CEOs Identify the Most Significant Leadership Challenges They Face Today

CEOs Identify the Most Significant Leadership Challenges They Face Today

Vistage’s Chief Research Officer, Joe Galvin, presents Vistage’s Q2 CEO Confidence Index Survey recapping our members’ opinions on the economy, financing, and the prospects for their own business. You can see the report here – “The First Steps of the Hard Climb to Recovery Begins.

 

The survey shows that while CEO Optimism was one of the three lowest ever recorded, most CEOs are experiencing an increase in activity with the lifting of lockdowns. However, the survey data is before the initial wave was increasing in the South and West. I feel that we are “At the end of the beginning, rather than the beginning of the end.”

 

CEOs identified the most significant leadership challenges they face today, which fall into the following four categories:

 

  1. Morale. The most common theme shared by CEOs was maintaining and building morale with their leadership team and employees. It has been a very stressful three months for everyone, personally and professionally. The next three months won’t be any easier, which will challenge leaders to motivate a workforce with diverse needs. Priorities for leaders include keeping employees focused and positive, avoiding executive burnout, and inspiring the organization for the hard climb.
  2. Back to Work/ Work from Home. The pandemic has changed the workplace forever. CEOs have to redesign the workplace with physical health and safety as a priority, and also creates a feeling of protection for those employees returning to that workplace. Compound that with the broad acceptance of remote working as a proven option, which forces leaders to adapt their culture and communications to incorporate remote workers, engage in hybrid meetings, and accept that work-from-home is a permanent fixture in the new reality.
  3. Growth. Leaders need to crank the growth engine back on from a cold start. For 80% of businesses, revenue is down at some level since customers shut down or postponed non-essential purchases over the last three months. Creating new demand, re-engaging with customers, and rebuilding opportunity pipelines are all prerequisites to rebuilding business volume. Quickly adjusting to changed customer behaviors and shaping messages that connect to their new reality will accelerate the return to the growth curve.
  4. Uncertainty. Undercutting everything is the uncertainty leaders feel and face in every direction. There has never been a business scenario like this except in classrooms. Uncertainty about the pandemic’s length, the economic outlook, and the unknown impact on their markets are some of the difficulties facing leaders. Forecasting has become a black art once again, as pre-COVID financial models have lost relevance. The absence of data or clear direction will force leaders to rely on their instincts and judgment to make the best decision and be prepared to adapt quickly.

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You Need a Peer Group, NOW!

You Need a Peer Group, NOW!

In 2007 the recession hit, and at the time, a partner and I owned a mergers and acquisition boutique that we had built up over three years. In December 2006 we closed our biggest deal yet and had a full pipeline as we moved into 2007. Then things started drying up, and by Q4, there was nothing. Looking into 2008, we figured a few deals would come back to life, but that was not to be the case.

As my partner and I talked through options to save the company and keep us moving forward, we exhibited some of the five dysfunctions of a team. We discussed some hair-brained ideas, including doing what we had done before, but just with more considerable effort. None of the ideas worked, and looking back; we weren’t thinking things through, looking at new markets, and holding each other accountable. Then we did what most of us do when stressed; we fell back doing the things with which we are most comfortable. My partner distracted himself with an executive Ph.D., and I, who was already distracted with the recent death of my mother, my divorce, and my children’s custody, reverted to doing financial analysis and modeling. These distractions enabled us to convince ourselves that we were swamped, which we were, but were not moving the company forward.

I did manage to get us some consulting work, but It was not until 2011, after joining a Vistage group, that we were back on track. However, looking back at that time, I would have given anything to be in a Vistage group from 2006. I needed a group of Peers to:

  • Challenge my thinking and assumptions;

  • Force me to accept what was happening and look for new opportunities;

  • Push me and hold me accountable for commitments;

  • Make me realize what I was doing was ineffective;

  • Challenge me about my concepts of the future and the status quo; and

  • Make me express my vision and strategy.

Not only that, but a Vistage group through its great speakers provides education on so many fronts that there is always something to learn.

As I reflect on this, it reminds me of a moment in 2004 when a Vistage Chair came to see me and tell me about Vistage. I was an overconfident, arrogant, young business owner who believed he didn’t need “no stinking help!” As I said, fast forward several years, and when a second chair proposed joining Vistage, it was like “Throw me a lifeline, I am drowning.”

