states include Colorado, Illinois, Maine, Maryland, Massachusetts, Nevada, New Hampshire, Oregon, Rhode Island, Washington, and Virginia as well as the District of Columbia. Some of the statutory minimums are quite high.  For example, as of the date of this Alert, employees must make at least $150,000 to have a non-compete in the District of  Columbia, $101,250 in Colorado, and $116,593.18 in Washington.

An increasing number of states also have laws prohibiting forum selection and choice of law clauses designating any jurisdiction other than their own state.  Such laws are currently in place in California, Colorado, Massachusetts, and Washington.

In addition, an increasing number of states have enacted laws prohibiting employers from enforcing non-competes without pay during the restricted period, such as Massachusetts and Oregon.

Next Steps for Employers
In this current climate of remote work and employees working across the country, employers are well advised to work with their employment counsel to ensure that their current restrictive covenant agreements comply with all potentially applicable state laws.

In addition, in preparation for the possibility of a nationwide ban on non-competes, employers should work with their employment and intellectual property counsel to ensure that their existing agreements independently offer sufficiently robust protection of their confidential, proprietary and trade secret information.

By |2023-01-13T14:07:27-05:00January 13th, 2023|Categories: Articles|

What Business Owners Should Know About Financial Forecasting

Courtesy of Kerkerin Barberio

Is your business ready to tackle the challenges and opportunities that lie ahead in 2023?  Financial statements show how a company has performed in the past.  But historical data doesn’t necessary predict future performance, especially in an uncertain, volatile market.  As part of your planning, it’s important for management to prepare forecasted statements.

Make Reasonable Assumptions
The purpose of forecasting is to obtain the most realistic picture possible of a company’s future performance for as far out as management can look.  Forecasts provide important information that can be used to make decisions, such as:
  • When working capital shortages are likely to take place – and whether the line of credit is sufficient to bridge cash flow gaps.
  • How much inventory, including raw materials, parts and finished goods, the company should purchase each month.
  • Whether the company has the right mix of employees to meet its operational goals – and how it should remedy any deficiencies (or excess capacity)
  • Which fixed assets should be retired (or acquired).

A forecast is typically organized using the same format as the company’s financial statements: an income statement, balance sheet and cash flow statement.  Most conclude with a statement of assumptions that underlie key numbers in the forecast.  A detailed forecast of revenue drives many of these assumptions.

Roll with the Punches
Mangers use forecasts in their annual budgeting and strategic decision-making processes.  But many budgets and business plans are out of date before the end of the first quarter.  That’s because today’s complex, dynamic markektplace is almost impossible to forecast with certainty.  As a result, many companies have replaced traditional annual budgets with rolling 12-month forecasts that are adaptable and look beyond year end.

Creating a meaningful rolling forecast necessitates ongoing comparison between forecast and actual results.  This enables management to unearth and respond to weaknesses in forecast assumptions and unexpected changes in the marketplace.  For example, a retails store that suffers a data breach could experience an unexpected drop in revenue.  If the company maintains a rolling forecast, it would be able to revise its plans for temporary inventory decreases, as well as technology and marketing cost increases related to remedying the breach.

Consider External Market Conditions
Almost all forecasts begin with historical financial results, but that’s only a starting point.  These days, you can’t automatically assume current revenue and expenses will grow at a constant rate commensurate with inflation.  Management needs to evaluate the marketplace for emerging external threats and opportunities.  For example, health care providers need to anticipate how emerging government regulations, including the CDC and FDA guidance, will affect their future revenue and expenses.

Examples of other external obstacles that management can’t change, but may need to factor into forecasts, include rising energy costs, evolving weather patterns, and changes to tax and labor laws.  On the other hand, changes in technology – including the growing popularity of social media and smart devices – may create marketing opportunities that proactive businesses can use to their advantage.

Savvy managers watch how competitors are performing under the same market conditions.  In an evolving market, the performance of competitors – especially market leaders – is often more meaningful than historical results.

Evaluate Forecasting Risks
Once you’ve developed your preliminary forecast for 2023, consider performing a sensitivity analysis to identify which components are most critical to your business’s success (or failure).  Sensitivity analysis starts with a base case scenario.  Then assumptions are changed – one at a time – to see how the changes flow through the financial statements.

An input is more “sensitive” and, therefore, has high forecasting risk if a small change in the assumption has a large effect on the bottom line (or asset values).  If the most sensitive variables in your forecast are also the most unpredictable, you may need to monitor the situation closely to minimize problems.

Team Effort
Forecasts that employees perceive as dictatorial mandates are doomed to fail.  Reliable ones are based on input from all functional areas, including finance, sales and marketing, operations and human resources.  Cross-functional collaboration on forecasts can help you balance predicting demand with planning for supplies, catching errors and omissions, and achieving companywide buy-in.

