Financial Leadership: Do You Have to Get There All at Once?

Posted by Matthew Thomas

Amidst the Fiscal Cliff conversations in Washington, DC, organizations are asking about their own financial outlook. Equities markets dropped nearly 4% in the first half of November, after dropping nearly 2% in October. Uncertainty is high.

communication negotiationThe American government has negotiated itself into an all-or-nothing deal-making, deal-breaking situation to work out questions of revenue, expenses, deficits and debt. However, this approach is often not the right approach for an organization running chronic deficits. (Most organizations cannot borrow money as cheaply and as plentifully as the US Government, so that is not typically as much as an issue for organizations as it is for governments.)

Most organizations’ financial woes did not erupt overnight, and will not necessarily be solved overnight, either. Unlike the US Government, the negotiations typically do not have to create all-or-nothing negotiating positions.

Organizations running chronic deficits do have to exhibit fiscal discipline to get healthy – revenues should exceed expenses for any organization. However, strategically using assets to generate new sources of revenue can help an organization reach true health. The results of strategic asset use are not immediately knowable, but should be clearly measurable.

Therefore, it makes the most sense to make fiscally-disciplined decisions for the short term while using assets to do new things. This means you won’t get there all at once – which is probably where the “Fiscal Cliff” will end up, too.
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Topics: Financial Leadership, Matthew Thomas, financial management, Organizational Leadership, Design Group International, Fiscal Cliff

Organizational Leadership: There Are Alternatives to Fiscal Cliffs

Posted by Matthew Thomas

As much as many of us like to complain about the dysfunction of the United States government, with the Congress in particular, many organizations are locked in tangled, stuck budgetary positions across all sectors of the economy, for similar reasons.

Organizational Leadership, Dysfunction, TeamAs Patrick Lencioni offers in The Five Dysfunctions of a Team, at root in much of the “Fiscal Cliff” conflict is an Absence of Trust. In this case, there are several interlocking mistrust scenarios, reinforced by the desire to be invulnerable:

  • The electoral constituents (the people) don’t trust the people they elect (Representatives, Senators and Presidents)
  • The elected officials don’t trust each other
  • The two major parties don’t trust each other
  • Congress and the White House don’t trust each other
  • The press and pundits don’t trust the elected officials and vice versa

Lencioni places an Inattention to Results at the top of his triangle of dysfunctions, reinforced by a desire for individual status rooted in personal ego. This inattention to results stems from a kind of internal lens on reality that makes the conversation in Congress not appear to relate to what is going on outside of Congress. On the inside, it is all about how the individual status and ego interact; outside, individual members of Congress rally their base to support the status and ego conversations going on inside.

Add to this Lencioni’s other dysfunctions of Avoidance of Accountability that allow the low standards of can-kicking to remain in place, the Lack of Commitment to solving problems stemming from the ambiguity as to what the answers really are, and a Conflict style that reinforces the status quo, the verdict is clear: the Fiscal Cliff is a function of the dysfunction of the United States government, in which all American citizens participate to one extent or another (since the United States is a government of the people, by the people, and hopefully still for the people).

The same is true of many organizations facing fiscal difficulties: financial pressures expose long-standing dysfunctions long hidden under other issues. Nevertheless, financial health is directly related to the health and functionality of both governing structures and the health of constituents’, customers’ and stakeholders’ interests and approaches to conflict.

This is why Design Group International’s Financial Health Assessment includes a serious look at organizational structure and governance. Though the numbers may look good now, if the organization’s process is fraught with hidden conflicts, disagreements and dysfunctions, there will still be trouble down the road – and often not as far down the road as anyone would prefer to think. Financial health is more than just numbers!


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Topics: Matthew Thomas, Organizational Leadership, Design Group International, Fiscal Cliff

The Fiscal Cliff: What is it? Will it affect my Organization?

Posted by Matthew Thomas

We have heard much in the news lately about the United States Federal Government’s “Fiscal Cliff”. I get a lot of questions about what it is, and what its impact will be if it happens.

Sisyphus, Fiscal CliffIn essence, the “Fiscal Cliff” is a set of automatic spending cuts and tax increases that will take place on 1 January 2013 if both houses of Congress and the White House cannot agree on a Federal budget (or a stop-gap temporary alternative deal).  This means that nearly everyone in this country earning income will pay, at minimum, an additional 2% in payroll (FICA) taxes, and, for those earning enough to pay Federal income tax, somewhere around an additional 3% in income taxes, while at the same time, significant cuts to defense / military spending and entitlement spending go into effect, significantly curtailing government services.

At issue is the growing national debt, the growth of which is accelerated by fiscal deficits, which is of serious concern to many people. Nobody likes paying taxes, and so, with a few exceptions like Warren Buffett, most people prefer to see someone else pay more in taxes if anyone has to pay more at all.

Some argue that spending is the main problem, since they don’t like the programs that are costing money in the first place. So they suggest strenuously that raising taxes (or other alternative revenue-raising approaches) are off the table to try to fiscally force the termination of programs they find superfluous, worthless, questionable, or dangerous.

Others argue that it takes a certain amount of money, after all, for a government to do what it has to do, and that if you keep the programs that most people (most being defined by anything between 51% and 99% of the nation) want, there still isn’t enough money to go around. Not to mention the fact that costs for Social Security and Medicare are increasing faster than money is coming in through payroll taxes and other revenue streams. Therefore, they argue, that taxes for at least some people should go up to cover those costs.

Moreover, a lot of the same people argue that since the United States Government has a lot of cash (and even more credit), that the government, through spending additional money on projects that benefit the general population (at least most of them), can use its cash and credit to put people to work and inject money into the economy, known as stimulus. This will increase the whole economy’s capacity to employ people if the stimulus can be large enough and last long enough to give people the economic wherewithal to eventually be able to work without needing the government stimulus.

The problem is that this sounds, to many people, as if the government will continue to live beyond its means and never deal with its debts and deficits. More and more stimulus will be necessary to support a weak economy, which will cause taxes to go up, and so on, while most people don’t see a good return in services on their tax payments. They don’t believe the issue of indebtedness will never be resolved.

Everyone is stuck in a standoff.

So if the “Fiscal Cliff” happens, it is likely that enough money will quit flowing through the economy enough that the total amount of goods and services produced by the country (Gross Domestic Product, or GDP) in 2013 will be less than it is now, which, if it lasts more than six months, and involves several other correlated factors, is called a recession. Despite the spending cuts and tax increases that triggered it, this new theoretical recession would likely exacerbate government deficits (because most government revenues are linked to income, sales, and excise taxes), and require more borrowing to maintain even the increasingly limited government goods and services. This will have significant impact on businesses and organizations of all sizes.

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Topics: Matthew Thomas, Design Group International, Fiscal Cliff