Few business owners and CEO invest in themselves because they are successful, don’t realize they have stopped learning, don’t think anyone can understand their business, and don’t have time. Over my career, I have worked across many industries, and with many companies and never found a business model I can’t understand. The most significant issue is the confusion is over the myriad of TLAs ( three-letter acronyms) that a unique to a company and industry.” However, remember, as Marshall Goldsmith said, “What Got You to Here, Won’t Get You to There.” Regarding the lack of time, we all find time for what we deem essential. If learning and improving yourself and your business are a priority, then you can find the time. Furthermore, if your business cannot survive for a day without, you are failing as a leader.

Today we are experiencing a variation of 2008’s crisis. Our success as a leader is determined by how we emerge from the disaster. Many will emerge batted and beaten, some will appear as they went in, on a form of autopilot, and then some will develop more robust and resilient, and in a market leadership position.

To make sure you are among the latter, you need to be a member of a Peers Group, i.e., a Vistage Group:

  • where the members’ only price for helping you succeed, is helping them achieve their success;

  • to challenge your assumptions and prevent hubris;

  • to hold you accountable for your commitments;

  • to provide resources to help you and your organization succeed.

My groups are currently meeting weekly to:

  • Provide Emotional Support and Mental Health – We take time to discuss how we are all doing What is happening in our lives, with our families. This discussion occurs before we get to business.

  • Provide Information and Support – The members are helping each other with finding community banks that will provide PPP funds. Helping refer new business to each other. Advising in the areas that are the key competency to the others.

  • Charting the route forward – questioning each other about what the future holds and how they will be successful in the future. Who to keep and let go to ensure they have the right resources in the future. What clients need attention or cultivation and which need to be “fired” as they are too expensive to keep.

  • Employee Care – How to deal with employee issues from hiring in a virtual world to firing. We are discussing how to bring the workforce back safely and avoid litigation. Other topics are how to compensate them for extra efforts, promote those that have risen to the occasion, and what to do with those in leadership positions who didn’t.

Bart Garvin, Owner, and President of Garvin Industries expressed the benefit of such groups, “Because we’re all human, every business owner or CEO has multiple blind spots. Those blind spots often give us a distorted perception of truth inside our company, and it’s all based on our past experiences. [The group] forces me to step outside my business and be intellectually honest about my blind spots so I can change them.”

Looking back at the Great Recession, Vistage Member Companies outperformed their peers, as shown below. Vistage members grew revenue by 5.8%, while non-Vistage members saw a 9.2% decline. Many ask, “Is it the Chair, the peer advisory, the insight, the outside perspectives, the tools, the resources, the research, the speakers, the decision model……?”  No, it is all of them in a group like Vistage.

Vistage CEO member companies who joined in 2006-2008 and were active members in Feb, 2010. CAGR for Vistage member companies calculated for period covering year prior to joining Vistage through 2009. CAGR for D&B US companies based on 2005 – 2009 revenues, weighted to match Vistage company distribution per year during the same period. All companies had >=$1MM annual revenue, >= 5 employees. Vistage: 1,265 companies. D&B: approximately 1MM US companies.

A peer group is not an expense, but an investment and one, similar to a gym, if you go and use correctly, will pay huge dividends. Do you want to be a company represented on the left or the right of the above graph? Now is the time to get involved and push to make you and your organization stronger. Leave it too long, and those who do will have leapfrogged over you. If you want to learn more, contact me.

 

Copyright (c) 2020, Marc A. Borrelli

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During a Crisis, You Need A Different Board

During a Crisis, You Need A Different Board

When a company is in a crisis, you need to make sure you have a board that can meet the task. Some crises develop over time due to shifting markets, deteriorating profitability or lack of access to capital.  As we are seeing today, the other form of crisis can be characterized as a Black Swan Event (low-probability, high-impact).  In either event, the crisis threatens the survival of the organization and is characterized by obscure causes, effects and a lack of apparent solution.  There will be a demand for fast track decision making as a crisis creates moments of truth for an organization and is often existential.  It is important that the C-Suite and the Board acknowledge that the company is in crisis, which threatens the company’s viability, and have a plan for dealing with the challenge.