Getting input from your financial davisor helps, too.  In addition to providing objective market data, experienced financial professionals understand financial reporting and offer fresh perspectives that can breathe new life into your company’s budge tor business plan.

forecasts vs projections sidebar image
forecasts vs projections sidebar image
By |2023-01-09T15:13:30-05:00January 9th, 2023|Categories: Articles|

Breaking Down the Myths of Housing, Affordability, and Supply

By:  Matt Meyers, CEO of Yesler
Yesler CEO Matt Meyers takes a in-depth look at the state of U.S. housing and how we arrived at the current state.

The housing market.  To many, it’s crazy and unknowable.  It always seems in flux and getting more expensive, usually.

The widely accepted narrative is that homes are not affordable, because prices are so high.  But, high prices and affordability are two different things, with the majority of buyers borrowing to purchase their homes.

Can historic data help put our current market circumstances into perspective?  I think so.  Seeing the data will give you a different perspective on the housing market.  For example:

  • What is the underlying demand for housing?
  • What impact do interest rates have on the housing market?
  • Do we have a housing shortage?  Do we have an affordability problem?
  • Is it increasing or decreasing?

With an open mind and data, you may come to new conclusions about the current state of the US housing market and what the future holds.

Data sources
Most pundits, forecasters and consultants use U.S. Census Bureau or Housing and Urban Development (HUD) data.  In this article, I rely exclusively on The Federal Reserve Bank of St. Louis (FRED) data, which pulls from these government sources.  They provide an excellent interactive site to review all kinds of U.S. data.

Historic housing starts
About 25 years after the GI bill supported veterans in buying a home, their children, the Baby Boomers, were in need of housing.  The year was 1971, and by that time the US was well suited to supply it compared to the rest of the war-impacted cities of Europe and Asia.  The increase in demand from new households for the Boomer class showed up in new home construction.

Observe the peaks of the market since the 1960s, and you may be surprised to see that the peak wasn’t 2006.  The Baby Boom created the biggest housing boom.  Now draw a line connecting all the peaks since the early 1970s and you’ll see that line is down.  Draw a line connecting all troughs, and that line is down too.

That begs the question: Has the housing market been underbuilding for 50 years through 7 recessions and widely varied fiscal policy?  Or has demand for new U.S. housing starts been declining for decades?

What has happened to home prices over the same period?

Up, up, and up, with a few dips along the way.  How is this possible over a very log period?

Incomes must have risen too.

Note that this chart starts in the early 80s, not the 70s.  Examining the numbers, it looks like home prices (prior chart) have risen faster than incomes.  That must mean homes have become less affordable.  Unless, there is another factor – interest rates.

And interest rates?

The dramatic decline in interest rates created cheap money, for those borrowing on 30-year mortgages.  The recent spike to 6% or slightly higher is still low, from a historical perspective.

One chart that combines the three prior charts.

Here is the narrative: income has risen gently, interest rates have fallen dramatically, and home prices have risen faster than income!

The critical question:
Which has a greater impact on housing prices in the US?

1. Household income,
2.  Interest Rates

Based on this view of the data, I’d guess B – Interest rates.

What has happened to affordability in the US?
The following chart illustrates the relationship between the three variables of US Median Household Income, US Median Home Price, and interest rates.  The data is the same FRED data downloaded into a spreadsheet to calculate what can a buyer afford (the GREEN LINE) under the following conditions:

  • 20% down payment
  • 28% housing debt to monthly gross income ration (good assumption for mortgage approval) using US median household income reported for the year
  • Prevailing interest rate on the first FRED reported day in January of the year

The green line, what a buyer can afford, is higher than the median US home price (black line)!  Prior to 2007, the median sale price of a US home was closely matched to what a buyer could afford.  After 2007, homes became much more affordable due to lower costs of borrowing, even though prices were higher!

What about 2022?
What happens to the green line under the following hypothetical circumstances:

  • If median household income increases 5% in 2022 due to inflationary pressures.
  • If US Home prices slow their pace of escalation and only increase 5% in 2022.
  • If interest rates climb to 6% average for the year.
Then home prices relative to buying power become matched again, just like they were from 1985-2006.

Finally, what about the underlying demand for housing?  Don’t we have a shortage?

History tells us (back up to the first chart for reference) that the demand for housing was about 1.5 million annual housing starts until the 1980s, and since then, it’s been about 1.3 million.  That’s simply taking averages for those periods.  The number of recessions and corrections indicate the market is working!  When there are too few or too many homes, the laws of supply and demand take over to clear the surplus or fill the deficit.

To predict the future, using the past, I suggest demand will stay at about 1.3 million units unless three principal factors that affect new demand change course.

First, the mortality rate.  With the onset of COVID, mortality rates rose, and thus, underlying demand for new housing fell.  We can hope this factor will return to normal.

Second, the rate of births in the country has been declining for several decades, reducing new household formation.  If we have another boom, history tells us it will take 25 years to show up in demand for housing.

