w w w . t h e z w e i g l e t t e r . c o m
HR | FINANCE S U P P L E M E N T S Pages 9 - 12
N o v emb e r 2 8 , 2 011 , I s s u e 9 3 6
Better business planning – Do your homework Mark Zweig offers six pointers on what information to obtain before you sit down to develop a plan.
T R E N D L I N E S
See Mark Zweig, page 2 T he year is closing and now is the time to get your business plan updated or pulled together for 2012. In many firms, business planning ends up being a laborious process that takes up many resources and leaves many participants dissatisfied. I don’t think it has to be that way. That said, you do need to do some homework if you want to have a good plan. Here’s some of what you need: 1)Client study. Have someone interview past, present and potential clients to find out what they think is good about your firm, not so good about your firm, and more. Find out which other firms they work with and why. Find out what their plans are for the coming year and what they need help with. This is crucial information you need for proper business planning. 2)Employee study. Poll your employees on what they like and don’t like about working for the company, what tools they need, what demotivates them, what the company does well or poorly, and more. You need the input from your people – especially those doing the work. 3)Firm financial study. You need a complete recast of the current year and past years’ financial performance compared to industry metrics. This information keeps you from making bad assumptions about what is working and what isn’t, and how you stack up compared to other firms in this business. Poll your employees on what they like and don’t like about working for the company, what tools they need, what demotivates them, what the company does well or poorly, and more. You
Fixed or matching contributions Discretionary contributions
F I R M I N D E X Bracken Engineering, Inc................................. 5, 11 Comprehensive Environmental Inc........................ 5 Crabtree Rohrbaugh & Associates........................ 5 Dade Moeller & Associates.................................. 3 Delsaer – Project Managers Inc.......................... 12 Douglas Wood Associates, Inc.............................. 9 exp....................................................................... 12 FPM Group Ltd....................................................... 6 H&A Architects & Engineers............................... 11 Kinzelman Kline Gossman Ltd............................. 12 Lord, Aeck & Sargent. ......................................... 12 MSI Design.......................................................... 12 TWC Architects. .................................................. 12 While the majority of A/E firms contribute to their employees’ 401(k) plans, they are more likely to make fixed or matching than discretionary contributions to 401(k) plans, according to the 2011 Policies, Procedures, & Benefits Survey. Moreover, the report finds that, after reaching a five-year low of 65 percent in 2010, the percentage of firms making matching contributions to 401(k) plans increased slightly to 72 percent. – Margot Suydam, Survey Manager
need the input from your people – especially those doing the work.
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Strategies to make projects happen
I N S I D E
xz top player: There are no shortcuts to success. Page 3 xz finance: Tactics to solve cash flow problems. Page 11
T H E V O I C E O F R E A S O N F O R A / E / P & E N V I R O N M E N TA L C O N S U LT I N G F I R M S
THE ZWEIG LETTER | NOVEMBER 28, 2011, ISSUE 936
A/E BUSINESS NEWS
RESOURCES 2011VALUATION SURVEY: Do you know how much your A/E/P or environmental consulting firm is worth? If you’re an owner of an A/E/P or environmental consulting firm, you can’t risk not knowing the value of your business. Whether it’s for external purposes, such as a firm sale or merger, or internal purposes, such as ownership transition or ESOP purposes, all firm owners should know what their investments are worth. The 2011 Valuation Survey of Architecture, Engineering, Planning & Environmental Consulting Firms is the definitive, one-of-a- kind resource for quickly determining how much your own firm is worth and how it compares to other firms just like yours. Compare data by firm type, staff size, firm age, region of headquarters, growth rate and many other factors. Get information on which types of valuations done by which types of accountants, appraisers or firm leaders result in the highest values. The information in this report is based on over 225 actual valuations of A/E/P and environmental consulting firms. ❚ ❚ Use ZweigWhite’s exclusive Z-Formulas to quickly find out how much your firm is worth. ❚ ❚ Use over 225 case studies to make reliable comparisons of value between your firm and others in the industry. For more information or to order a copy, call 800-466-6275 or log on to www.zweigwhite.com/zw-1048.aspx.