Boards often fail to have the right complement of directors with crisis expertise for fear of sending stakeholders the wrong message: that there is something wrong.  However, a crisis is the ultimate test of resilience for any institution, its board, and its top executives. Senior executives and directors have exposure to continuous external scrutiny from the media, the legal profession, regulators, and other stakeholders for months or even years during and after a crisis. These compounding pressures force boards and senior management to act quickly to appease anxious or angry stakeholders. However, uncertainty compromises the ability to respond promptly due to the lack of information regarding the cause and the effects of any action.

If a board does not have directors with the right skills to address a crisis or there are conflicts of interest that may interfere with addressing a crisis, it becomes critical to add independent directors with those skills and who are free of conflicts.

McKinsey identified four critical fault lines that pose a severe threat to a board’s effective crisis response.

  1. Overreliance by the board on the CEO or senior management. A board that is unwilling to check or challenge senior management for fear of crossing the line into operational activities is failing in its governance. Candid, or as some call “Carefrontational,” conversations enable the directors to avoid poor judgment calls by management and better able to take an independent stance when a crisis comes.
  2. Micromanagement by the board. An equally significant and opposite problem is micromanagement by the board. Board members seeking a direct say in the management process because of their prior executive positions can cause chaos in the organization. While there is pressure to act quickly and decisively, a board’s role is one of oversight and not management. If it is apparent that the leaders are not up to the task, the board members must reserve the right to step in and steer the organization. In such circumstances, boards will take on some operational responsibilities and make decisions that would otherwise fall within management’s purview.
  3. Complicated dynamics within the board. Crises are an accelerant to all relationships. Thus, a crisis can expose an existing board dysfunction or lack of clear leadership. Boards tend to spend too little time addressing such issues before a crisis hitting. Given the few times that directors meet, there may be a lack of trust and questions of everyone’s different strengths and weaknesses. If the CEO is the leader of the board, rather than one of the directors, it worsens board dynamics.
  4. Imperfect information flows between management and board. 
    During a crisis, there is a conflict between the board and management. The board wants more data to meet their fiduciary duty of staying informed to make decisions and demonstrate a duty of care. Management, who are seeking to fix the problem and minimize distractions, don’t to commit the time and energy to meet the board’s demands. Too many board demands stop management performing, and too little information for the board damages trust.

Assuming that your board doesn’t have any of the above potential fault lines, the next issue is dealing with the crisis.

While many boards and C-Suites have crisis plans in place, the problem with Black Swan events is that by their nature, they are unpredictable, and as Mike Tyson said, “Everybody has a plan until they get punched in the mouth.” Crises fundamentally change the terms of engagement between boards and senior management, forcing both groups to make difficult decisions, including whether the senior-executive team or the board itself requires significant changes.

In a crisis, some of the tough calls that the board needs to make are:

  • Who should lead the nuclear crisis response team?

  • What decision authority should the crisis-response team have to ensure the right balance of speed and oversight?

  • Is the senior management team up to the task, or are significant changes necessary?

  • Is the board’s broader composition right? Should members who can’t add value leave? Are additional, independent member(s) to help the company respond and recover required?

  • What are the immediate shifts required within the board’s composition and roles?

  • Does the board need to establish the principles to guide the organization’s response and recovery?

To manage these calls and other tasks, Boards need to consider the following.

  • The Buck Stops with You. Responsibility for proper crisis response rests squarely on the shoulders of the board and the management. If heads roll, not only will management heads roll, but the board’s will as well.

  • Does each director understand their fiduciary duties?  The primary duties here are Duty of Care and Duty of Loyalty.  Legal counsel should be consulted if only to remind directors and help avoid problems down the road.

  • Proactivity is needed. The board must get out in front of the problems on their own. It looks and is terrible when the board is only reactive.  Reactive boards are failing to exercise their proper governance function. To be proactive, board members need experience in dealing with a crisis similar to the one the organization is facing. A PR crisis is not the same as dealing with a financial crisis. Thus, the board needs to ensure that among its members, it has supply chain, HR, turnaround and restructuring expertise.

  • Determine levels of intrusiveness vs. hands-off governance. The old governance mantra used to be “noses in, thumbs out,” no longer applies. Every board must find its new balance with management on how to increase its oversight to appropriate levels and provide expertise where needed.

