8 JC: With our attitude to find the best, pay well, and expect much, we’ve already experienced significant increases in sal- ary over the last several years. At the same time, technolo- gy continues to dramatically improve efficiency. I anticipate both these trends continuing, so our leaders must navigate them both in a way that keeps the firm vibrant and growing. TZL: There is no substitute for experience, but there is pressure to give responsibility to younger staff. What are you doing to address the risk while pursuing the oppor- tunity to develop your team? JC: We use a technique we’ve dubbed “managing by excep- tion.” We discuss risk factors early and often on every proj- ect. Clearly defining levels of authority, using both objective and subjective criteria, empowers staff to make their own decisions, but requires them to obtain approval on anything out of the norm. So, working for an existing client on a proj- ect type you’ve managed several times, you may have signif- icant financial authority to commit to the firm. But, even on a small project where the risk is high, or the client/project is unusual, we require senior oversight. LOYALTY AND INTEGRITY, from page 7 “Kleinschmidt promotes loyalty to our employees, and we have financial incentives that are geared exclusively to the long-term. Actively stating that we are loyal to our employees differentiates us from many, especially larger companies, and creates a team and ownership mentality.” TZL: Engineers love being engineers, but what are you doing to instill a business culture in your firm? JC: We have constant, one-on-one conversations to cre- ate an understanding of the “business of running the busi- ness.” We start with a focus on the basic building blocks of a business culture: accountability and responsiveness. When technical professionals have a good understanding of their roles and are accountable to each other, they create a great foundation. From there, we provide business education to staff at all levels, including our “Leadership Academy” (fea- turing June Jewell’s Find the Lost Dollars training) which exposes existing and upcoming leaders to the best industry practices. We also publish our financials and provide lunch- and-learn workshops, seminars (internal and external), and shareholder education where everyone in the company is welcome. TZL: The seller-doer model is very successful, but with growth you need to adapt to new models. What is your program? JC: We’ve developed a matrix organization, where people who are interested in and excel at business development spend more of their time and energy pursuing new clients and projects. At the same time, individuals in the opera- tions part of the business continue to develop the lasting relationships that any technical services firm relies on for long-term success. This balance is delicate, but when we are
successfully collaborating among the matrix, we cross-sell better to expand our services, and we are more successful pursuing competitive large and complex projects. TZL: Diversity and inclusion is lacking. What steps are you taking to address the issue? JC: Globally, we have some powerful female role models and support their engagement in industry associations that support women and minorities. More tactically, new en- trants to the industry are more diverse today, so we were able to recruit a more diverse workforce. Once created, it was just a matter of time and open-minded review of can- didates before we promoted several capable women to firm leadership roles in 2017. Additionally, leadership opportu- nities in the multiple career paths mentioned above provide other avenues for women and minorities to seek advance- ment, as several have. This atmosphere has created a more inclusive leadership pipeline, although I still count this as a work in progress. TZL: A firm’s longevity is valuable. What are you doing to encourage your staff to stick around? JC: Kleinschmidt promotes loyalty to our employees, and we have financial incentives that are geared exclusively to the long-term. Actively stating that we are loyal to our em- ployees differentiates us from many, especially larger com- panies, and creates a team and ownership mentality. Work- ing in the team environment, individuals who stick with the company recognize significant benefits from ownership and from our very strong 401(k) contributions. We are con- stantly balancing this longer view against the pressures for immediate rewards and the need to constantly communi- cate and reinforce why we do this. TZL: How are the tax cuts impacting your business? Have salaries and bonuses increased? JC: We can retain more without a tax penalty. The tax cuts also increased the appeal of dividends. We are a C-corp and traditionally avoided the tax consequences of retaining cash for future distributions because they were doubly taxed. In 2019, however, the corporate taxes plus dividend taxes (capital gains) will be lower than the marginal individual tax rates. This makes dividends a more tax-efficient way to dis- tribute earnings and it ties directly to shareholdings, where- as we avoid that connection with bonus distributions. We expect this to add incentive to those owners contemplating a purchase. TZL: How have the tax cuts impacted your firm’s valua- tion? Do you plan to perform another valuation due to the tax cuts? JC: We pay taxes on a cash basis, so the tax code changes moved significant deferred taxes to retained earnings. Since these are future taxes, there was no cash that followed this transaction. That should influence the valuation, as well as the lower tax rate affecting the longer-term cash flow of the company. Accordingly, we expect the valuation to increase based on those pressures. TZL: Are you currently pursuing the R&D tax credit? JC: Absolutely.
© Copyright 2019. Zweig Group. All rights reserved.
THE ZWEIG LETTER April 1, 2019, ISSUE 1290
Made with FlippingBook Annual report