The Misguided Governor Dayton’s Position on Taxes

I’m still shaking my head over a recent opinion piece in the Star Tribune by Roger L. Hale, “The Governor’s budget won’t send businesses scurrying.” Hale has served as either CEO or a director for five highly regarded local companies: St. Paul Companies, Valspar Corporation, Donaldson Company, U.S. Bancorp, and Dayton Hudson (now Target Corporation). While his experience is impressive, I’m guessing it is exactly the reason he does not understand how a tax increase proposed by Gov. Dayton will hurt many small- and medium-sized businesses in our state.

We may not “scurry” if our taxes go higher, but we will likely have to pull back on expanding our businesses, hiring more employees and even building new facilities. It doesn’t take a Fortune 500 CEO to know that this will have a negative ripple effect on many others in our state.

This is not a personal attack on a venerable leader of Minnesota’s business community. But to my knowledge, Hale never personally founded a company or had to sign his name on legal documents stating he was risking all of his personal and family assets for the sake of his business. This is the reality of risk for a small business owner like me. I personally back every business loan or significant obligation for Intertech. If the business goes down, I’m agreeing that I’m personally on the hook.  Banks and other institutions won’t loan, borrow, lease, etc., without that personal guarantee.

So what does all of this have to do with a possible tax increase?

The whole personal versus business tax debate has been simmering for a long time and still is largely misunderstood by most. Every year, I personally pay taxes on the profit of my firm, regardless of the cash I take out for personal use. As an example, if my firm makes $500K and I issue a dividend to take $10K for personal use, I’m taxed on $ 500 K not on $10K.

This is important because with my business and personal finances  completely intertwined, when I must pay even higher “personal” income (i.e., business) taxes it reduces the amount of money left to reinvest in Intertech.  

Most entrepreneurs feel the same way. We’re not selfish money hoarders or greedy fat cats sucking every dime out of our businesses to bankroll a luxurious lifestyle. Rather, we invest in our firms, we care about our people, and we care about and give to the community. When we are able to invest everyone wins due to the multiplying effect (http://www.cnmi-guide.com/info/essays/economics/33.html).

Taxes are one of the biggest expenses we have as a firm and we pay them without (too much!) complaint because we know that taxes help keep our community strong and that benefits us too. But Governor Dayton, Roger Hale and others leading this tax increase debate should be cautious. Minnesota’s entrepreneurs and small business owners cannot help jump- start our tepid economy if all or most of our revenue must go for taxes!

This is not an academic policy debate for me. Intertech is growing and we’re adding to the tax base by hiring new people and buying new equipment. We’re also close to buying a building and engaging a distressed industry—construction—to finish it.  If our taxes go higher I’m not sure how much of this will be possible.

Tom Talks about the Biology of Leadership—part 3

New research finds that being in a good mood helps people to absorb information effectively and to respond in creative and flexible ways. In other words, G/B (see June post #1 for full citation) write, “Laughter is serious business.”

How do business leaders keep it light while still communicating the need for strong performance and positive outcomes? G/B came up with a behavioral assessment tool: the Emotional and Social Competency Inventory, which is a 360-degree evaluation by which bosses, peers, direct reports, clients and even family members assess a leader according to seven social intelligence qualities. Their tool might be helpful as you think about this challenge. Here are some of the qualities they measure, along with questions used to assess them.:

Empathy: do you understand what motivates other people, even those with different background?

Attunement: do you listen attentively and think about how others feel? Are you attuned to others’ moods?

Organizational Awareness: Do you appreciate the culture and values of the group or organization? Do you understand social networks and know their unspoken norms?

Influence: Do you persuade others by engaging them in discussion and appealing to their self-interests? Do you get support from key people?

Developing Others: do you coach and mentor others with compassion and personally invest time and energy in mentoring? Do you provide feedback that people find helpful for their professional development?

Inspiration: Do you articulate a compelling vision, build group pride and foster a positive emotional tone? Do you lead by bringing out the best in people?

Teamwork: Do you solicit input from everyone on your team? Do you support all team members and encourage cooperation?

Take some time to determine how you or your leadership team measures up. In the blog posts that follow this one I will delve into how Intertech measures up on these counts and, I hope, share some ideas that might be useful in your organization.

Tom Talks about the Biology of Leadership–part 2

In Building a Winning Business, I spend considerable time focusing on important leadership skills, such as listening to others, fostering open communication, staying positive and taking the opinions of others into account. In other words, leaders must be able to relate to and communicate effectively with others.

G/B (see previous post for full citation) cite a study that found in an analysis of new C-level executives only those who could get along with others succeeded—even though all the executives were deemed to be equally smart, ambitious, and self disciplined.  Research also is bearing out the notion that non-verbal communication is more important that what people actually say or hear.

A recent study by Rutgers University professor Marie Dasborough found that employees who received positive information that was delivered critically (frowning and narrowed eyes) reported feeling worse about their performance than did employees who were given negative job performance information in a positive manner.