  • Risk committees are insufficient. Boards need to look not only at-risk metrics but include room for anecdotal data and information that percolates up through the org
    anization. The committee must be open to all these data sources, rather than be guided only by management’s statistical reports and data.

  • Monitor emerging risks. Reporting on emerging risks is essential not to be caught flat-footed, and thus appropriate expertise is critical. A CFO that has not experienced a financial crisis can better respond with input from a “restructuring” expert on the board.

  • Timing: Immediacy is the rule. In this new world, boards and management aren’t allowed the luxury of time to make decisions. Responses have to quick, even if only “We don’t know yet, but are doing everything in our power to find out immediately. We will stay in close communication with you as we do.” Besides, direct experience is essential during a crisis, as the time element is now critical. Having resources that have real-world experience can make the difference in executing plans and knowing what is time-critical and what is deferrable.

  • Provide a firm moral center for the organization. The board can inspire the right kind of action and attitude throughout the organization, and help the organization recover from the crisis not only with its reputation intact, but more robust than ever. Laying off employees and not paying suppliers raises issues. The manner with which the organization handles this is critical for the firm’s reputation. Mishandling it may result in the inability to attract start talent in the future, or obtain exclusive deals from critical suppliers.

  • Expertise. The board is not to step into managements’ role but to: carefully question management regarding the reliability of known facts and its plans, assess and advise management on its handling of the crisis, and provide assistive feedback to management as appropriate. If the board lacks experience in dealing with the impact of the crisis, it cannot fulfill these functions. Only with experience can the board probe management to discover hubris and blind spots.

So, does your board have these qualities? If not, consider adding independent directors with the right skills and experience.

 

Copyright (c) 2020, Marc A. Borrelli

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A letter to my Vistage Groups

A letter to my Vistage Groups

I have just sent the following to my Vistage members; however, I think all could benefit from it.

 

Hi all,

The Coronavirus situation is changing by the minute. While I sent out what I would like to do at our meeting, I wanted to give you my thoughts on what is needed now.

 

The Situation

The real situation in the US is unknown due to the lack of testing. At present, we have done about 14k tests, and we have 1,700 cases. What this tells me is that the situation is far worse, and the actual number of cases is far higher. As much as I hate to say it, right now, nothing from the Administration is believable as everything coming out of it is either misleading or evasive. I would listen to Dr. Anthony Fauci of NIH or any other credible public health officials as it pertains to the virus. Concerning the economy, look at the bond market. As a result of the Administration’s behavior, states are taking matters into their own hands as we have seen, and saw with Georgia yesterday.

 

Leadership

This is a time of crisis, and as the leader of the organization, you need to step up and lead. As I said in my newsletter last week, leadership is hard, and it is about those you lead! First, your employees are scared – they don’t know what is happening or how vulnerable they are. I was grocery shopping yesterday, and not only are they out of toilet paper and hand sanitizer, but all the ramen noodles were gone, and so were the beans (all types). So you need to reassure them. That, in my opinion, is being honest – do not lie or minimize the situation, you will lose all credibility but be confident, what the potential impact is on your organization, what steps you take to plan and that you will keep them updated. Also, look for their input for suggestions, you are all in this together. For an excellent example, read Winston Churchill’s speech to the House of Commons, June 4, 1940, after Dunkirk.

 

Have a Plan

Now is the time to plan. You need to determine what you will do at each stage now. At what point do I cut various costs, people, stop operations, etc. It is easier to plan before the full panic hits. Work with your leadership team to think this through. The other members of your Vistage Group and I are always here to help, just reach out!

 

The Impact on You

Given how far behind we are, I expect within two weeks, we could see an Italian solution imposed. If that is the case, I would suggest you read this article to understand what is the implication. Regardless, the economic impact is going to be significant. Things to consider:

  • Work From Home policies, while we may be able to work from home, we need to consider if our clients and suppliers can Work From Home. If they can’t, you won’t be able to work for customers or get what you need from suppliers.

  • Cancellation of events. What impact does this have on you? How does it affect your clients and suppliers? Can you create virtual events for your customers?

  • Cash. How much do you have, how big is your line, and what is your burn rate. What can you do to reduce the burn rate without affecting quality and delivery?