Third, and politically controversial, is immigration.  More immigrants would bolster demand for new housing.

It’s not demand that has driven prices higher, because underlying demand factors are not in favor of increasing housing starts; rather, it is historically cheap money!  With historically low borrowing costs, more money has flowed into real estate, driving competition and prices higher.

What does the recent dip in US housing starts suggest about the economy?  Go back and look at the first chart in this article and decide for yourself by asking this question: Do recessions (shaded areas) precede or follow peak housing production?  It should be an interesting 2023 for the housing market!

(Matt Meyers is the founder and CEO of Yesler, the Seattle-based lumber and building materials digital marketplace.)

By |2022-12-14T18:16:42-05:00December 19th, 2022|Categories: Articles|

Bigger is Not Always Better When Selecting a Search Firm Partner

By:  Kelli Vukelic, CEO of N2Growth

Senior leadership hires can make or break an organization.  Various studies show that the failure rate of executives coming into new companies is 30 to 40 percent after 18 months.  In a hiring market, like the one we’re currently experiencing, finding a true game-changing leader is extremely challenging.  Furthermore, making a hiring mistake is extremely costly in terms of both direct and indirect costs.  So how do you find those top performers and disrupters that can take your organization to new heights?  Internal recruiters do not have the tools or abilities to fill these critical leadership roles, their ‘open requisition’ stack is too full, and all roles get equal attention, whereas the most critical ones need a dedicated team.  Once you recognize that an external search professional is needed, the decision for which one should be solved with a different calculus than in the past.

With demand for top executives outstripping supply choosing the best search firm to partner with can have a critical impact on the future of your organization.  There are thousands of U.S. executive search firms who are looking to help to place talent in organizations.  So how do you decide on which firm is the best fit?  Should you use a large firm whose name is familiar to you because of ads and billboards?  Or should you partner with a more niche, local boutique?  Or should you consider a new emerging category of super elite boutiques that give you the best of both worlds, international reach, and creative, disruptive thinking?  “I would caution that size is not always an indicator of success, and more importantly not a risk mitigator,” said Kelli Vukelic, CEO of N2Growth.  “A small elite class of boutique search firms is achieving this, providing you all of the executive search solutions of larger firms, but with a more hands-on, better resourced approach.  There is no one-size-fits-all solution to placing C-suite candidates.  One-size-fits-one and having worked at both ends of the spectrum, here are my points for your consideration.”

Plethora of Choices
There are countless options when it comes to executive search firms.  On one end of the spectrum are the incredibly large firms, which come with big brand name recognition, high overhead, and revenues reaching into the billions annually, according to Ms. Vukelic.  “Several of these publicly traded firms have good reputations, but they have historically catered to Fortune 500 companies,” she said.  “If your organization is not a Fortune 500 company, your search can easily get lost in the shuffle or pushed down below the partner level, and placement costs can quickly exceed your price range with antiquated administrative fees that cover big overheads.

On the other end of the spectrum, however, are boutique search firms.  “You may be skeptical of these smaller enterprises, fearing that they lack the resources and experience to find the right executive for your organization,” said Ms. Vukelic.  “But these fears are often unfounded – in fact, boutique firms are often better resourced, making them a better fit for your search.”

Personalized Approach
When engaging with a boutique firm, you are more likely to deal directly with the person or team leading your project.  Typically, Ms. Vukelic notes that boutique firms create team structures to work on projects, and their “top-to-bottom” approach offers the client extraordinary attention to detail.  “They can assess a client’s unique needs and then customize their approach accordingly,” she said.  “An agile process allows time for listening, connecting, coaching, and advising.  This personalized approach allows boutique firms to place candidates who are technically, academically, and culturally additive to the organization.  This sets both the client and candidate up for success on the first go-around, saving everyone involved valuable time, money, and energy.”

By working with a boutique search firm on your C-suite placements, it is highly likely that you will interface and deal directly with the senior leadership of the company, according to Ms. Vukelic.  “Direct interaction with the leader of the firm builds trust, allows you to voice any questions or concerns you may have, and get a real-time answer from a key executive,” she said.  “A boutique firm will invest in learning your culture and talent needs.  The senior engagement leader that works with you from the onset of the search will lead the process, speaking to every prospective candidate on your behalf.  In a noisy recruitment market, where candidates have the upper hand, who do you want to tell your story and be that extension of you in the marketplace?”

By contrast, when engaging with a large firm, Ms. Vukelic explains that you may only speak with a partner occasionally as they are likely busy chasing billings and not focused on your search day-to-day.”  Larger firms often delegate key work to less tenured associates that you have never met and who have only second-hand knowledge of your organization and its needs,” she said.  “They also have limited experience, meaning they bring a narrower perspective to the candidate process.  These are the people telling your story in the marketplace.  This can result in candidates whose resumes match your specification on paper but may not align with your goals or add anything new or different to your culture.  Large firms are usually in a constant state of growth, which limits the attention they can pay to your search.  A sizable client base may be great for them, but it might no be best for you.”