Mark Zweig , from page 1 You need to model what is happening with the stock valuation and how much capital is entering and leaving the firm. This model will allow you to predict changes to value based on your predicted financial performance for the coming year to be determined through the business planning process. 4)Firm ownership model. You need to model what is happening with the stock valuation and how much capital is entering and leaving the firm. This model will allow you to predict changes to value based on your predicted financial performance for the coming year to be determined through the business planning process. It’s essential to know this as well as plan for stock repurchase obligations in the coming year. 5)SWOT analyses . I’m talking about strengths, weaknesses, opportunities and threats for each of your key markets or business units. This is a tool that you can use with some broad participation from your employees and managers that will help you design your business to bolster your weaknesses and cash-in on your strengths. 6)Marketing recap. What have your specific marketing activities been and what results did you get? An analysis of marketing activities/ results may make you redirect your marketing efforts to spend more money on what’s working and less on what’s not. There are other things you may want to know as well. The important thing, however, is to have this stuff before you sit down as a group to make decisions about the coming year. Get the information you need before you plan and have a better plan in the end! Mark Zweig is the founder and CEO of ZweigWhite. Contact him with
Building green: GreenBiz.com’s fourth annual “Green Building Market & Impact Report” reveals that LEED buildings continue to grow – although at a slower pace than hoped. Other top-level findings of this in- depth report include a look at the rapid expansion of green building councils around the globe, how LEED for Homes defies expectations, as well as a look at how LEED buildings save energy, cut carbon dioxide, reduce commutes, save water and much more. This report, created and researched by Rob Watson, executive editor of GreenerBuildings.com and a founding father of LEED, explores in great detail the growth of green buildings, and projects their impacts out for the next 20 years. Here are some of the key findings in the report: ❚ ❚ LEED certification to reach 2 billion square feet soon. It took about 10 years for LEED to hit the 1-billion mark, but certification is expected to reach 2 billion square feet in 2012. ❚ ❚ Overall growth seen, but not as much or as fast as previous years. Registration domestically and abroad grew 45 percent, “though not quite up to the levels of the three-year ‘bubble’ of LEED registrations between 2007 and 2009,” Watson found. ❚ ❚ Market penetration is climbing, with impressive international growth. LEED registrations rose by 53 percent overseas and 39 percent in the United States in the past year. ❚ ❚ Certifications slowing. Certifications, the number of projects that complete the ratings process, are hovering around the 35 percent level and grew by just under 3 percent in the past year. World’s tallest soon underway: Construction is to begin in January on a 1-km-tall tower in Jeddah, including a six-story “sky palace” on the 158th floor, according to a report in The National. Most of the permits are in place for the $1.2 billion KingdomTower, which would be the tallest building in the world, Adrian Smith, a partner in Adrian Smith + Gordon Gill Architecture, told the paper. KingdomTower was one of several super- tall buildings for which plans stalled after the global financial downturn. The group includes the 1-km-tall Nakheel Tower in Dubai and the 473-meter tower in St. Petersburg for the gas company Gazprom.
38West Trenton Blvd., Suite 101 Fayetteville, AR 72701 Mark Zweig | Publisher firstname.lastname@example.org João Ferreira | Managing Editor email@example.com Julie Kyle | Editor firstname.lastname@example.org Christina Zweig | Staff Writer email@example.com Tel: 800-466-6275 Fax: 508-653-6522 E-mail: firstname.lastname@example.org
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THE ZWEIG LETTER | NOVEMBER 28, 2011, ISSUE 936
TO P P L AY E R
There are no shortcuts to success
Revenues and profits follow when your foundation is solid and you work hard. O vernight success was a 10-year deal at Dade Moeller & Associ- ates (Richland, WA) a 300-person en- vironment, safety, health and quality assurance services firm.
MM: When we were winning new work in 2004, we used to joke that we were an over- night success that was only 10 years in the making. Point is that there are no shortcuts to establishing a grow- ing company that em- phasizes integrity, de- livering quality servic- es, taking care of em- ployees and participat- ing actively in profes- sional and community activities. TZL: Do you remem- ber your first paid job? What did you learn then that still influences the way
ceed? Is the spectrum of failure a motivator? MM: In my mind, this is almost a trick question. The reality is that it depends on how you measure success. We val- ue our success by our ethics and integ- rity, the quality of our work (both for clients and ourselves in the form of in- ternal infrastructure), taking care of and standing behind our employees, providing comprehensive benefits, cre- ating valued and sustainable full-time jobs, and establishing and maintaining mutually beneficial partnerships with clients and business partners. We have experienced that business revenues and profits follow when your founda- tion is solid and you work hard. TZL: Where do you see this indus- try in 10 or 20 years? What trends are influencing it? What about your company? MM: Although times and trends may change, success in the future will re- main contingent upon our ability to provide relevant and meaningful ser- vices in accordance with our core val- ues. TZL: Do hold someone as a special mentor? How did this person influ- ence who you are? MM: As you may expect, my father was a very special mentor. His passion was teaching and advocating good science. As children, we were taught the value of good education and the need to help others. We were encouraged to do what was right, regardless. Personally, I fol- lowed in his footsteps in the environ- mental sciences. I am proud that we are one of only two parent and child certi- fied health physicists. My father always said that there were lots of people who were smarter, but none who outworked him. I have tried to make him proud. TZL: What’s the one trait you most admire in people and why? MM: I admire those who demonstrate exemplary ethics and integrity. There are many smart and successful peo-
Matt Moeller, CEO, Dade Moeller & Associates.
