The Nuts and Bolts of Crisis Leadership

Crisis

With the world economy in upheaval, countries going through disasters of overwhelming complexity, headlines all over the world focus on the things that are going wrong. The numerous crises around the world, from terrorism to global financial crises, falling prices of oil, heavy losses on the stock exchanges; it is almost like the world economy has been hit by a natural disaster. The anxiety, insecurity and confusion a crisis generates are huge challenges for leaders in politics and business alike. Nothing tests a leader like a crisis. Today I would like to share with you some of the traits necessary for leadership in a crisis situation.

Let us first consider the definition of a crisis: According to the Centre for Creative Leadership, a US based leadership training institute, a crisis is a series of highly charged and dramatic events that profoundly affect the people in an organisation, country or environment. Words synonymous with a crisis in a business context are: hyperinflation, hostile takeover, industrial accident, financial catastrophe, executive scandal. A country like my homeland Zimbabwe has seen dollarisation becoming multi currencying and may yet become randisation. Everything just shifting to and fro like a drunkard.

Gene Klann, an author on crisis leadership defines Crisis Leadership as relating to how leaders handle human responses in a crisis, including their own. In handling human responses the first key consideration is Communication: Leaders should effectively communicate the state of affairs to their teams with enough inspiration to influence positive behaviour. The communication must be crafted to persuade, convince, motivate and inspire in a positive way. A leader’s deepest communication skills, character and ability are revealed in a highly charged situation.

The second trait I could simply put as Lead from the front: During periods of crisis people look for a strong leader. Have you notice how when a company is hit by a crisis its leaders often withdraw behind the protective shell of peers and lawyers. Sometimes they play the blame game, blaming the environment, their subordinates or the media. At the barest minimum a leader in a crisis must be visible, poised, courageous, committed and attentive. Leadership is not authority that leverages on title, position or regulations, the ability to influence others are an important part of leadership especially in bad circumstances.

Third trait: Leadership in a crisis calls for decisive action. Sometimes a crisis requires a leader to solve a situation by an action or decision of high character. Dr Napoleon Hill summarises it this way “An effective leader reaches a decision promptly and changes them slowly if and when they are changed” A researcher called John Ryan highlights that in a crisis a leader should expect chaos. Crises set their own timetable, and the systems we put in place to respond to them often prove insufficient. Don’t rely too heavily on the way things were done before, be flexible and adapt your strategies to play out in relevance to the chaotic situations brought about by a crisis.

Another prerequisite of leadership in a crisis is Competence: The northern leadership academy in the UK published a research paper that confirms the necessity of leaders to be competent at what he does especially in a crisis situation. According to this paper a leader should be technically capable of handling their positions. No amount of personality, political skill, wit or intelligence can disguise, or overcome a deficit in basic technical and managerial competence. It says that competent leaders instil confidence and remove doubt and fear. Thus in assembling one’s toolkit for leadership we should embrace every developmental opportunity, be it reading professional books, attending courses and executive training.

 “The pessimist sees difficulty in every opportunity. The optimist sees opportunity in every difficulty” Winston Churchill. The opportunity to learn through a crisis is invaluable. An effective leader understands enough to be able to glean important lessons from the crises. According to a research published by the John F. Kennedy school of government at Harvard University a leader should be able to decipher lessons from the crisis and carefully document them for future reference and use to avoid falling into the same pitfalls of the past as indeed history tends to repeat itself. He/She must take advantage of the urgency and attention to address the underlying issues that caused the crisis in the first place.

Finally let us look at the example of former American president, Abraham Lincoln, a remarkably humble and confident man. President Lincoln spent his entire Presidency in crisis, trying to steer the U.S. through a brutal civil war. Today he’s regarded as one of America’s greatest leaders. Why? Because he was an authentic leader, a person of integrity, always true to himself, led by example and did his homework. In a crisis, the pressure to compromise your values can be immense. With employees, shareholders, and the media demanding your attention and your career, potentially hanging in the balance, there’s a temptation to discard principles. A leader should stay on top of his game, even through a blistering crisis if he upholds high standards of integrity in his work.

Effective leadership can rescue an organisation or country from chaos and deliver opportunity.

 

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Company Secretaries: Do we really need them???

Company Secretary doing some paperworkMany business especially small and medium sized businesses often wonder about the importance of company secretaries or whether they need to have such a ‘secretary’ employed full time or whether they can outsource. As a business person it is often the case that you want to concentrate on running, growing and developing your business and you would not want to be constrained by the administrative responsibilities that come with running a registered company.

A Company Secretary is required by the company laws of most countries for every registered company. A key responsibility of the Company Secretary is to ensure that Board members have the proper advice and resources for discharging their fiduciary duties to shareholders. A Company Secretary is also is responsible for ensuring that the records, or minutes of the Board’s actions during a Board meeting, reflect the proper exercise of those fiduciary duties.

While the duty of recording accurate and sufficient documentation to meet legal requirements (record management) is of primary importance, the Company Secretary is also a confidante and resource to the Board and senior management, providing advice and counsel on board responsibilities, corporate governance and logistics. In recent years the Company Secretary has emerged as a senior executive and strategic-level corporate officer who plays a leading role in the company’s corporate governance.

Often times companies merge the role of a company secretary with that of internal legal counsel and sometimes with the role of the finance director but it is essentially a specific, technical administrative portfolio which stands out on it’s own even though it may be merged with other functions within a company.

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So Should you Incorporate Your Business

The decision of whether or not to incorporate your small business is one you need to consider when you decide to start a business. It is often a step that is taken by many entrepreneurs without proper guidance or advice such that the implications of incorporation are not well understood from the beginning. The end result is failure to make the most efficient use of the registered status of a company and thus missing out on some of the benefits of incorporation. In this article I seek to explore with you the benefits that accrue to an entrepreneur as a result of registering a corporation.