Boutique search firms take the time to learn the intricacies of their client’s company culture and goals.  They operate with the understanding that trust is built every day and with each interaction, not bought with brand name recognition.

Greater Candidate Pool
“Executive search firms have an ethical and contractual obligation not to recruit from clients,” Ms. Vukelic said.  “Because large firms conduct business with so many organizations, they have significant hands-off limitations which limit their recruiting strategies.  Candidates that are active on a search within a firm are also off-limits for other searches.  With large firms, this can equate to thousands of candidates who are unavailable to your search, severely limiting the talent pool.”

By |2022-12-14T18:17:03-05:00December 16th, 2022|Categories: Articles|

These Are The Four Leadership Styles In Business (and which works best).

By:  Robert Jordan and Olivia Wagner
Authors of “Right Leader, Right Time,” say there are 4 leadership styles: fixers, artists, builders, and strategists.

Here are the four types of business leaders Jordan and Wagner identified:

The fixer
When things are turbulent, it’s time to bring in the fixer.

“The fixer leader is really drawn to chaos,” said Wagner.  “If you think of a dysfunctional organization, maybe there’s a toxic work environment, revenues declining, employees leaving.  This leader has an ability to go into that type of situation and cut through the mess, get the organization back on track.”

Once fixers do this, they often, move on to another company in crisis.

“They’re wired for repeat turnaround situations,” said Jordan.  “All leaders have to be great at fixing a crisis occasionally or one time, but the fixer is drawn repeatedly.”

Jordan expects 2023 will be “the year of the fixer” as organizations face challenges like inflation, persisting supply chain issues, international exposure amid Russia’s war on Ukraine, and recession fears.

The artist
Driven to create, artist leaders are most beneficial when a company risks becoming stagnant.

“The artist can invent something from scratch, or in many cases, they’re looking with a fresh perspective to reinvent how something has been done,” said Wagner.  “Any organization, big or small, that is looking for innovation, needs to make sure that they are encouraging the artist leader to step up.”

The builder
The builder is well-equipped to lead smaller companies looking to become dominant in the market.

“Every company reaches kind of a ceiling in growth at some point in their journey, and that’s where the builder tends to shine,” said Wagner.  “They step in and put foundation, process, structure in place to enter new markets, to really zero in on the people, the process, the product.”

As Jordan adds, “The mantra for the builder is market.”

Like the fixer leader, the builder doesn’t usually stick around forever, often leaving for another organization once the job is done to start over again.

The strategist
If a leader’s been around for a while at a large company, odds are they fit the strategist mold.  Unlike the other types of leaders, who often flit from one company to another as a situation suits their leadership style, the strategist is generally more loyal to an organization.

You might also think of them as the conductors, quarterbacks, or pilots of their companies.

“With so many teams, divisions, projects at play, the strategist can really see the whole playing field and bring people together, align the team, typically around both short- and long-term vision,” said Wagner.  “They can take that vision and turn it into executable plans.”

Knowing who is right – and when
To make the best leadership decisions, companies should frequently take stock of where they’re at and where they’re headed.

“As organizations change, the leadership needs to change,” Wagner said.  “The wiring needed is going to change along with the growth that takes place.”

By |2022-12-14T14:41:45-05:00December 12th, 2022|Categories: Articles|

The Extraordinary Ordinary Leader

By:  Bill Treasurer
Excerpted from “Leadership Two Words at a Time”

You look uniquely familiar.  You, the one who has learned to believe in yourself, trust yourself and follow the quiet inner voice that says, “Why not me?”  You don’t think you’re “better” than other people; you’ve just learned through ups and downs, the gruel and the grind, and ordeals and adventures that you can find a way to overcome obstacles and finish the landing.  And when you do, you make improvements so you can land closer to perfect next time.  There is always more to do and better ways to do it.

You’re an achiever, someone blessed with diving discontent.  You’re never fully satisfied with where you are because you know that with creativity, ingenuity and effort, any ‘great job’ of today can be outdone tomorrow.  Yes, you like to compete, and yes, you like to win.  But winning is so much sweeter when you beat your own best, competing against yourself and topping your last big achievement.  You want others to top themselves too.  You expect more of yourself…and others.

You’re impatient, yes, but in a way that brings urgency to the task at hand, not in a way that adds to the risk or jeopardizes progress.  Your impatience is connected to your passion; you know that the pursuit of the outcomes will lift everyone’s skills and deepen their experience.  Progress turns on the engine of urgency.  You keep your foot on the throttle because it moves things forward.  You give a rip.

