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	Best Practices Preview For Directors Do you provide confident oversight of the finance and compensation issues of corporate governance? Most directors don't even know how good the very best companies are in providing effective motivation and accountability to their managers. Having lead or reviewed such changes at hundreds of companies, we can paint a clear picture for the Board of the likely benefits that improved measures, processes, and incentives would bring to your company. What are investors looking for? They seek to understand firm profitability, strategy, risk, and quality of management. Of course, investors only know what management tells them. Therefore, directors must insure that management does not come up short either on achievement, transparency, or integrity on any of these issues. We will also be frank about the impact of any limitations or constraints that top management or the Board may seek to impose upon any implementation process. We then map what it would take to get the company from its present state to enduring and effective governance regime. We outline the steps, resource requirements, and timetable for implementation. We show how the implementation steps will lead to the infrastructure, tools, and culture that characterize a successful, value-aligned company.
	Financial Issues in Corporate Governance What accounting questions should we be asking our management? What are warning signs that further intervention may be required? Directors must sift through innumerable details to gain a clear understanding of the company they oversee. All those details must ultimately sum up to a coherent picture of the business from an investor's perspective. We can assess the current quality of management information being reviewed by directors and the quality of disclosure. This assessment is enhanced by a review of the planning, capital budgeting, internal reporting, and external disclosure processes. Next we outline the best practices in financial governance to help crystallize the board's vision of what improved financial governance could do for their company. We work with senior management and the board to outline and clarify what the board needs from management, help management develop clearer communications with their boards, and train directors to use that communication as effectively as possible, including asking key questions that enhance their value as management advisors and stewards of the shareholders.
	Compensation Issues in Corporate Governance Are your investors getting what they are paying for? Shareholders making billions in new wealth do not begrudge their managers millions. Everyone can be happy in a well-functioning company. But nothing destroys investor confidence faster than a feeling that management is taking advantage of them. Senior management compensation has gotten terribly complex, to the point where the complexity itself now threatens investor confidence. While part of this complexity is, in certain circumstances, a conspiracy of management and their advisors to reach deeper than necessary into the till, much of it is simply a logical consequence of the many things that compensation is expected to do, including retention and alignment. Directors should understand all the tradeoffs in establishing compensation contracts with top management. It is ultimately their responsibility to see that these tradeoffs are made intelligently,and that the programs don't blow up either in mass defections or unseemly payouts. We train directors and officers on the essential tradeoffs in incentive compensation, proven techniques to achieve alignment and wealth, and key flags to look for that might eventually threaten alignment--and shareholder confidence.
	Introduction to Alignment Incentives How effective are your internal management processes in maintaining a high degree of motivation and accountability for value? How aligned are the interests of your managers and that of the owners? Find out in a comprehensive review of your management practices that results in a detailed profile of how your management practices stack up against best practice, and what you can do to dramatically improve them. Research into management practices shows that the single biggest factor distinguishing top value-creating companies from the rest is the structure of their incentives. The particular manner in which bonuses and stock options are awarded are highly correlated to corporate performance. Our comprehensive evaluation culminates in a half-day program that leverages our research to introduce best practices in value-based management. We illustrate the four elements that contrast effective value-based incentives with traditional incentive plans. We illustrate how integrating measurement, decision-making, and incentives into a robust, self-reinforcing framework can create a new source of competitive advantage. While primarily geared to financial and human resource managers, this program is often appreciated the most by the business unit managers who live with their incentives, and who readily attest to the behavioral implications of our recommendations. Many of the recommendations arising from such a review involve improvements you can implement on your own. But If you need the assistance or resources of outside experts, however, we can help you or steer you to the highest quality service providers in any aspect of value-based management or EVA.