  • Communication. I have talked above about communication with your employees. However, I would communicate with clients and bankers as both hate surprises. With clients, look to see how you can work with them through this and be proactive. Everyone is going to be reducing costs as the economic toll hits. If your customer doesn’t know you or understand the value you bring, you are out.

  • Private Equity (PEGs). Since the 2008 crash private equity has acquired an enormous number of companies in the US, many of these are now your customers. However, as we know and I have written about, PEGs have leveraged all these companies to increase their returns. With a substantial downturn, many of these will not be able to meet their bank covenants, and many may file for bankruptcy. Many of the larger PEG owned companies and public companies have taken on large amounts of junk bond debt and may not survive. Look at your client base and see what vulnerabilities you have.

  • Oil States. The current oil price of WTI Crude is $31.80 which is way below what is required for the fracking industry to be profitable. Given the high capital needs of the fracking industry, I think this is over. For regular oil companies, the price is too low to be profitable for many wells and they will be capped. Thus, oil companies are suffering, so economic pain is coming to all oil field support companies. This will affect all local industries and communities. Thus, if you have clients in Texas, Oklahoma, New Mexico or North Dakota, you may want to consider how stable they are.

  • Small companies. Many small companies may not survive this downturn due to a lack of cash. Look at your client and suppliers to see where vulnerabilities lie.

  • Financing. Hopefully, you aren’t relying on any soon, as I think the market will dry up as everyone waits to see the fallout. Like I said, keep in touch with your banker and don’t surprise them.

  • M&A. I think we can expect M&A activity to fall significantly this year. If that is in your plan as a seller, I would plan alternative scenarios. If you are looking to acquire, there may be some great bargains if you have cash.

  • Supply chains. While we all know of the issues from China, Europe is now shutting down. Understand those effects on your company. Further, the Administration’s ban on European visitors will cause air passenger traffic to fall significantly. As a result, I see the passenger airlines curtailing flights. The effect is that 70% of all trade cargo comes in passenger aircraft. So even if your supplier/customer is operating, the transport of products will be difficult.

I have been talking with a lot of you over the week. As your chair, I am here 24/7 to talk through any ideas you have, or just to listen if you need someone to talk to. It is going to hard, and it is very hard at the top! You can reach me on my cell or by video conference. In any event, I plan to be calling you all regularly to check-in.

Finally, apologies if this ruined your weekend, but better to be prepared than reactionary.

Kind regards,
Marc

 

Copyright (c) 2020, Marc A. Borrelli

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Your Challenger Group

Your Challenger Group

Listening to a recent Tim Ferris podcast, Tim was interviewing Adam Grant and asking him about his success, which is impressive. Adam said that he used Challenger Groups for success. According to Grant, “Your challenge network should be the people who will tell you that you’re not quite where you need to be. These are the people that will push you because they care about helping you get better.” Also, “So if in the last six months somebody has given you really harsh feedback, you’ve probably done everything in your power to drop them from your life. In the short run, that might feel good, it might help with your motivation, but it destroys your opportunity to learn. I think we all need to embrace that challenge network if we want to reach our potential.”

Reflecting on this, (Apologies for unabashed self-promotion as I run Vistage groups), that is what a Vistage group does. As I tell prospective members, we are here to:

  • Challenge your assumptions

  • Prevent your hubris

  • Provide advice; and

  • Have carefrontational conversations – we will tell you, your baby is ugly.

The group is not dependent upon you for a paycheck, or income, or anything other than to know you will help them if they help you. Many prospects tell me, I don’t need such a group, I have friends, a board, customers, or father/father-in-law who does this. However, let’s examine these groups.

 

Friends

Our friends are our Cheerleaders and Supporters. They help us when we are down and tell us how wonderful we are. They are unlikely to have carefrontational conversations with us. If they keep telling us that our baby is ugly and our ideas are wrong, the friendship will not last.

 

Customers

Really!! You will tell your customers that your largest customer has just declared bankruptcy, and you are not sure you have enough cash to last a week! Or, that your product is failing and you are considering the following three plans to fix it, which do they like?

 

Your Board

Your board is the right place, but how often do you meet, and how often can you go to them. Also, can you go to them when you don’t know? Can you bring a personal crisis to them? If you are having a personal crisis as a member did where his wife gave him an ultimatum on their marriage, you know he was not focused on his business, but need a place to talk this through.