“Although times and trends may change, success in the future will remain contingent upon our ability to provide relevant and meaningful services in accordance with our core values.”
you work today? MM: In first grade, I delivered five newspapers in our neighborhood. It was delivery of the Boston Her- ald, which was published in the after- noon at that time. To this day, I can re- member the houses on my route and the names of most of my customers. I learned the value of working hard and establishing personal relationships at a very early age. TZL: What is it in your DNA that drives you to success? Is it audac- ity and risk-taking; a can-do at- titude and a relentless pursuit of perfection; something else more abstract? MM: Great question – it starts with my mother and father. My mother Betty Jean was well-educated, athletic and forward-thinking. She challenged all in our family to achieve their best. My fa- ther Dade Moeller is the namesake of our company. Having passed away last month (Sep. 26, 2011), we continue to share stories of his success from being dirt poor in rural Florida to becoming a dean at Harvard University. He is a part of our nation’s greatest generation. TZL: In today’s difficult business climate, what does it take to suc-
The message, CEOMatt Moeller says, is that there are no shortcuts to success. It is a deliberate, comprehensive process based on integrity and quality, among other things. Those were the values es- poused by Moeller’s father, Dade, the company’s founder, who passed away on Sep. 26 after a battle with cancer. The hard work establishing Dade Moeller as a premier environmental consulting firm has paid off as the com- pany has climbed all the way to the No. 9 spot in The Zweig Letter 2011 Hot Firm List. In this interview, Moeller also talks about how ethics and integrity are the foundation of good business, staying relevant, and personal and profession- al challenges. The Zweig Letter: What does it mean to be a Hot Firm? Matt Moeller: Obviously, it is an hon- or. It means that our employees have achieved a level of performance that is recognized by our peers as being spe- cial, outstanding and of the highest quality. TZL: How did you get where you are today?
See TOP PLAYER, page 4
THE ZWEIG LETTER | NOVEMBER 28, 2011, ISSUE 936
M&A deals growing in engineering field quarter of 2011. According to PwC, as these developed markets’ econo- mies continue to recover, the volume and value of future deals in these re- gions should increase incrementally. The materials manufacturing seg- ment sustained its leading position in the third quarter of 2011, making up 25 percent of deal activity, followed by the construction segment with 18 percent. Civil engineering also experi- enced strong and consistent growth, contributing 18 percent.
In the third quarter of 2011, there were 44 announced deals worth $50 million or more. M erger and acquisition activity showed strength in the global engineering and construction indus- try during the third quarter of 2011, driven by sustained strategic investor activity and the return of financial in- vestors to the market, especially in the mega deals arena, according to Engi- neering growth, a quarterly analysis of M&A activity in the global engineering and construction industry by PwC US. “Strategic investors continued to dom- inate deal volume in the third quarter of 2011, but we also saw financial in- vestors make a strong comeback to lead mega deal activity. Three of the five mega deals had targets in the engineer- ing segment, suggesting an increasing attractiveness in this area, which could indicate growth in the construction segment, as the two sectors are close- ly-related,” said H. Kent Goetjen, U.S. engineering and construction lead- er with PwC. “The strength in M&A activity shows that despite financial uncertainty in global markets, engi- neering and construction companies with solid balance sheets have oppor- tunities to capitalize on good growth prospects in emerging markets.” In the third quarter of 2011, there were 44 announced deals worth $50 million or more, totaling $18.5 bil- lion, compared to 38 transactions with $14.3 billion in the same period of 2010. Five mega deals, or transac- tions worth more than $1 billion, ac- counted for more than $10.3 billion and 55 percent of overall third quar- ter M&A value. Average deal value re- mained unchanged at $400 million. According to PwC, strategic investors represented 61 percent of overall third quarter engineering and construction deal volume, as companies took advan- tage of strong balance sheets to explore growth opportunities through acquisi-
tions. Meanwhile, financial investors also continued their slow, but steady return, contributing the remaining 39 percent of deals, including all five mega deals. “Increasing activity suggests that financial investors are starting to see value in the current market and view the engineering and construc- tion sector favorably,” Goetjen said. Targets and acquirers in the Asia and Oceania region continued to be a major driver for engineering and construc- tion deal activity in the third quarter of 2011, representing 24 transactions worth $8.1 billion. “Expectations for greater growth rates, more stable eco- nomic performance, and increasing- ly stronger corporate balance sheets of companies in the Asia and Ocea- nia countries suggest that M&A ac- tivity in the region should continue to grow in the quarters to come,” not- ed Jonathan Hook, global engineer- ing and construction leader at PwC. Despite an increase in cross-border transactions due to a resurging in- terest in globalization, global do- mestic deals continued to generate the most activity in the third quar- ter of 2011, representing 54 percent of all deals. China was the most active country overall, with six cross-border and four domestic deals, while Ma- laysia also surfaced as a major play- er, generating three domestic deals. “The financial strengthening of com- panies in China and Malaysia, along with their understanding of the lo- cal business environment and great- er growth opportunities are likely to continue driving domestic trans- actions in these emerging markets,” Hook said. “However, despite a spike in deal volume, acquiring local com- panies in China has not become easi- er as regulations dictate government approval of deals and the majority of private Chinese enterprises are of a relatively small and young nature.” Dealmakers in North America and the U.K. and Eurozone region increased contribution to engineering and con- struction M&A activity in the third
top player , from page 3
ple in our industries. The key for me is working with those whom I respect both professionally and personally. TZL: Describe the most challeng- ing thing you have ever done/the biggest challenge you have taken on outside of work. MM: Perhaps surprisingly, this is a difficult question for me. I have had challenges related to volunteer work, climbing difficult mountains, raising two wonderful children and caring for family. I spent a long time recover- ing from a bicycle accident. That said, I have been very blessed and noth- ing I have experienced personally can compare with the faith, courage and strength that I have witnessed in fam- ily members and friends who have bat- tled cancer. Period. TZL: What question would you ask of another Hot Firm leader? MM: How can we work together? TZL: What lesson learned would you pass along to a recent college graduate embarking on a career in the A/E/P and environmental con- sulting fields? MM: Avoid shortcuts, particularly as related to taking a position that is likely promising only on paper. Volun- teer for challenging assignments, gain practical experience, seek mentors, be a willing contributor to a team, and watch, listen and learn.
