Thursday, January 24, 2008

Diligence Stories

Absolutely terrific post by Equity Private regarding an undercover diligence mission. I agree completely that there is absolutely no reason to ever give a buyer anything resembling this kind of unfettered access. It must be controlled, time-limited and escorted - and preferably kept entirely off-site.

Note to EP - the problem with non-signed employee agreements you ran across is probably a non-issue, as standard employee non-competes are completely unenforceable in California.

Thursday, January 03, 2008

More on ROWE

Cali and Jody’s ROWE (Results-Only Work Environment) blog – which hits dead-on so many of the inanities of our clock and face-time obsessed workplace culture – has a recent post regarding attorney billable hours, and the fact that clients are driving the push to rid the delivery of legal services from this archaic model.

Now, I’m sure most of these clients aren’t living the ROWE ideal, but at least there is a recognition that the results provided by legal services are not always – or even most of the time – linked to the time it takes to produce them. I spent less than three years working in a billable hours environment before entering the corporate world, but I hated it from the first. Ironically, part of the problem was the clients themselves, who had no problem paying for endless hours spent summarizing depositions or twiddling one’s thumbs in a courtroom status conference but would balk at time billed for conferences between the firm’s attorneys, to say nothing of paying on a sliding scale based on results.

On the Limits of Analysis

Ken Klee over at Corporate Dealmaker penned a brief review of a recent HBR article titled "Innovation Killers: How financial tools destroy your capacity to do new things." As Ken points out, any critique of the limitations of DCF analysis is highly applicable to dealmaking.

I've mentioned before my somewhat jaundiced view toward financial analysis and the reverence to which it is held in every big company I've worked with. While DCF analysis has its place, its limitations absolutely must be recognized.

As Ken points out, one problem is that fact that most DCF models are built on status quo assumptions (or corporate growth projections) that don't account for the strategic and competitive dimension. I would add that there is also the simple problem of garbage-in, garbage-out: the less you know about what's likely to happen (as is the case with new lines of business and transformational transactions), the less reliable the output of your DCF model becomes. The problem is that instead of acknowledging this limitation, many embrace the modeled output as Holy Writ. Besides being a false data crutch, it squeezes out consideration of other "softer" factors (like assumed competitive ramifications, or non-quantifiable synergies)that are every bit as worthy of consideration.