	Value-based Management/EVA Implementation Are you thinking about implementing a VBM or EVA(c) program? There is an alternative to the uncertainties and missteps of going it alone, and the exorbitant cost of full-service consultants. With Hodak Value Advisors, you can have access to proven VBM experience in a very cost effective manner. We have lead or reviewed VBM implementations at over a hundred companies, and can help you remove the uncertainties and avoid the pitfalls of this major change process. Our assistance includes: Outlining the necessary steps in a VBM implementation Helping management define the specific tasks, roles, and responsibilities for a their implementation Establishing specific working groups and timetables Developing and modeling appropriate incentive plans Developing training and communications materials and presenter guides We carefully guide the entire process from beginning to end to insure that you build both ownership and in-house expertise as the implementation progresses. We know what a successful implementation looks like at every step, and are committed to our clients achieving the full benefits of a successful value-based management program. EVA is a registered trademark of Stern Stewart & Co.
	Strategy and Value The heart of value-based management is the integration of finance and strategy. The right incentives enable you to do things with you planning and capital budgeting processes that can't be done under the traditional incentives and constraints of most corporations. These methods include valuations that reveal shareholder expectations for your business and naturally lead your managers to the likely competitive pressures and organizational impediments you may face in meeting these expectations. We begin by estimating the value of your business units using our proprietary models. We share those results with your managers to interpret what those values imply for current and future products, services, and operations. Linking operations and plans to the value of the business is the first step to creating a cleaner line-of-sight between decisions, actions, and the value they create or destroy. Next, we help managers articulate a strategy for growing their business's value. They will learn how to continuously relate new products or markets, operational improvements, or disinvestment of underperforming assets or operations, to the changing value of their businesses. While the ultimate purpose of the planning process is to yield strategies and tactics for growing the value of the business over time, the specific purpose of this project would be to develop basic methods and tools in the development, evaluation, and execution of value creating strategies on an ongoing basis.
	Capital Budgeting with Discipline Are all your value-added projects getting funded? Only your value-added projects? Capital budgeting often resembles pro wrestling between business units, or between business units and corporate. Those with the loudest voices, most unrestrained optimism, or brute force, tend to win the most capital at the end of the match. So, what happens to your truly best investment opportunities in this melee? How managers allocate capital, i.e., their methods and interactions, has a far greater impact on a company's capital efficiency than the average quality of a company's investment opportunities. What senior managers often mistake as an unlimited appetite for capital from business units is simply a lack of capital discipline that naturally arises from a lack of accountability for capital. Many senior managers have given up hope that the heart of capital allocation can be anything but a contentious negotiation process between business units and corporate. They believe that the CFO is inherently a capital watchdog, his power to say "No" as the ultimate tool against profligate spending. We introduce powerful incentives and constraints needed to make your company truly capital efficient, able to effectively distinguish between value-adding and value-destroying projects--wherever they may originate--enabling your managers to invest with confidence, as if they were betting with their own money (which, in a sense, they will be). Then your CFO can join our many client executives who say, "I don't have to reject a single request for expenditures coming up from the business units."
	Value Creating Transfer Prices Transfer prices--and their close cousins, cost allocations--are an unpleasant fact of life at most large companies. Poor transfer prices distort the relative profitability of business segments, create ongoing controversy about their accuracy and effect, and lead to value-destroying resource allocations within the company. Most companies create transfer prices using simplistic accounting rules or spurious, activity-based drivers. Companies may be better off with transfer prices that are simpler, negotiated, or nonexistent. Our methods insure that your transfer prices accurately reflect transfers of value between business segments. We systematically match activities with reported results of business units to ensure that only necessary transfer prices are incorporated into reporting, and that those prices are as fair and objective as possible. Our "economic" view, however, isn't limited to the accuracy of the prices, but also accounts for management time and energy in formulating, defending, tracking, and updating transfer prices. Like any good pricing system, effective transfer prices can actually create value by ensuring a better balance between internal supply and demand, a better allocation of resources throughout the company, and less management time wasted debating who should get what in an internal war over numbers.
	Value Measures Revealed Does everyone understand where company value comes from in their daily work? When someone comes to management with an idea, at what point does management ask them about its contribution to the company's value? This program works the premise that what gets measured gets managed. Our half-day program introduces value-based metrics to your financial managers. We outline three key concepts: Distinction between financial vs. managerial accounting (i.e., managing value vs. "managing" earnings) Incorporation of cost of capital in profit calculations Aligning transfer of prices and value between business units Next, we look at the specific metrics used within your company, and how those metrics relate to each other across functions and organizational levels, and how well those metrics encourage and reflect value-driven behavior. Sometimes, specific metrics that lead to sub-optimal results. Sometimes its the mix or multitude of measures, and how they interact at different levels, that creates problems. This training will give your financial managers a clear view of how your company's metrics support or undermine value creation in your company. They will also gain the know-how for improving your measures to sharpen the value focus of your people.