You’re a learner, a seeker, a curious venturer.  You’re alert, interested and engaged, and when you aren’t, you scan the landscape for something new to reenergize your brain cells.  Your learning is perpetual because you’re never done.  You want answers that are more precise, accurate, truthful and enduring.  You study, review and challenge, knowing skepticism is part of the calculation and thoughtfulness that lead to decisions and actions that are safer, sounder and more likely to succeed.

You pay attention to others who have traveled further down the road, accomplished grander things or overcome bigger obstacles.  You go out of your way to learn about the experiences and stories of those who are commonly ignored, dismissed or excluded.  You are humble enough to listen to everyone, and smart enough to heed advice coming from anyone.  You aim to use whatever advantages you have enjoyed to make the workplace more fair, just and equitable for everyone.  You use your voice to amplify the concerns of those whose voices are too often suppressed.  You treat no one as lesser.  Ever.

You haven’t had it easy.  You’ve experienced setbacks, barriers and people who weren’t on your side.  Despite that, or because of it, you strive to see and expect the best in others – even those who withhold those courtesies from you.  You’re a believer in human potential.  As much as you believe in your own abilities, you know that your game is upped by people who play an upped game, so you take the time to teach, coach and serve others.  You have little interest in going it alone, as your goals and aspirations are bigger than you could achieve all on your own.  Besides, working with fiercely independent individuals who choose to put the team’s interests above their own is more fun than flying solo.

Some of you can calculate numbers in your head.  Some of you have always been “good with people.”  Some of you have a knack for pinpointing risks.  Some of you have spatial awareness and can conceptualize what finished rooms or buildings will look like before they are built.  Some of you excel at forecasting scenarios and setting the master plan.  Though the talents may be different, all of you have proven yourself to yourself.  Many times over, whether in school, on the sports field, or in how responsibly you’ve performed your first jobs, you’ve shown up and gotten the job done.  You know you’re going to have to prove yourself to many others in the future – and you’re up to that challenge.  In fact, you relish it.

By |2022-12-14T14:29:41-05:00November 23rd, 2022|Categories: Articles|


November 14, 2022 / IR Magazine
Thanks to Jean McLoughlin & Kyle Seifried

The SEC’s new pay-versus-performance rule changes will present myriad challenges – and potential opportunities – to public company management teams and boards.  Most publicly listed US companies must begin making these disclosures in their 2023 proxy statements.

This creates a major new workstream during a demanding season when calendar-year companies and their outside advisers are already frenetically busy preparing for the annual financial disclosure process, year-end performance assessment and compensation cycle and related reporting and investor communications.

Add to that the challenges and uncertainty in the macroeconomic climate, paired with the speed at which corporations are expected to adapt, and compliance with the new requirements becomes even more complex.  The mandate is just around the corner and there is much for management teams and boards to understand and consider.

Key Changes
The finalized pay-versus-performance rule changes, announced on August 25, will require most public companies to include in their upcoming proxy statement new disclosure in the form of two new tables and a narrative that sets forth how compensation paid to the CEO and other top executives tracks with a range of performance metrics, some mandated by the SEC and a few selected by the company.  Pay-versus-performance reporting in the upcoming proxy will track the standard three-year look-back for other compensation items.  But over the following two years, issuers will need to phase in five years’ worth of reporting, which is a departure from current disclosure conventions.

Some of the required information, including how to calculate ‘compensation actually paid’, will be calculated differently from before.  This will be most significant in how the value of equity awards and pensions are calculated in the newly required pay-for-performance tables.

In one of the new tables, issuers will be required to report on company performance based on several new performance metrics: company total shareholder return, relative shareholder return and company GAAP net income.  Companies will have to report on these going back three years initially and eventually five years.  In addition, they will have to select one performance criterion they view as most important in their compensation decision-making and disclose their performance based on that metric.

Who is Affected, and When?
The pay-versus-performance rule changes apply to the vast majority of US-listed companies.  Emerging growth companies, registered investment companies and foreign private issuers are exempted.  Smaller reporting companies are subject to reduced disclosure requirements.  The covered compensation information includes a company’s principal executive officer and averages of compensation for other named executive officers.

The changes are effective for upcoming proxy statements for those issuers whose fiscal years end on or after December 16, 2022 – the vast majority of companies.  Given the narrow window in which to complete the new disclosures, a group of 15 law firms and consulting firms, including Paul Weiss, recently wrote a letter to the SEC asking for a six to 12-month extension.  Preliminary indications do not suggest a delay is likely, so companies can take action to get their ducks in a row for the upcoming proxy season.

Compliance Challenges
What has caught many off-guard is the sweeping and prescriptive nature of the new rules and the speed with which companies are expected to follow them.

The mandate to make such rules dates from the Dodd-Frank Act, which included a statutory requirement that a company provide a ‘clear description’ of ‘information that shows the relationship between executive compensation actually paid and the financial performance of the issuer, taking into account any change in the value of the shares of stock and dividends of the issuer and any distribution’.  A proposed rulemaking was released seven years ago.