1. Limited Liability

Limited personal liability is one of the most main advantages and one of the biggest reasons businesses become corporations or registered companies . A corporation or registered company is a distinct legal entity, so incorporating protects the business owner’s personal assets, even if the corporation is in debt or facing other liabilities.

Unlike the sole proprietorship, where the business owner assumes all the liability of the company, when a business becomes incorporated, an individual shareholder’s liability is limited to the amount he or she has invested in the company.

If you are a sole proprietor, your personal assets, such as your house and car can be seized to pay the debts of your business; as a shareholder in a registered company, you can’t be held responsible for the debts of the corporation unless you’ve given a personal guarantee.

On the other hand, a corporation has the same rights as an individual; a corporation can own property, carry on business, incur liabilities and sue or be sued.

2. Raising Capital Is Easier

Registered companies have more flexibility in their ability to raise money, which may make it easier for your business to grow and develop. While corporations can borrow and incur debt like any sole proprietorship, they can also sell shares and raise equity capital, a big advantage because equity capital generally does not have to be repaid and incurs no interest. (Of course, by issuing shares, you are reducing your percentage of ownership in the company.)

3. Tax Benefits

Owners of corporations are only taxed on their own salary, bonuses and dividend payments. In many jurisdictions corporations rate of tax is normally lower than tax on salaries and benefits. An interesting fact is that an employee gets taxed in advance i.e. you get paid today and tax is immediately deducted from your salary/earnings while corporate tax is charged on profits i.e. you are taxed after spending. This contrast is often ignored by many people in business especially those choosing to operate as sole traders.

Additionally if you incorporate your small business, you can determine when you personally receive income, a real tax advantage. Instead of getting your income when it’s received, being incorporated allows you to take your income at a time when you’ll pay less in tax or at least design the most tax efficient income structure for yourself as an entrepreneur.

It is also important to realize that becoming incorporated gives you tax deferral potential. Because you can defer paying some tax until a later time, you may be able to realize tax savings if you are then in a lower tax bracket, or if the tax rates have fallen.

3. Business Credibility

When a business has completed the process of becoming incorporated, it can be viewed favorably by investors, suppliers, bankers, regulators and other debt providers making it easier to raise capital. Plus, in most cases, there is a perceived permanency and reputability on the part of clients or customers when a business is a registered company.

4. Share Incentives

One of the defining elements of a registered company is the share structure, which gives the company the flexibility to offer board members and employees a share in the ownership of the company. This can be an attractive benefit for employees and can lead to higher employee retention rates.

5. Income Splitting

Another tax advantage of registering your business is income splitting. Companies pay dividends to their shareholders from the company’s earnings. A shareholder does not have to be actively involved in the corporation’s business activities to receive dividends. Your spouse and/or your children could be shareholders in your corporation, giving you the opportunity to redistribute income from family members in higher tax brackets to family members with lower incomes that are taxed at a lower rate.

6. Perpetual Existence

Unlike a sole proprietorship, a corporation continues to exist even if the owner passes away or leaves the business. A corporation will remain in existence until the shareholders take measures to dissolve it, or until the corporation is merged with another business.

7. Transferability

Since a corporation is not tied to its owner, ownership can be transferred to another by selling shares. This is typically governed by the corporation, which can set limits on the transfer of shares, and the laws of the country where the corporation was formed.

These are a few of the advantages of having your business registered as a company. The information in this article is not to be taken in isolation as you decide whether or not to incorporate your business. Professional advice from your lawyer, accountant or corporate service provider is recommended. You may also check our website www.vcsafrica.com for further advice and help in incorporating your business. You may contact info@vcsafrica.com for a quick response and expert advice on company incorporation and related services.

Registered Companies: Keep your records up to date

Limited Liability companies are powerful tools that businesses of all sizes can use to their advantage to reduce risk, minimize taxes and secure privacy. Selecting an incorporator who can show you how to benefit from these advantages can save you thousands of dollars every year.

Your Limited Liability Company should shield your personal assets from the threat of lawsuits. It should keep your business dealings private. It should protect your profits and reduce your taxes. Unfortunately, most corporations are putting their owners at risk because they’re not meeting the legal requirements for operation.

Corporations offer their owners many benefits, most importantly limited liability. However, certain formalities must be followed in order for your business to be considered a legitimate corporation and enable you to take full advantage of those benefits.

Corporate formalities are the documentation and procedures that corporations are required by law to complete. Records should be kept up to date for registered companies as it is a requirement of the Companies Act to file annual returns and other related submissions every year.

Keeping your records up to date will be helpful in the event of a lawsuit against your company as alluded to by the Cornell Law review;

 

“If you’ve failed to keep proper corporate records, and if you are ever sued – you have a 50-94% chance of losing your personal assets in order to satisfy a judgment.”

Cornell Law Review

 

For most business owners, finding the time to keep up with corporate paperwork is difficult and it becomes a tedious task that gets put on the backburner.

Unfortunately, in the event of a lawsuit, without the proper corporate documents in place to prove your corporation’s legitimacy, YOU could be held personally liable for the actions of the company.

Remember, keeping up-to-date corporate records is a legally required task that you must comply with every year you are in business. If you don’t, you’ll be throwing away all the liability protection and other benefits you initially incorporated to receive.

The easiest and most affordable solution are the Company Secretarial and corporate documentation support programs provided by VCS. They will simplify your workload, ensure your documents are correct, maintained, and in order, and provide peace of mind that can only come from 100% asset protection.