I am the president and sole owner of my company. That makes me the big dog, the top banana, the first among equals. My word is the law.
My career is liable to reach an early and unhappy end if I believe any of this drivel.
There is an interesting paradox in management: The more power you have over your staff, the more you should limit that power if you want your staff to perform at its peak. When a manager exercises absolute control over his or her team, the manager's limitations become the team's limitations.
I was reminded of this the other day. My company, which provides tax, investment and other financial advice to business owners and affluent families, is preparing to expand to Portland, Ore. A question arose about whether an affiliated entity that is a federally registered investment adviser (we manage more than $1 billion for our clients) needs to file certain paperwork in Oregon, even though this affiliate will not have any offices, property, employees or - at least initially - clients in that state.
I did not think so. But Anna Pfaehler, our chief compliance officer, concluded otherwise. Anna is very smart and very careful. These are two highly desirable traits for a compliance officer, and for a financial adviser, another job at which she excels. When our managers initially proposed to file this paperwork, I told them I saw no reason to do so. Anna prepared a detailed memo disputing my conclusion.
I could have overruled her. Not only is it my company, but I am about twice Anna's age and have many more years of experience. It is even possible, though not likely, that my conclusion was correct and Anna's was overly conservative.
We are doing it Anna's way, however, because she has to have the last word on compliance matters. That is the only way she can do her job, which is to protect our company and our clients. This also protects me.
The Securities and Exchange Commission looks for what it calls a “culture of compliance” when it examines a federally registered investment adviser. This requires more than having the right policies written down someplace. It means that from the top down, everyone is aware of the rules and makes a good-faith attempt to follow them. It also means that the top people have to wield or delegate the necessary authority to make sure the rules are obeyed.
I could appoint myself to the CCO role. In fact, I was our firm's first CCO when we began managing investments 15 years ago. I found that my other duties got in the way. As our firm and the CCO job both became larger and more complex, I concluded that other people could do the job better than I did. We have had several CCOs since my time. Anna took over the post recently, after several years of assisting Paul Jacobs, our previous CCO, who also handled the job very capably.
Why did Anna take the reins from Paul? Because Paul has just become our chief investment officer, making him responsible for directing our investment practice in conjunction with the rest of our Investment Committee. I don't think it is a good idea to have the same person wearing the CIO and CCO hats simultaneously. If the investment team wants to do something new, I think it is useful to have another set of eyes - the CCO - review the decision to make sure none of our responsibilities have been overlooked.
I'll bet Jon Corzine wishes he had had the benefit of an able and fully empowered chief compliance officer when his firm, MF Global, ran into severe trouble last year. At least $800 million of customers' money, possibly as much as twice that amount, went missing after that money was apparently commingled with the business’ assets. Such unauthorized commingling violates a cardinal rule for any money manager. Corzine has denied any wrongdoing, but he and his former colleagues face all sorts of legal problems.
Empowering your staff is important in many areas besides compliance. Many an enterprise has run aground when a chief executive is surrounded with people who say “great idea” every time the boss speaks. Many bosses become bosses because they prefer giving orders to taking them. It is very easy to fall into a pattern where information and instructions all flow downward.
As a boss, and especially as the owner of a private business, you have extraordinary power to affect your employees' lives. They have families to support, rent and mortgages and student loans to pay. They have career aspirations, too. At least in the short term, you can use your power over firing and promotion and compensation to coerce almost any sort of behavior, within reason. But where does such an approach take you and your business?
You can be the sort of boss that sees your staff as a team to be coached and developed, or you can see them as an ecosystem to be exploited for your personal benefit. The latter tends not to work so well in the long run.
Are you still the ultimate boss? Of course. You can have the last word on everything. I believe you should exercise that power only when nobody else can make a fully informed decision.
At other times, be prepared to take orders from your staff. Your company will be better off for it.
Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book,
The High Achiever’s Guide To Wealth. His contributions include Chapter 1, “Anyone Can Achieve Wealth,” and Chapter 19, “Assisting Aging Parents.” Larry was also among the authors of the firm’s previous book
Looking Ahead: Life, Family, Wealth and Business After 55.