But after 12 years, and with no final rule forthcoming until this past August, companies are feeling a bit on the back foot, given that in many cases they have six months or less to comply.  A change like this one will demand a significant investment of time to implement accurately.

One of the biggest challenges will be coming up with data to accurately determine compensation actually paid (CAP).  Rather than showing equity award values on the grant date or at their value based on current stock prices, as required for existing disclosures, companies will have to estimate their accounting values at the end of the year (or upon vesting or forfeiture, if earlier) and compare that with the value of the grant at the start of the year.  This is an entirely new way of evaluating the value of awards, and one that is not consistent with how awards are reflected in the SEC’s required financial reporting disclosures.

The accuracy of these calculations is important to get right – and that takes time.  For example, the CAP calculation of equity awards alone could require more than 80 new valuations per year of compensation disclosure, and more than 240 calculations for the three-year table required in the first year.

The number of new calculations needed increases by many multiples for companies that have monthly or quarterly vesting.  And companies that have experienced changes in executive leadership in the past three years will see those complexities compounded.

Another issue of concern to management teams and boards is whether the new disclosures will be confusing to investors and cause them to revisit decisions made in previous years, because the new tables will require compensation decisions made in one year to be brought forward for a five-year period.

Under current reporting rules, investors’ and proxy advisory firms’ primary focus is on evaluating decisions made in the current reporting year.  But the new rules require compensation decisions made in one year to be brought forward under new calculations, which may be confusing to investors and cloud the evaluation of say-on-pay votes.

New Rules Signal and SEC Shift
In recent years we have seen a growing number of companies tie ESG to executive compensation.  But the new rules dictate that the company-selected performance metric for the tabular disclosure must be a financial metric.

Under the changes, companies are required to pick the single-most important metric they use to guide decisions on executive compensation.  That’s a difficult decision for many companies.  The SEC has indicated that it must be a financial performance metric: total shareholder return, EBITDA revenues, cash flow or the like.

The SEC’s primary focus on financial rather than ESG metrics is notable at a time when there has been significant focus by proxy advisory firms on the use of ESG metrics in setting compensation.  Companies will still be able to discuss the importance of ESG and sustainability performance metrics.  In addition to choosing the single-most important financial performance metric, companies must also include between three and seven additional performance measures they deem important.  Some of these additional factors may be non-financial indicators, such as ESG-related data.

Therefore, companies have an opening to consider whether to include SEG and sustainability data.  It may be useful to keep in mind that proxy advisory firms will likely pay close attention to the metrics the company chooses to include as well as those that are not included.

Coming Developments for Executive Compensation
Looking ahead, the SEC’s rapid rollout of the changes signals the commission’s desire to complete the remaining Dodd-Frank rulemakings.  One of the biggest remaining open issues is a proposed executive compensation clawback rule, which would mandate that executives repay certain compensation to their companies in the event of a financial restatement.  Many companies already have policies in place, but it is likely that SEC rules would be more prescriptive.  Rules on that front are likely to be next up.

Finally, the rule changes signal a willingness by the SEC to be more prescriptive in its requirements than in the recent past.  Rather than deferring to corporate filers on how to make executive compensation decisions more transparent, the new rules show a preference for a rules-based regime.

Although the rules require quick action this proxy season from management teams, boards and their outside advisers, they also present an opportunity for public companies to consider the priorities that are truly material to their business – and to use executive compensation as a tool to signal the factors they consider as important to long-term success.

By |2022-12-14T14:30:03-05:00November 16th, 2022|Categories: Articles|

Hiring Outside Directors When Private Companies Don’t Have To?

Author: John M. Collard,

“You need these guys…to increase cash flow, provide valuable guidance, contacts, and credibility.

Companies committed to going through significant business change (restart, turnaround, transition, generational ownership transfer), anticipating a major liquidity event, need guidance.

Why Add Outsiders to Your Board of Directors or Advisors?

  • Outside directors often increase cash flow and business growth.  According to a Forbes/Lodestone Global survey; 97% of companies reported increased revenues and EBITDA, since adding a board with outside directors.
  • Outside directors can be a low-risk, low-cost resource.  They bring a new set of skills and ideas to produce benefits, while you maintain control.
  • Outside directors provide an external source of accountability.
  • Outside directors are on your side.  These advisors answer only to you.
  • Outside directors add credibility.  When it comes time for a liquidity seeking event, outside directors send the message that you are an organization with leadership and guidance.
  • Outside directors bring an independent perspective, develop strategic thinking and planning, utilize their experience and objectivity, provide their contacts Rolodex, find capital to finance the company, and guide transaction activity.  Many of these benefits are absent in companies, so the outside influence should be used to your benefit.  Remember, the key is for the CEO and management team to listen to the advice given and factor these inputs into their thinking, then make decisions.
Benefits of Outside Directors