© Copyright 2011. ZweigWhite. All rights reserved.
THE ZWEIG LETTER | NOVEMBER 28, 2011, ISSUE 936
S T R AT E G Y
Strategies to make projects happen
Finding out what clients need, providing assistance with financing and rallying for community support among ideas. By Liisa Sullivan Correspondent W hile some clients may be coming up short when it comes to mak- ing projects happen, there are several firms out there stepping up to the plate and going that extra mile to make it possible. These companies offer client support in a variety of ways that range from assistance with financing and grants to budget planning and more. Doing due diligence. At Brack- en Engineering, Inc. (Tampa, FL), a 22-person engineering design, con- struction support, investigation and assessments and forensic engineering firm, staff helps its clients (without ob- ligation) to do “due diligence.” “Specifically, we have begun to commit resources to helping our clients evalu- ate project ideas and/or project feasi- bility,” says William Bracken, president and principal engineer. “These efforts are being offered as goodwill to our cli- ents and are being treated as marketing efforts, internally. Our goal is to help our clients find the best fit and most appropriate solution while building a relationship that most often yields work.” Examining deliverables and work processes. Another venture that Bracken has undertaken is to re- examine both its deliverables and work processes for opportunities that may reduce time and expense. “By working with our clients to better identify their needs, we are better able to produce cost-effective deliverables,” Bracken says. Bracken employs a two-fold approach that emphasizes expert solutions and clear communications. This combina- tion allows them to partner with cli-
and eligibility from state, federal and grant agencies. “Value engineering has played an im- portant role for several private clients – in one particular case, it saved them more than $3 million,” Jesiolowski says. Value engineering is a systematic meth- od to improve the “value” of goods or products and services by using an ex- amination of function. “During these tough economic times, we’ve been successful and have main- tained our 90 professional staff mem- bers because of our client-approach to architecture,” Jesiolowski says. Community education. Crabtree has also been effective in working with communities. The firm often presents to Rotary groups and at town meetings and hearings to educate the communi- ty on the scope of a proposed project, addressing questions and concerns. “We’ve prepared brochures, presenta- tion drawings and flyers to promote projects and to increase visibility. In turn, this helps to generate increased community support,” Jesiolowski says. Bracken says that this extra client sup- port has truly helped to drive business. “By refocusing our efforts on our cli- ents and their needs, we find that we are also able to strengthen our relation- ship with our clients,” he says. Expertise areas at Bracken range from engineering and design to forensics, construction and disaster support. It works with a wide range of property types, including commercial, residen- tial, municipal, industrial and agricul- tural. Currently, Bracken employs 22 full- time and eight part-time employees. Of that number, 10 are either E.I.s or P.E.s. That number also represents a 66 percent increase in full-time positions over the last three years. So, client support not only benefits the client, but the firm, too.
ents and to provide accurate and reli- able solutions that meet their needs. Maximize budgets and sav- ings. Joanne Jesiolowski, corporate communications manager at Crabtree Rohrbaugh & Associates (Mechan- icsburg, PA), a 90-person architecture, master planning, interior design and construction administration firm, says that the most crucial factor in assisting clients has been the staff’s proven abili- ty to help themmaximize their budgets and make the project happen. “Our firm prepares studies with an un- derstanding of the clients’ current debt service and future borrowing capacity,” Jesiolowski says. “We then recommend phasing of projects to allow their bud- gets to work for them.” Additionally, Crabtree has always held sustainable design as a core company belief, even prior to the inception of the U.S. Green Building Council and its LEED standard. Today, the company assists its clients in obtaining addition- al reimbursement through the LEED registration process. “We also explore ground source geo- thermal systems, prepare life-cycle cost analysis and payback schedules to pro- vide a true picture of what savings can result from the project,” Jesiolowski says. Find funding. Comprehensive Environmental Inc. (Merrimack, NH), a 25-person civil engineering and environmental consulting firm, helps clients to obtain funding, says Stepha- nie Hanson, principal and project man- ager/scientist. “We do this by assisting them with ap- plications for select grants and low/no interest loans,” Hanson says. “We have been providing this service as a ‘value- add’ to our existing repeat clients for over a decade.” Value engineering. Crabtree em- ployees also work closely with a client’s financial firm early in the planning phases to ensure that the available bud- get meets the program. They then esti- mate potential reimbursement dollars
THE ZWEIG LETTER | NOVEMBER 28, 2011, ISSUE 936
R E P O R T
Credit woes stalling the industry
According to new report, the inability to procure financing is halting 20 percent of projects. By Christina Zweig Staff Writer T ighter financing restrictions and declining available credit have be- come a prevailing cause of stalled proj- ects all over the nation. According to a new report, difficulties in securing fi- nancing are present in nearly all market sectors: residential, commercial and in- stitutional construction projects. A comprehensive report released by the American Institute of Architects in ear- ly November concludes that the major obstacle holding back job creation in the United States is the persistent lack of construction financing. Despite re- cord low interest rates, the report com- piled by McGraw-Hill Construction and Reed Construction Data states that the inability to procure financing is respon- sible for 20 percent of stalled projects nationwide. The share of projects stalled due to fi- nancing problems has almost doubled since 2008, according to a release. “This report should lay to rest any doubt about what is a key source for holding back job creation in the United States,” said Kermit Baker, chief econo- mist with the AIA. “It is the lack of fi- nancing, especially to the design and construction sector, which accounts for $1 in $9 of U.S. gross domestic prod- uct.” Big firms, small firms and ev- erything in between. The report found clients with large, complex proj- ects are not the only ones having diffi- culties securing financing.