It’s not what we say so much, but how we say it that truly matters!

Of course, it’s not exactly a news flash to say that leaders must be able to connect with people to be effective. What is really interesting, though, is a recent neuroscience finding: the presence of mirror neutrons in the brain that causes people to reproduce the emotions of others within themselves. Collectively, G/B write, “these neurons create an instant sense of shared experience.”

Ever heard the old phrase, “anger spreads like the flu?” It’s the ancient wisdom of our forbearers but science is now proving its biological genesis. Or, as G/B opine, “Mirror neurons have particular importance in organizations, because leaders’ emotions and action prompt followers to mirror those feelings and deeds. The effects of activity neural circuitry in followers’ brains can be very powerful.”

That’s why I have long believed that leaders must set a positive example, always tell the truth, own their own mistakes and stay calm in the heat of crisis. A leaders’ behavior (or even the behavior of an employee that others respect) can build up or destroy an entire organization through mood contagion. Don’t believe me? Watch what happens when someone starts bad-mouthing your organization or clients. Within a very short time, many other employees will start to share those negative impressions, even if their own experience does not support them. If this goes on long enough, your entire business can begin to fall apart.

Luckily, mood contagion also can be positive. So even if we’re juggling a lot, worried about personal issue or just feeling crabby, effective leaders learn how to put aside their negative emotions and focus on the positive. The health of our organizations depends upon it!

Tom Talks about the Biology of Leadership–part 1 (first in a series on this topic)

Remember all the buzz about ten or so years ago about “emotional intelligence,” which was a concept pioneered by thinker/author Daniel Goleman and focused on the vital role that empathy and self-knowledge play in effective leadership?

Goleman co-chairs the Consortium for Research on Emotional Intelligence in Organizations, which is based at Rutgers University’s Graduate School of Applied and Professional Psychology. He published a book on emotional intelligence in the late 1990s and got a lot of people thinking about this important subject. Now he and a fellow social scientist, Richard Boyatzis, are looking into a fascinating new area called “social neuroscience,” or the study of what happens in the brain when people interact. According to Goleman and Boyatzis (G/B for easy reference) in a recent article in Harvard Business Review OnPoint (a compendium of selected HBR articles), social neuroscience is “beginning to reveal subtle new truths about what makes a good leader:

“The salient discovery is that certain things leaders do—specifically, exhibit empathy and become attuned to others’ moods—literally affect both their own brain chemistry and that of their followers,” G/B write. “Indeed, researchers have found that the leader-follower dynamic is not a case of two (or more) independent brains reacting consciously or unconsciously to each other. Rather, the individual minds become, in a sense, fused into a single system. We believe that great leaders are those whose behavior powerfully leverages the system of brain interconnectedness.”

Brain interconnectedness?

At first glance this might sound like a campy science fiction novel or maybe a weird cult where everyone drinks acid Kool-Aid before heading off to nirvana in his or her brand new Nikes. But if you read further, G/B make a lot of sense. In fact, many of their assertions reinforce my own ideas about what makes a great leader, which I discuss in my new book “Building a Winning Business.”

I’m going to explore some of the ideas advanced by G/B in this post and a few more that will follow in the coming weeks. If you would like to read more about “Social Intelligence and the Biology of Leadership” be sure to check out the article by the same title in the spring 2011 edition of Harvard Business Review OnPoint (www.hbr.org).

Tom Talks about Philanthropy

Read an interesting story recently about billionaire businessman Theodore J. Forstmann and it got me thinking. Forstman is 71 and he has brain cancer. He has made it his mission to transform a business (the IMG talent agency) he purchased in 2004 into a profitable company with a bright future.

Why would a guy worth billions want to spend his possibly last days on earth worrying about making more money? Does he think he’ll take it with him?

Before you answer, keep in mind that this is someone who helped create the leveraged buyout industry in the 1970s and is credited with coining the phrase “Barbarians at the Gate” to describe his industry.

Not exactly the warm, fuzzy type!

Or maybe he is. Forstman has been quietly supporting children’s groups throughout Africa for years. He also adopted two boys from South Africa more than a decade ago after being invited there to speak by Nelson Mandela.

He has decided to turbo charge his (potentially) last business venture into a money-making machine that can fuel investment in African children for years to come. When a reporter asked him why he was committed to helping kids in Africa, his response was unsentimental and precise: “They’re helpless,” he is quoted as replying.

Most of us never will be worth billions but that doesn’t mean we can’t lend some support to those in need. And as successful business leaders, I think we have a special obligation to share some of our good fortune with others.

That’s why we started the Intertech Foundation in 2003, which provides financial support to families who have terminally ill children and expenses they are struggling to cover. Our grants don’t turn anyone into millionaires but they do ensure that grieving parents can spend precious remaining time taking care of and enjoying their child instead of stressing out about paying bills.

Giving something back on a regular basis is the right thing to do. Don’t wait until you’re in your 70s and facing down mortality to make it part of your business plan.