The Rules Are Changing

August 13, 2009

Case categories include: Strategy & Planning   

CEOs share lessons, strategies as federal involvement in private sector grows

By Warren Lutz

As the U.S. economy continues to struggle, today’s CEOs are faced with a growing presence in today’s business landscape: Uncle Sam. And perhaps no industry has been as affected by recent government involvement than the financial industry – and by extension, the real estate business.

There are so many new programs targeting the housing market “it’s hard to keep up with them,” says Pat Lashinsky (Group Q100), CEO of Emeryville, CA-based ZipRealty, a full-service residential real estate brokerage firm.

The effects of government programs have been both positive and negative, Lashinsky says. TARP funds aimed at bolstering banks actually led them to tighten credit, which hurt the housing market. But there are also new tax credits for homebuyers as well as a California New Homebuyer Program that Lashinsky says is putting many people into new homes.

ZipRealty educates its agents on all government housing initiatives, as its agents are often the first point of contact for buyers and sellers. “We just work hard to know what’s going on out there,” Lashinsky says. “A regular part of our communication and training is making sure (agents) know about all the programs.”

Today there are more federal economic recovery initiatives than most Americans have seen in their lifetime, while other government actions are changing the business landscape. The reaction from CEOs ranges from excitement to frustration — and most of all, uncertainty.

Denise Thompson is thrilled about a new federal program that could make the future of her solar company, Novato-based SPG Solar, so much brighter. She just wishes she knew more.

“It’s constantly evolving,” Thompson (Group 271) says of an as-yet unleashed federal grant program that could provide alternative energy firms with $3 billion in grants. “People are waiting to see what will happen.”

In the case of SPG Solar, a leading developer of solar photovoltaic (PV) systems, it has partnered with an investment banking firm that provides updates on the federal grant program, giving the best chance to prepare.

“You need somebody like them on your team,” Thompson says. “Success is largely based on how many good resources you can get your hands on.”

For some CEOs, there is not yet much impact from the new presidential administration. But there has been plenty of optimism.

Keller Strother (Group 308), CEO and cofounder of MST Services and Evidence-Based Associates, is tracking the progress of the Youth Promise Act, a bill being considered by Congress that would give money to communities for violence prevention programs. MST is a research group pursuing treatments for youth with serious clinical problems, and Evidence-Based Associates helps state and local agencies implement projects for youth in the juvenile justice system.

“We view the Obama Administration as being much more friendly to our area of work – youth and family services, specifically at-risk youth involved with the juvenile justice system,” Strother says. 

A recent White House blog laying out a policy of prioritizing education and treatment programs that produce results speaks strongly to his firm’s treatment approach.

“For us, opportunities include increased grant funding available to organizations that use our treatment model,” Strother says. “Additionally, there may be federal legislation that directs new funding for research-based programs like ours.”

Strother’s firms may hire a lobbyist next year, a strategy already being pursued by Oakland-based Arcadian Management Solutions, which provides value-oriented Medicare health plan options to Medicare beneficiaries who reside in small to medium-sized communities.

Arcadian CEO Bob Fahlman (Group Q200) says discussions in Washington on healthcare reform and Medicare will impact Arcadian, so the firm is getting involved through its own lobbying efforts and through its trade association American Health Insurance Plans.

“We’re working with members of the Senate and House and Chief of Staff to make sure they have the facts and the data they need,” Fahlman said.

With the outcome unknown, however, Arcadian plans to continue streamlining operations and develop new, cost-effective products for next year.

“I’m cautiously optimistic,” Fahlman said. “There are going to be some tough times, short term. But the low cost producer that is offering true value will survive... and we are a low cost producer right now.”

For other firms, federal initiatives can be more disruptive. Eve Hinman (Group 212), CEO of San Francisco-based Hinman Consulting Engineers, says the American Recovery and Investment Act of 2009 has dramatically boosted her structural engineering business with federal work.

The Fed was already one of the firm’s biggest clients. But it’s also a demanding client, requesting in-person meetings on short notice yet expecting contractors to be “shovel ready” on projects.

“We have to be responsive,” Hinman said. “We can’t drop any balls.”

Hinman’s firm has dealt with the frenzy by holding longer operations and management meetings. “It’s really the only quality time we have together as a group,” she said. “Also we have made it a priority to maintain status meetings with staff regardless of where we are to make sure no balls are dropped.” Plus they’ve hired a marketing director to keep up with proposals.

Although Hinman says the increased pressure can be “unnerving,” she considers her firm fortunate. But changes in Washington do not bode well for all.

Oakland-based ELM Resources, which provides technology services to the student loan industry, faced a major dilemma. The Obama Administration plans to overhaul a student loan program that accounts for the bulk of ELM’s business by essentially taking over the program.

“Basically, we have government nationalization of an industry,” says Jeffrey Connors (Group 110), former CEO of ELM. Particularly because ELM reached record profits last year, “this comes as a shocker,” Connors said.

ELM is now taking inventory of its assets. The firm is relatively lucky – it has an established brand, a distribution channel, and cash. But Connors is no longer with the firm.

“The world does change, and it changes when you least expect it,” Connors said. “So don’t get too damn comfortable.”