Contractors of America, says though there are many good and legitimate projects that are unable to get financ- ing, the credit crunch is reflecting a much larger issue. “What will change the market funda- mentally isn’t someone convincing banks to lend, as it is the market needs to change so there’s a demand for le- gitimate construction,” he says. “Once that happens, it may not be as easy and there may be more hoops, but the banks will lend. We have a huge sur- plus of empty office facilities and ware- houses. We need broader and more sus- tained economic growth to increase the demand for new office spaces and hous- ing.” Turmail says a host of other factors are at work right now. “Banks are more hesitant to give out loans because they got burned in housing bubble, but also because of a lot of consolidation,” he says. “Many banks have consolidat- ed and the personal relationships that used to be there – aren’t anymore. It will take some time for bankers to get to know who the good contractors, de- velopers and projects are.” This has been a problem for a long time, and it doesn’t look like there will be a quick fix. “U.S. architecture firms have been re- porting increased financing problems for construction projects for most of 2011,” the report stated. “A July, 2011, AIA survey of a nationally represen tative panel of architecture firms dis- covered that almost 70 percent of firms had one or more projects at that time where work was currently stalled. “Whatever, the reason – be it over-reg- ulation, the threat of a double-dip re- cession or the reluctance to have too many loans on the books – lenders are just not lending to a major job-produc- ing sector of the American economy,” AIA’s Baker said. “Until more credit is extended, the potential of non-resi- dential construction to promote great- er levels of economic growth will not be realized.”
“Architecture firms recently reported that projects with estimated construc- tion costs of under $5 million account for almost half of all projects stalled due to lack of financing, even in the commercial and institutional catego- ries,” the report reads. “In fact, only 15 percent of stalled projects have es- timated construction costs in excess of $25 million.” Renovations and retrofits also made up a significant percentage of stalled proj- ects. It was reported that more than 25 percent of projects stalled because of the credit crunch could qualify for LEED, Green Globes or other green cer- tification status. Certain market sectors are experienc- ing more problems with financing than others. “Financing problems account for a higher share of stalled projects in the education and multi-family sector… Fi- nancing issues are less of a factor hold- ing back projects in the manufacturing, private healthcare and retail environ- ments,” the study revealed. For the design industry, the credit crunch is being compounded by a fall in funding for public sector work after the short-lived relative bonanza of the last two years. Kevin Philips, CEO of FPMGroup Ltd. (Ronkonkoma, NY), an 80-person envi- ronmental consulting and engineering firm that works mostly for state and federal agencies, said the difficulties are evident. “We have seen a slowdown of projects and expect that to continue for at least another year,” he says. When will this be over? Brian Turmail, executive director of public affairs for the The Associated General
“We have a huge surplus of empty office facilities and warehouses. We need broader and more sustained economic growth to increase the demand for new office spaces and housing.”
© Copyright 2011. ZweigWhite. All rights reserved.