 

Your Father/Father-in-Law

Well, one issue you can’t bring to your father or father-in-law is that you want to fire or get rid of him. A couple of other areas that may be difficult are:

  • What if you want a divorce?

  • What to do about getting rid of your sibling?

  • What about killing off the division, product, they started?

 

So where to?

Find a group of people that have no reliance on your for a paycheck or income, and who will help you if you help them, but will challenge you and enter into those confrontational conversations when needed. If not Vistage, then some similar group, but one that will do the above, as Vistage members on average outperform their non-Vistage peers by 2.2x revenue growth, and higher profit margins.

 

© 2019 Marc Borrelli All Rights Reserved

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What is a Board of Advisors?

A Board of Advisors comprises 3 to four high-level executives who provide the CEO with advice and are focused on the CEO’s success. However, unlike a Board of Directors, the CEO doesn’t have to take their advice. Their role is to:

  • Hold him and the management team accountable. We all believe we can hold ourselves accountable but fail miserably;
  • Act as a coach;
  • As the difficult questions or the questions no one is asking;
  • Enable the CEO to focus ON the business and not IN the business – to stop the tyranny of urgency taking precedence over the important;
  • Validate the CEO’s ideas and strategy; and
  • Bring their experience to the company.

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What is a Board of Advisors not! It is not a group of people to make introductions to potential sales targets.

 

Who should be on the Board?

The Board of Advisors is there to help you and should not have other interests, so it should not include advisors or consultants that you already use, i.e. your accountant or lawyer. Also, it is not necessary to get a marquee name that has retired. More useful is to get middle to upper management that has real experience with the issues the CEO is facing and from a range of industries. That way he can get the benefit of best practices across all industries and learn of new solutions to problems in the industry. As times change and the company faces new issues, the board should change to have a membership with experience with such issues.

Like a marriage, you need the right partners. These are people the CEO can rely on to provide good advice and like your doctor will see you “naked”. Ideally a group with different skill sets that complement the CEO’s skills and deal with issues currently facing the company.

 

How should they be compensated?

People often joke that Board of Advisors is just paid coffee, water and a bagel. Typically they don’t work for much; however, it is advisable to pay them a stipend, i.e. $20k, even if it is a contribution to a charity in their name. Why? Because you are asking them of their time and commitment, and if compensated, they are more likely to return that urgent call when you have a crisis. Also they should all be paid the same.

Sometimes they also get equity; however, since many of the companies seeking a Board of Advisors are private, the company doesn’t want to give equity. However, synthetic equity works such instances. In addition, if you have a Board of Advisors and are raising equity capital, all the Board members need to have purchased equity in the business, as most Angel and Venture Capitalists will not see it as positive the Board of Advisors is not willing to invest.

 

How often should the Board of Advisors meet?

Typically, they should meet between four and six times a year. Not less than four, and if over four maybe the additional meetings should be telephonic. The meetings are often 4 hours as well as some preparation time of maybe 10 hours, so if you are asking for six meetings per year, you are asking for a commitment of 84 hours a year or two weeks.

 

When do you need them?

A small company can always use the independent outside input; however, they are especially useful when going through inflection points in the company’s life, or the marketplace is changing dramatically. When dealing with something the company has not faced before, the Board of Advisors can be invaluable to the CEO as he navigates a new course. If you realize you need one it is often too late. However, most important is that the CEO must believe that they will be beneficial, and the CEO must be coachable. If not there is no point!

 

Who should attend?

The senior management I believe to be best. However, not necessarily all at once! They can each attend as their area is discussed and reviewed. As a result, they are receiving coaching too, and the benefit of the Board’s expertise as strategies are proposed and discussed. However, there should be just a time for the CEO as there are only things that can be discussed with the CEO, i.e. the perceived performance of a senior manager or the CEO’s failure to live up to his deliverables.

 

Should there be agreements with them?

While they are not a Board of Directors, you should have agreements with them. These agreements need to set out, among other things:

  • Pay – They know what they are getting.
  • Time Commitment – They know what they are committing to.
  • Liability – They know what to expect.
  • Term – They can let them go when the company needs different skills with no difficulty
  • Nondisclosure terms and non-competes as relevant – protects all parties.

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