Interview with Ken Drossman
Interviewer: Andrew Zezas, SIOR
Following is the transcript of a CFO Studio interview between Andrew Zezas, CEO of New Jersey based Real Estate Strategies Corporation and financial executive and advisor, Ken Drossman, President of Lakeview Business Consulting and President of the New Jersey Chapter of Financial Executives International.
Visit www.CFOstudio.com to read about this interview and to watch the entire video interview.
Current Economic and Financial Climate
Zezas: Hi, this is Andrew Zezas, President and CEO of Real Estate Strategies Corporation coming to you today as part of our Financial Executive Thought Leader Interview Series. We’re here today with Ken Drossman, President of Lakeview Business Consulting and President of the New Jersey Chapter of Financial Executives International. Ken, thanks for being with us here today.
Drossman: It’s my pleasure, Andy. Good to see you.
Zezas: I appreciate you taking the time. Ken, there is a lot of great stuff going on in the world today. There are a lot of interesting opinions and ideas about the economy and about the world of finance. I wanted to get your opinion as to where things are going.
Zezas: I thought I’d start off with a series of questions and see where your ideas take us. Given what is going on in the world today, where are companies with respect to hiring? Have they actively begun to hire again? Are they filling new positions? Are there open positions still sitting open?
Drossman: Let me start. It’s a great question. Let me start by just saying that the atmosphere and prospective of business owners today is not yet at cautious optimism. It’s what I would call cautious skepticism. That’s an improvement over last year’s bleak pessimism. But, people are still uncertain about where the economy is heading and reluctant to make significant expenditures that might increase their fixed costs. So, I’m seeing increases in temporary hires. With respect to permanent hires, I’m seeing people only fill those positions only if they absolutely have to.
Zezas: Okay. What areas of business do you think, in the coming 2010-11, will receive the greatest amount of incremental investment across the various industries/sectors?
Drossman: Sure. Well, again, I think you have to start from the backdrop that most business owners have figured out that having a significant cash reserve is the best defense against the uncertainty of the economy. So, that’s going to moderate the incremental investment. Add to that, the fact that banks are making it very difficult, particularly for small and medium enterprises, to borrow in order to finance expansion. And, that’s going to further diminish the amount of incremental investment. With that said, what I’m seeing is that companies are not going to hire back as many employees as they have. They’re going to look for ways to do more with less. Accordingly, they’re going to look for technology that increases productivity. An example, the greater use of tools like WebEx or live media or other virtual meeting sites that allow people to reduce, not eliminate certainly, but reduce the amount of their travel cost. Another tool in that same area is companies that are starting to set up and people that are starting to use, companies that are starting to use, virtual tradeshow sites. Places, where 24/7, you can be an exhibitor at a tradeshow online or you can be a potential customer visiting a tradeshow year round. Again, an opportunity to reduce the amount of travel necessary to be able to see developments in the business or hawk your wares, and at the same time, get the benefit of having that out there all the time.
Zezas: I’m curious to get your opinion as to the cultural impact, you know, the need for people to congregate and break bread and interact on a personal level. If you see technology playing a greater role and diminishing the amount of time people spend together, do you see that people might be challenged at adopting those technologies?
Drossman: It takes some time getting used to, I think there’s no question. My experience with it has been that, there has got to be a certain amount of face to face. Building trust by breaking bread, by developing personal relationships, getting to take the measure of the person is always going to remain important. But, I think that people are going to find that there are ways to accomplish some of the other aspects, the fact gathering aspects in the use of these tools.
Zezas: And, you’re saying that technology is a real opportunity for investment here, but you mention that the investment in technology will take the place of some things that are current now. Do you think that will continue? Do you think there will be an extended period of time before the economy comes back to normal?
Drossman: Well, uh…
Zezas: Or is that a short-term phase?
Drossman: I think that advances in technology support businesses doing more effectively- or more efficiently, are here to stay. I think that the more people use it, the more they’re going to continue to use it. I don’t know what it means to return to normal anymore. So, in terms of the economy, I think the landscape has changed and will remain changed for a long time to come. The de-leveraging of America is something that I think has decades to run before it really returns to, perhaps, what was traditionally the experience.
Zezas: So, you really believe in the concept of a new normal.
Drossman: I think so.
Zezas: Ok, let’s talk about banking. We all know that there’s been tremendous changes in both credit and capital markets. Share with us your thoughts with how the economic situation has adversely impacted the ability of companies to secure financing so they can fund growth issues.
Drossman: I think you pretty much capsulized the issue. There was an article in the Wall Street Journal last week that talked about the fact that the credit markets have returned for large businesses, big businesses. There was a sidebar article that made it very clear that exactly the opposite is true for small and medium size businesses. And, it’s very difficult. Let’s face it. The banks caused some of the problems, many of the problems that we’ve gone through over the last 18 to 24 months because they loosened their underwritings standards excessively. When the financial crisis hit, they ran back, they sprinted back to their playbooks and for small and medium enterprises, in particular. Unless you can put the check mark in the yes box on every line of the underwriting criteria in their playbook, it’s very difficult to get a yes to a loan. That means that it’s very difficult to make investments that would support expansion. It’s a vicious cycle. No financing, no expansion. No expansion, no hiring. No hiring, no increased demand, no growth, which means you have to get financing to start all over again and it’s not happening. Interestingly, I had a client, recently, that we helped obtain expansion financing for a great project after being frustrated at the doors of many of the regional banks. And, it was with a credit union. Credit unions have started to step into the void left by commercial banks. Not a lot and they certainly don’t have the lending cap capacity to fill the void or a significant portion of the void, but they are a road that some businesses may find good to take.
Zezas: Was that a New Jersey project and a New Jersey Credit Union?
Drossman: Yes to both.
Zezas: Alright, Ken. We’ve got about a minute left and I wanted to ask you a question about salaries. Do you see salaries increasing in 2010?
Drossman: So far, what I’ve seen is that they’re largely holding steady and that’s after reductions that many businesses made in 2009. To the extent that there are salary adjustments being made, two things apply. First, businesses are trying to limit those salary increases only to the best employees, the ones that they will lose if they don’t adjust salaries. And secondly, more of the increases are performance based. They are tied to performance against objectives for the individual as well as the department or the division for the overall company. That makes the compensation increase more variable and therefore more controllable in the face of changes in volume.
Zezas: One last question. We’re out of time. So, if I could ask you for one quick answer. Generally, do you see the business climate improving?
Drossman: I think it is improving, but slowly. I think that we’re going to see some halting steps, based on some of the things we’ve already discussed. I would say the prognosis or forecast is partly sunny rather than partly cloudy, but it’s going to take a while for it to get better.
Zezas: Partly sunny, partly cloudy. Well Ken, thank you. Those are great concepts and great ideas. I appreciate your insight.
Drossman: My pleasure.
Zezas: Thanks for being with us today. This is Andrew Zezas at Real Estate Strategies Corporation, bringing to you our financial executive interview series. Thanks for watching.
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