Action/Skill                                 Benefit

Independent perspective                Challenge management
Unbiased advice                               Sounding board for CEO
Objective, Mediate conflicts
Strategic thinking and                    New directions, Transitions
planning                                            Incentive-based compensation

Experience and objectivity             Been there, done that
New knowledge                                 Oversee performance and risk
Accountability, Credibility
Contacts                                             Investors, Lenders, Resources
Networks                                            Partners, Customers, Suppliers
Capital infusion                                Raise Money, Restructure
Guide offering process
Find capital
Transactions                                     Prepare company for sale
Locate interested parties
Negotiate a deal
Create a culture and structure that will add value to your business.  Start thinking as a serious, growing company and prepare for future life as a public company or for increased security for the family or its investors.”
By |2022-12-14T14:30:24-05:00November 2nd, 2022|Categories: Articles|

2022 Industrial Robotics Industry Report

By: Benchmark International
October 7, 2022

Industrial robotics is now critical across many sectors for the automation and manufacturing of many tasks, including loading, packaging, labeling, and inspection.  They are commonly used in the automobile and heavy engineering sectors and are becoming more common in many other sectors.  In the past, robots were mostly only used in the automotive and manufacturing industries, but more sectors are adopting them today  These sectors include defense, healthcare, aerospace, food & beverage, education, and electronics.  There is also an increase in demand for telesurgery and elder care, as well as bomb dispersal, monitoring, and mine detection.  There are currently around 2.7 million industrial robots in use worldwide, a number that is quickly rising.

These robots improve productivity and profitability for businesses by replacing laborious and repetitive tasks previously performed by people with automated efficiency and a high degree of accuracy.  They can also be used for a safer workplace, performing tasks in hazardous environments, vacuum chambers, and areas where there is the risk of dangers such as explosion or radiation.  Research shows that the use of robots saves companies up to around 20% in costs.  Robots are a large driving factor of the world’s newest industrial revolution, referred to as Industry 4.0.  It has been estimated that, by the year 2025, robots will displace 85 million jobs currently held by people.  But, at the same time, it’s also estimated that this change will open up 97 million jobs for workers.  Robots are often used for basic tasks in entry-level positions, which means that companies can create more high-level roles.  This is good news for younger workers, raising the level and pay at which they can enter the workplace and opening up more opportunities for creativity and management.

Surging market growth
The global robotics market was valued at $32.32 billion in 2021 and is forecast to reach $88.55 billion by 2030, growing at a compound annual growth rate (CAGR) of 12.1%.  As the manufacturing and electronics sectors continue to see strong growth, it drives growth for the industrial robotics market.  Many industrial processes are being streamlined by the use of artificial intelligence-powered robots, as well as collaborative robots, and new technologies continue to evolve rapidly.  In the last five years, the surge in global demand for industrial robots has been unmistakable.  In 2021, the global industrial robot market volume was made up of 496,000 units.  Growth is being driven in the sector by automation that helps to boost productivity, improve quality, and cut down on errors.

The COVID-19 pandemic also accelerated the growth of the robotics industry due to a worker shortage.  Robots helped many manufacturers keep up with production peaks; at the same time, they were dealing with systemic shocks.  In fact, China’s industrial robotic production increased by a record high of 29% in the first half of 2020.

Challenges to market growth include high initial investment, maintenance costs, and compatibility issues.  There are also some safety and data privacy concerns.  At the same time, increased adoption of robotics for handling semiconductors is expected to open up opportunities for the industrial robotics market in the near future.

Players in the market are expected to vie for competitive dominance through strategic alliances, mergers and acquisitions, and innovations in R&D.

A significant growing trend in the robotics industry is the increasing use of collaborative robots, or “co-bots.”  Co-bots are designed to work alongside people, and they use safety-rated sensors that allow workers to safely share the work space with them.  There is also a steady rise in the use of underwater robotics, legged mobility, machine learning, and self-driving vehicles.  the market is expected to see growing adoption of micro-electromechanical systems, cloud robotics, and next-gen tech accessories, as well as more employment opportunities and robotic advancements.

There is also increasing development of new types of robots that offer simple setup and installation.  By removing any need for any special training in coding or programming, many of the barriers that previously prevented businesses from investing in robots are being removed.

Geographical Picture
North America currently leads the global industrial robotics market, with large-scale adoption in various industries, including entertainment, education, healthcare, and especially military defense.  The U.S. Department of Defense was given $7.5 billion to spend on robotics in 2021.  In the 3rd quarter of 2021, robot orders in the United States were up 35% compared to the same period in 2020.  More than half of the orders came from non-automotive sectors, representing a large change in traditional market trends.  The average robot density in the United States is 228 units per 10,000 employees.  In 2021, more than $17 billion was poured into VC-backed robotics startups.