THE ZWEIG LETTER | NOVEMBER 28, 2011, ISSUE 936
Discounts help determine value Process is complicated by many variables, however. T he valuation of privately held firms, including those in the A/E/P and
❚ ❚ Market approach – The transaction data used in a market approach methodology will have a direct correlation to the level of value produced. Transactions involving privately held companies are representative of a control interest; public company data is representative of minority interests. Let’s now take a look at discounts. ❚ ❚ Discount for lack of control – A discount for a minority interest is taken from a control-level value indication to account for the lack of control associated with a minority shareholder. Empirical evidence suggests that the size of the minority interest discount is based on control premium, resulting in implied discounts of about 25 percent. To develop the appropriate discount for a subject interest properly, an appraiser should consider several factors that could increase or decrease the discount. Factors include non-voting interests, extreme lack of consideration of minority shareholders, an interest insufficient to stop corporate action or elect a director, the existence of put rights and the presence of enough minority owners to block certain actions or have a meaningful input on the election of directors. ❚ ❚ Discount for lack of marketability – This type of discount is meant to account for the lack of liquidity (or marketability) of stock that is not traded on public exchanges. There’s a market of readily willing buyers and sellers for publicly traded stocks. That market is able to consummate transactions in a short period of time and the proceeds are usually available within three business days. In contrast, closely held shares – which are economically impaired due to lack of access to active markets – have a small market. Studies point to the existence of discounts on sales of restricted shares of publicly traded companies and discounts on sales of closely held shares compared to prices of subsequent IPO offerings of the same company’s shares. In all, the studies suggest a range of discount from about 10 to 35-plus percent. As with discounts for lack of control, the appropriate discount for a subject interest depends on multiple factors, including transfer rights, dividends or the lack thereof, the prospect of selling
environmental consulting industry, will usually involve discounting to arrive at a concluded value of the subject interest. Readers who have been through the valuation process in the past are at least familiar with the terminology. For those who have not, a primer is in order. To place a value conclusion on a privately held business interest, we must determine the level at which the valuation will be done – a control interest basis or a minority interest basis. An owner of a 51 percent or more interest is considered a “control” owner and a holder of 49 percent or less is considered a “minority” owner. In the context of fair market value, these two levels of ownership are significantly different. It would be easy to assume that the value of a minority interest in a privately held firm is equivalent to the pro rata value of 100 percent interest, but that is not the case. Issues
of control and marketability must be taken into account. The other contributing factor a valuation professional
As-if Freely Traded
Income Approach Market Approach
• Control • Minority • Control • Minority
the firm, the existence of a market for the block of shares being valued, put rights, the existence of a buy-sell agreement, stability of earnings, etc.
Level of Control
As-if freely Traded Level of Marketability
Controlling interest Discount for
takes into consideration to determine discounts is the actual methodology employed in the appraisal process. As presented in the exhibit above, the various approaches to value can produce results on a different basis. ❚ ❚ Asset approach – Under an asset approach, no individual shareholder owns the corporation’s assets at the individual level; shareholders with a majority position and voting control have the ability to control the corporation and the accumulation or disposition of the assets. Therefore, the control shareholders have access to the equity in the assets – and asset-based methodologies produce values at the control level. ❚ ❚ Income approach – Depending on the appraiser’s decision as to the level of normalizing adjustments to the financial statements, income approach methodologies can produce a value indication at the control or minority interest level. If “control” normalizing adjustments are made, the value
Discount for lack of marketability
lack of control
As illustrated in the second exhibit above, multiple considerations need to be taken into account when valuing a privately held company, its many moving parts and the discounting appropriate for the subject interest. What shareholders should take away from this brief discussion is that every decision made within a firm, from financial to corporate governance, will have an implication on the final value conclusion. Tracey Jeffers, MBA, CBA, CMEA, is a principal in ZweigWhite’s Financial Advisory Services Group, where she oversees valuation services. Contact her at firstname.lastname@example.org or call (479) 582-5700.
indication is at the control level. The opposite is true if the only normalizing adjustments made are those applicable to what a minority interest holder could affect.
THE ZWEIG LETTER | NOVEMBER 28, 2011, ISSUE 936
Protect yourself from second-hand exposure Architects, engineers and construction managers should set insurance standards for subcontractors and subconsultants. A rchitects, engineers and construction managers all have legal responsibility not only for services performed by their own employees, but also for any services provided by subconsultants or subcontractors they retain.
involving environmental issues, you should also require the purchase of contractors’ pollution liability insurance. Consider standard coverage only as starting point. Build in requirements for other insurance lines based on any additional insurance requirements specified by your client. In these cases, “flow down” the insurance and other risk allocation provisions to your subcontractors and subconsultants. You should also review the services the subcontractors or subconsultants are performing and identify any unique exposures that may require other insurance. The specific insurance requirements you establish should be structured to back-stop any indemnity you want subcontractors or subconsultants to provide your firm and are required by your client. Besides the specific insurance policies, include requirements for coverage endorsements to make sure the policies effectively protect your firm. Your firm should be listed as an additional insured on the subcontractor and subconsultant’s general liability, auto liability and contractors’ pollution liability policies. A waiver of subrogation endorsement can be added to the general liability, workers’ compensation, auto liability and contractors’ pollution liability policies. It prevents the insurance company from seeking indemnification from your insurer for covered losses up to the policy’s limit. There are other endorsements to consider as well. One factor you cannot overlook. Make absolute- ly sure the wording of your contracts with the subcontractors and subconsultants spells out the insurance requirements for the subcontractor and subconsultant so their insurance policies and the endorsements respond as you intended. Establishing minimum requirements for liability insurance limits is another priority. While there is no definitive answer on what liability insurance limits to set for subcontractors or subconsultants, some benchmarks may be useful for establishing minimum standards. They include: a minimum of $1 million for general liability and automobile liability; at least $500,000 of employer’s liability on workers’ compensation policies; and at least $1 million of umbrella liability insurance. In addition, architects, engineers, construction managers and other construction consultants tend to purchase at least $1 million of professional liability insurance. Other considerations for determining appropriate limits include the nature of the work performed, type of project and its size. Many prime design firms consider projects with total construction values above $20 million to be a milestone requiring higher insurance limits. Given the magnitude of potential exposures, most design firms and construction companies are unlikely to have other financial assets sufficient to pay for such losses without insurance. Make sure the insurance requirements you establish are as comprehensive as possible and address the wide variety of potential risks associated with the subcontractor or subconsultant’s activities. Altogether, these measures are a critical part of an effective risk management program.