	Incentive Plan Design Your incentive plan has been in place for a few years now, and it needs a tune-up. Or maybe it needs the credibility of a third-party expert in its revision. Incentive plan structures are the single biggest factor in the success or failure of VBM programs. Even the best incentive plans get stale after a while. The best plans have a basic stability to them, like multi-year, fixed interest contracts between owners and workers. Even these plans need performance targets that reflect updated shareholder expectations. If you don't have a fixed-interest plan (but you have the other elements of a VBM program), here is the opportunity to build a great incentive plan, a plan with an underlying integrity that motivates your managers as partners in value creation. Our expertise in value-based incentive compensation is second to none. We developed many of the incentive plan structures and calibration methods most widely used by VBM companies today. And we remain at the forefront in the development and refinement of models of incentive and behavior, wealth leverage, and plan simulation that allows you to see how the plans will perform through a business cycle.
	Enhanced Financial Literacy Knowledge is power. Research shows that one of the biggest differentiators between high and low performing companies is the business and financial literacy of their middle managers. (Senior managers are apparently just as business literate in poor performing companies as in good ones.) Knowledge must run deep as well as wide. Managing for value depends upon knowing something about management, something about value, and a good deal about the link between the two. Can your managers clearly explain their business's value proposition? Can your employees make real-time decisions in their day-to-day activities with a clear view of their impact on the value of their company? We offer an array of training for middle management, from basic financial literacy to gaining an intuitive understanding of how global markets affect your manager's ability to pay for their homes and toys. If your company has implemented a VBM program and is looking for effective ways to distribute learning throughout the ranks, we can also guide you to highly effective programs using business simulations .
	Attracting Investors You have a business plan and the investment it attracted. So, now its time to take the money and run, right? Not if you want to maximize the odds of making that investment pay off, or your odds of attracting further investment, or of cashing out handsomely. A business plan convinces one group of investors at one particular time that profits are likely to exceed their minimum required returns in a reasonable period. For most businesses, however, the plan means little to managers besides a committment to meet certain operating goals initially associated with the returns. In the real world, things change, and plans must be updated regularly between trips to the investment well (or board meetings). In this world, it helps for managers to internalize the business plan in their everyday decisions and actions so that they relate to each other in terms of value-added, especially as they react to changing conditions that dictate changes in plans. We offer assistance in helping managers translate their strategies and plans into communications that make as much sense to the providers of capital as to the user of capital. Furthermore, by going through this translation process, we help internalize the language of investors, creating a better line of sight between managerial initiatives and the value impact of those initiatives. This will inevitably raise the financial literacy of managers involved in the discussion of those initiatives.
	Strategy and Value The heart of value-based management is the integration of finance and strategy. The right incentives enable you to do things with you planning and capital budgeting processes that can't be done under the traditional incentives and constraints of most corporations. These methods include valuations that reveal shareholder expectations for your business and naturally lead your managers to the likely competitive pressures and organizational impediments you may face in meeting these expectations. We begin by estimating the value of your business units using our proprietary models. We share those results with your managers to interpret what those values imply for current and future products, services, and operations. Linking operations and plans to the value of the business is the first step to creating a cleaner line-of-sight between decisions, actions, and the value they create or destroy. Next, we help managers articulate a strategy for growing their business's value. They will learn how to continuously relate new products or markets, operational improvements, or disinvestment of underperforming assets or operations, to the changing value of their businesses. While the ultimate purpose of the planning process is to yield strategies and tactics for growing the value of the business over time, the specific purpose of this project would be to develop basic methods and tools in the development, evaluation, and execution of value creating strategies on an ongoing basis.

Copyright © 2002, Hodak Value Advisors, Inc.