Posted by Larry M. Elkin, CPA, CFP®
I am the president and sole owner of my company. That makes me the big dog, the top banana, the first among equals. My word is the law.
My career is liable to reach an early and unhappy end if I believe any of this drivel.
There is an interesting paradox in management: The more power you have over your staff, the more you should limit that power if you want your staff to perform at its peak. When a manager exercises absolute control over his or her team, the manager's limitations become the team's limitations.
I was reminded of this the other day. My company, which provides tax, investment and other financial advice to business owners and affluent families, is preparing to expand to Portland, Ore. A question arose about whether an affiliated entity that is a federally registered investment adviser (we manage more than $1 billion for our clients) needs to file certain paperwork in Oregon, even though this affiliate will not have any offices, property, employees or - at least initially - clients in that state.
I did not think so. But Anna Pfaehler, our chief compliance officer, concluded otherwise. Anna is very smart and very careful. These are two highly desirable traits for a compliance officer, and for a financial adviser, another job at which she excels. When our managers initially proposed to file this paperwork, I told them I saw no reason to do so. Anna prepared a detailed memo disputing my conclusion.
I could have overruled her. Not only is it my company, but I am about twice Anna's age and have many more years of experience. It is even possible, though not likely, that my conclusion was correct and Anna's was overly conservative.
We are doing it Anna's way, however, because she has to have the last word on compliance matters. That is the only way she can do her job, which is to protect our company and our clients. This also protects me.
The Securities and Exchange Commission looks for what it calls a “culture of compliance” when it examines a federally registered investment adviser. This requires more than having the right policies written down someplace. It means that from the top down, everyone is aware of the rules and makes a good-faith attempt to follow them. It also means that the top people have to wield or delegate the necessary authority to make sure the rules are obeyed.
I could appoint myself to the CCO role. In fact, I was our firm's first CCO when we began managing investments 15 years ago. I found that my other duties got in the way. As our firm and the CCO job both became larger and more complex, I concluded that other people could do the job better than I did. We have had several CCOs since my time. Anna took over the post recently, after several years of assisting Paul Jacobs, our previous CCO, who also handled the job very capably.
Why did Anna take the reins from Paul? Because Paul has just become our chief investment officer, making him responsible for directing our investment practice in conjunction with the rest of our Investment Committee. I don't think it is a good idea to have the same person wearing the CIO and CCO hats simultaneously. If the investment team wants to do something new, I think it is useful to have another set of eyes - the CCO - review the decision to make sure none of our responsibilities have been overlooked.
I'll bet Jon Corzine wishes he had had the benefit of an able and fully empowered chief compliance officer when his firm, MF Global, ran into severe trouble last year. At least $800 million of customers' money, possibly as much as twice that amount, went missing after that money was apparently commingled with the business’ assets. Such unauthorized commingling violates a cardinal rule for any money manager. Corzine has denied any wrongdoing, but he and his former colleagues face all sorts of legal problems.
Empowering your staff is important in many areas besides compliance. Many an enterprise has run aground when a chief executive is surrounded with people who say “great idea” every time the boss speaks. Many bosses become bosses because they prefer giving orders to taking them. It is very easy to fall into a pattern where information and instructions all flow downward.
As a boss, and especially as the owner of a private business, you have extraordinary power to affect your employees' lives. They have families to support, rent and mortgages and student loans to pay. They have career aspirations, too. At least in the short term, you can use your power over firing and promotion and compensation to coerce almost any sort of behavior, within reason. But where does such an approach take you and your business?
You can be the sort of boss that sees your staff as a team to be coached and developed, or you can see them as an ecosystem to be exploited for your personal benefit. The latter tends not to work so well in the long run.
Are you still the ultimate boss? Of course. You can have the last word on everything. I believe you should exercise that power only when nobody else can make a fully informed decision.
At other times, be prepared to take orders from your staff. Your company will be better off for it.
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