To protect themselves from the potentially substantial financial exposures that could arise from the work of their subcontractors and subconsultants, firms need to establish a sound corporate policy governing their contractual practices and insurance requirements for any outside professionals or consultants they retain. The main goal of establishing corporate requirements for subconsultant and subcontractor insurance is to insulate your firm and its insurance program from losses caused by the actions of the subconsultant or subcontractor. Accordingly, it’s critical to have their insurance respond first to pay a loss, with your firm’s insurance responding only if their insurance program limits are insufficient to satisfy the full amount of the loss. To make sure that happens, the requirements must be spelled out in your contractual arrangements and, if appropriate, in the insurance policies of the subcontractors and subconsultants. As with any corporate policy, be sure the firm’s senior management is involved in the creation and implementation of the company’s standards
governing subconsultant and subcontractor insurance. The standards should outline the minimum requirements for insurance coverage, amount of limits and any special endorsements. In some instances, there may be valid reasons to use a subcontractor or subconsultant that does not meet the minimum insurance requirements. A formal approval process should be in place for any deviations from the minimum standards. Determine who within your firm can approve an exception and under what circumstances. Be sure your firm’s corporate policy requires that written documentation be included in the project work file for any approved deviations. The basic insurance coverages typically required of every subconsultant or subcontractor include: workers’ compensation, which is state-mandated, and employer’s liability, which protects against suits brought by workers for job-related injuries or illnesses (in states where such actions are permitted by law); general liability; automobile liability; umbrella liability; professional liability; and property insurance. For projects
Mike Herlihy is an executive vice president and partner with Ames & Gough. Contact him at (617) 328-6555.
© Copyright 2011. ZweigWhite. All rights reserved.
HR A SUPPLEMENT OF THE ZWEIG LETTER
NOVEMBER 28, 2011, ISSUE 936
B E S T F I RM
DWA driven by team effort
Employees feel privileged to work there, in and outside the office.
Fast FAQs ❚ ❚ What does DWA Do? Structural engineering for all types and sizes of buildings. ❚ ❚ Where are they located? Miami. ❚ ❚ How many employees? 12 ❚ ❚ What drives DWA? Its unwavering commitment to engineering creativity and quality coupled with complete honesty and integrity.
By Bryan Sullivan Correspondent
I t’s one thing for a firm to claim they are team driven; it’s another to hear it from its associates. And, at Douglas Wood Associates, Inc. (Miami, FL), they’re really talking! No wonder they are the No. 9 Best Structural Engineering Firm to Work For in 2011. What makes DWA so special? For both the 2009 and 2010 Best Firm surveys, DWA had the number one highest employee survey score. Why, you ask? Well, while the firm has an outstanding salary and benefits pack- age for its employees, it’s the firm’s cre- ativity and inclusive environment that keeps them on top. Their associates are simply proud to be a part of the DWA team. “What most attracted me to the firm was the work environment, the spirit of teamwork, the innovative approach taken toward challenging projects and the commitment to high standards,” says Maher Oueslati, an associate who has been with the firm for seven years. And for engineers, most of the time it’s work, work and more work. Many of them never get to see the fruits of their hard labor. Well, that’s not the case at DWA. Not only is there a family atmo- sphere in the office, but outside the of- fice as well. Sandro Hadjez, an associate with the firm for 11 years, says, “DWA offers a great atmosphere to work in, but we also enjoy participating in office-sup- ported family events like our archi- tectural boat tour through the North Beach area of Miami Beach, and our kayaking trip around South Beach. I es- pecially like our office outings to some
The DWA team.
Successful core culture = team retention. To tell if a compa- ny’s compensation and corporate cul- ture are working, all you have to do is look at the employee retention num- bers. “Two thirds of the associates have been with the firm for five or more years. The newer additions to the team have been the result of growth over the past five years (2011 Hot Firm List, 2010 Hot Firm List Honorable Mention). Pres- ently, the average tenure with the firm is 7.67 years. The last person to quit the firm did so in 2006; he rejoined the firm in 2009,” Boyer says. Leading by example. Douglas Wood founded the firm in 1992 and continues to serve as president. Wood’s first job after graduating from college was with an A/E firm with over 100 employees. Over the span of 13 years, he rose from entry-level engineer to president. After two years as president, philosophical differences with the own- ers and a lack of ownership share got in the way and prompted Wood to found DWA. His desire was to provide the most cre- ative, thorough and technically excel- lent structural engineering, coupled with outstanding client service. After nearly 20 years, these values remain. The desire to do great work and the de- livery of that desire is one of the prime attractions for engineers to join this firm.