The world’s top three robotics communities are all located in the U.S.: Boston, Massachusetts; Pittsburgh, Pennsylvania; and Silicon Valley in California.  Pittsburgh is often referred to as the robotics capital of the world, home to more than 100 robotics companies.  Corporate and venture capital investors have put $4.3 billion into Pittsburgh robotics companies in the last five years alone.  The cities of Austin, Texas, and Denver, Colorado, are also emerging.  The country of Denmark is also making large strides in robotics.

The Asia-Pacific region is expected to see the fastest growth in market share due to the increasing  use of automation in Japan, China, and India, with China leading the market growth in this region to improve efficiency and industrial production.  Honda Motor is the largest robotics company in the world, with a revenue of $142.4 billion, employing nearly 220,000 people, and headquartered in Tokyo, Japan.

By |2022-12-14T14:30:46-05:00October 12th, 2022|Categories: Articles|

Key Motherhood Skills All CEOs Need

By: Randy Garn
Entrepreneur Leadership Network

An in-depth conversation with Jess Toolson, founder and CEO of Mixhers, about how being a parent has shaped her skillsets.

Motherhood arms women with several important skills that serve them well as CEOs, such as quick, efficient prioritization and the ability to nurture employees toward better performance, says Jess Toolson, founder and CEO of the Mixhers supplements company.  A mother’s inherent three-dimensional interpretation of situations comes in handy too:  “Problems come, sometimes quickly and urgently, and I need to provide solutions that are not only well thought out, but timely, because sometimes non-decisions are more damaging than incorrect ones,” Toolson says.

I wanted to have a chat with her, in part to find out how budding entrepreneurs can successfully step into a CEO position.  But early in the course of the conversation, she offered something that surprised me, and which changed the nature of the discussion.

“I feel like motherhood, above everything else I’ve done in my life, prepared me for being a CEO,” she said.

I found this fascinating, so we dug more into the concept, and what resulted took my breath away – key things that motherhood taught her about being a CEO.

1. Quick Problem Solving and a Three-Dimensional Perspective
Being a CEO requires a knack for quick-witted problem solving.  Most of the time, you must think through problems at a high level, looking at them three-dimensionally in order to arrive at a solution that you and your company can work towards and stand behind.

It is that key executive’s deciding vote which carries the most weight in determining company trajectory, and Jess said she was surprised how comfortable she felt when pushed into such situations, then detailed how being a mother prepared her to think through decisions calmly and from multiple perspectives.

“The power to problem solve is a life skill that’s just as important in motherhood as it is in the life of a CEO,” she explained.  “As a mother, I would try to look at challenges three-dimensionally: How can I see all sides of the issue?  What different approaches could I utilize?  What are the possible outcomes?  As a CEO, I try to take the same approach.  Problems come, sometimes quickly and urgently, and I need to provide solutions that are not only well thought out, but timely, because sometimes non-decisions are more damaging than incorrect ones.  Once I feel I have sufficiently thought out an issue, I try to act with a combination of confidence and flexibility.”

2. Prioritizing Quickly and Efficiently
The sky is not always falling.  Not every fire must be put out immediately, and there are (almost) no mistakes that cannot be reversed or fixed.  However, there is a mode that must be employed when dealing with the day-to-day demands of running a company.  Jess quickly realized that prioritizing would be an enormous part of her job description.  Luckily, as she explained, she felt prepared pretty much from the start.

“Being a parent taught me how to prioritize.  There are always one million things that need to be done, but there’s inevitably something that needs to be done first,” she said.  “At Mixhers, I’ve been able to look at what needs to be handled today, what can wait for tomorrow, and what’s a problem for next week.  This allows my team to chew off bits and pieces of a task, rather than take on the entire thing all at once.  Prioritizing intelligently has helped productivity, increased morale, and simplified our processes.  It’s also allowed us to celebrate wins and push through losses.”

3. Nurturing Employees Lead to Better Performance
A dramatic shift has taken place in the way employees are viewed, particularly over the last few years.  Rather than just warm bodies in seats from 9:00 to 5:00, employees are more often now regarded as individuals, whose performance is the sum of a number of different parts and circumstances – all of which an employer should understand and support.

Jess already felt a natural inclination to treat people like this, motivated in part by her experience as a mother.

“Good mothers have the ability to see their kids for who they can become with proper nurturing,” she observed.  “They also understand, on a circumstantial level, what’s driving behavior.  They always want their kids to know that even if they’re experiencing something hard, and even if there’s discipline or timeouts involved, they are there to be a child’s champion.  That’s what I’ve tried to implement at Mixhers.  I want my team to feel that I believe in them.  They need to know I can look past growing pains and well-intentioned mistakes, because potential is only realized when we work through those things together.

“I think I may take more time than the typical CEO in getting to know employees – their personal lives, their challenges, triumphs and skillsets.  Though this takes time, the payoff is immense.  Potential is reached more often, productivity increases and risks typically turn into rewards.”

By |2022-12-14T14:31:07-05:00October 5th, 2022|Categories: Articles|
Go to Top