Entries from June 2007 ↓

When you are in any business, there are some information items you want to protect, even while working with business partners, clients, and vendors. That’s the Non-Disclosure Agreement. Over the last 10 years, I have seen few admirable applications of it, and lots of bad ones. The first and most important thing to note is this: does the guy who is signing the NDA know what it means? does he realize that he should not present the information from your engagement in some ‘knowledge management’ session with his colleagues in his company once the engagement is over?

The first and most important thing to note is this: does the guy who is signing the NDA know what it means? does he realize that he should not present the information from your engagement in some ‘knowledge management’ session with his colleagues in his company once the engagement is over?

Improvements in generic business practices are fine for propogation. When employees and vendors leave and join competition, it happens – can’t be prevented. But valuable business knowledge/ IP must be revealed to selective parties.If something is really valuable to you, make sure you add the weightage in evaluating those who can protect it better. Keep information systems under control, and unreachable to those who don’t have to see it. It is not uncommon to hear of employees who have taken a list of customers to competition, and staff of vendors, who are checking in the ERP system, how much business is going to which vendor.

The point is: With trusted people, you don’t really need an NDA. And with people who you can’t trust, you need a lot more than an NDA. Our observations indicate that “brief and easily readable agreements” are read and remembered much better than long-drawn contracts. So if your aim is to make people understand what you are saying with your NDA, try to keep it within half a page. Here’s our NDA, for example: (no talk without action!)

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Alpha Neuron acknowledges that the information received or generated, directly or indirectly from the Client is confidential and therefore any people employed or engaged by us, agree not to disclose, directly or indirectly, any information with respect to any business discussion with the Client. It is agreed that:

• We will not disclose business challenges, financial information, business plans, strategies for development or growth, any proprietary information or any other information regarding the management or method of operation that is not known generally to the public or in the public domain.
• We will not reproduce, in any form, information provided to us outside the scope of the consultation/service unless otherwise approved, in writing, by the Client.

This Non-Disclosure Agreement shall remain valid for a period of two years after completion of a consultation/service to the Client.

On behalf of Alpha Neuron:

Shankar AVSB (Director)
London | New York
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You may have read this in the news the day before. If not, please read it first. _____________________________________________________

SEC: IBM misled investors on expenses REUTERS[WEDNESDAY,JUNE 06,2007] SAN FRANCISCO: IBM misled investors by overestimating the impact of stock-based compensation expenses on quarterly earnings in 2005, the US Securities and Exchange Commission said on Tuesday. The securities regulator made the statement as it reached a settlement with International Business Machines Corp., in which the company agreed not to commit future disclosure violations.

The SEC did not impose any monetary penalties and IBM, the world’s largest technology services company, did not admit or deny the SEC’s findings in the settlement announcement. “IBM misled investors by failing to disclose information that would have allowed them to accurately determine the impact that the company’s decision to expense stock options would have on its financial results,” SEC Associate Director of Enforcement Scott W. Friestad said in a statement. “The facts here are particularly troubling because the disclosure decision was driven, in part, by management’s perception of how the news would be interpreted by analysts,” Friestad said.

In an April 5, 2005, conference call, IBM led analysts to believe that the company expected stock option expenses to reduce first-quarter earnings by 14 cents per share and to reduce full-year earnings by 55 cents per share, the SEC said. IBM, however, actually expected stock options expenses to reduce earnings by only 10 cents per share in the first quarter and by only 39 cents for the full year, the SEC found. IBM’s first-quarter earnings, reported nine days after the conference call, fell short of average analysts’ estimates by 5 cents per share, a big miss for the company. Some analysts later complained that IBM, in effect, had led them to believe that the stock options’ impact would be larger than it actually was, disguising the magnitude of the earnings shortfall.

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The above case is a prime example of one of the risky decisions taken by one or more executives in a company. It is not rare, but it is very dangerous. If you have read our guide on making business decisions, you will see how ‘reputation’ fits in the picture. IBM could afford this situation because of the huge brand it has built. A small or medium sized company would have faced stiff penalties. Still, this makes the life of current directors at IBM a bit more tight, because investors will not forgive forever.

The above is an example, that you must avoid at all costs. Anything involving reputation and investors is a dangerous mix, and a couple of bad decisions by executives can bring a company down. There are numerous examples for this every year. As directors and executives, the place to show creativity is in making big business deals and launching new products. Any financial creativity in reporting numbers is dangerous.

If you really think something is an okay way to present the number, have the courage to bounce it with a few key investors, offline. You will immediately know where you stand. The big lesson is this: there are very few IBMs in this world, and with 100% information being stored in some server or tape, everything can be played back in the court at a later date. If you love your business, please don’t do it. If you don’t, this site doesn’t have much for you.