of our completed projects. These give us the opportunity to see and enjoy the fruits of our work. For example, after the completion of the restoration and renovation of several areas of Miami’s historical Vizcaya Museum and Gar- dens, the firm hosted the associates and their families for a lunch and mu- seum tour.” Employee courtship – con- veyed and contagious. It’s no longer status quo. Firms have to go above and beyond to retain talented employees. One way to do this is to re- ward achievement excellence. Office manager Ken Boyer has been with DWA for 11 years and believes in rewarding employees who have dem- onstrated excellence in the field and on projects. “DWA achieves its uncommon levels of job satisfaction and support by go- ing beyond the usual package of sal- ary and benefits to providing an envi- ronment in which the higher, intrinsic motivations of autonomy, mastery and purpose are fulfilled,” Boyer says. “We make sure that our targeted candidates get the ‘feel’ for this satisfying environ- ment. The ‘courtship’ phase is one way to do this. We introduce the new em- ployee to a number of professionals at different levels in the organization and allow them time to interact candidly, apart from top managers and admin- istrators. Our professionals’ pride and enthusiasm is always conveyed and contagious.”
THE ZWEIG LETTER | NOVEMBER 28, 2011, ISSUE 936
Writing an effective job description It all comes down to format, content and language. D eveloping a formal job description serves two critical purposes. Firstly, the process
well-structured position description. Notice that each ele- ment is intended to support contextually the element pre- ceding it. The purpose is to create a cohesive description that brings a vivid and accurate portrayal of the opportuni- ty. Again, we want to attract the most relevant candidates, and at the same time hold their qualifications accountable to the overall needs of the position. Here is a snippet exam- ple of each element and their respective characteristics (I’ve taken the liberty of using a template I’ve designed for use at ZweigWhite): 1)Company profile (Characteristics: Narrative, descriptive, concise). “Twice named to the Inc. 500 list of best firms, ZweigWhite is the nation’s leader in enhancing business performance for architecture, engineering and environmental consulting firms. The ZweigWhite team consists of experts over a wide variety of disciplines who collectively...” 2)Position summary (Characteristics: Narrative, descriptive, concise). “ZweigWhite has an exceptional opportunity for a Recruiting Specialist to join our Executive Search Consulting Services team at our Corporate offices in Fayetteville, AR. This role will serve as a critical partner in efforts to identify, attract and deliver competitive candidates for our clients in the Architecture, Engineering and Construction Industry...” 3)Position responsibilities (Characteristics: Bulleted, informative, and concise to one line). “In Support of ZweigWhite’s Executive Search Consulting interests, Recruiting Specialist will be entrusted to: ❚ ❚ Source candidates through established processes, including research of and participation in... ❚ ❚ Closely pre-screen applicants prior to submitting to clients for further consideration...” 4) Position qualifications (Characteristics: Bulleted, resolute, and concise to one line): ❚ ❚ 1-2 years experience in a related research, recruiting or sourcing capacity. ❚ ❚ Successful cold-calling and interviewing experience at all levels of a corporation. Again, pay close attention to the cohesion across all four elements; each supporting the broader purview of the element preceding it. The goal is to communicate an opportunity by way of a logical format that “paints” a broad, contextual, cohesive picture of the position. The end result is a description that is easy on the eyes and more enjoyable to read. The summary elements are informative/ narrative summaries. The responsibilities are measureable, attainable, concise and easy to understand. Finally, the qualifications are structured in a way that endeavors to hold applicants accountable to the resolute requirements of the position. Much, much more can be said on this topic. Equally important is the content we deploy in each of these elements, and the language we use to convey that content. We’ll approach both content and language in our next article. Jeremy Clarke is the director of executive search consulting with ZweigWhite. Contact him at email@example.com.
forces your hiring team to establish consensus regarding the key characteristics, responsibilities and requirements of a job. This consensus serves to “calibrate” the hiring team regarding the preferred candidate profile before conducting a search and beginning the selection process. Secondly, a formal job description can be an incredibly helpful marketing tool to attract talent – the right talent, if written correctly. Both outcomes – calibration and marketing – can produce a more efficient and accurate search, saving your company valuable time and resources. Many firms, however, don’t invest adequate consideration to developing effective position descriptions. Often times the job descriptions we read seem rather rote, don’t they? They strike us as being constructed under compulsion and as a mere matter of form – just a document to “get things rolling.” It’s not difficult to spot these descriptions. Their language is cold, the format is haphazard, and the content is… well, nondescript and boilerplate. It’s no wonder that all the wrong candidates flood their applicant tracking systems and hiring teams can’t seem to
agree on selection criteria during the interview process. A little intentionality in this effort goes a long way in hiring your next employee. Over the next two articles we will look at some characteristics that distinguish great job descriptions; all of which fall under three key headings: 1) format; 2) content; and 3) language. Format refers to the general structure of the position description. Content refers to the information provided within each element of the format. Language refers to the use of language to describe and convey the content of each element. We’ll discuss format this month. Format. A good job description is expressed in a format that creates incremental context across four key elements. Firstly, it offers a brief company profile that describes the firm. Secondly, it offers a brief position summary that ties into the broader company profile. Thirdly, it offers a de- scription of the position responsibilities that support the broader position summary. Finally, it offers a description of the position qualifications that support the broader po- sition responsibilities. Make sense? Follow the order: 1) company profile; 2) position summary; 3) position respon- sibilities; 4) position qualifications. That’s a recipe for a
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