Columnists

Published February 2010

Connecting the Dots

Michael E. Echols, Ph.D.

At a recent conference on metrics in New York City, I asked the audience — which consisted of several hundred learning leaders — whether the cash on the balance sheets of U.S. corporations was increasing or decreasing. Not surprisingly, an overwhelming majority of the attendees answered “decreasing.”

However, the actual data show that cash is increasing — and rather dramatically so. In November, The Wall Street Journal reported that cash as a percentage of total assets has increased from about 4 percent a decade ago to nearly 10 percent today.

There are two issues here. The first is that the expectations of experienced, well-educated executives were so off the mark. The second issue is that, in the aggregate, our organizations have more liquid assets than ever for investments — including human capital investments. This means it is not the availability of cash resources that currently inhibits investments; it is the will to deploy those resources.

With reflection, the first issue is relatively easy to understand. Our senior-most executives, along with analysts on Wall Street, have been harping on the importance of cost control and cash generation. It is only reasonable to assume that such passion must be rooted in the scarcity of what we are trying to produce — in this case, cash.

The second issue, however, is more complex. The bottom line is that learning leaders, as well as other C-suite executives, are doing a lousy job of allocation.

At this point, you might be thinking: “Yes, but my CFO doesn’t let me get anywhere near the balance sheet, let alone the corporate cash accounts.” Stay with me here. I’d like to offer several observations that may be valuable for those important budget conversations.

First, challenge the Wall Street myth that “cash is king.” Today, the responsibility of the executive team is to invest cash in ways that create value. This shift to future value creation is especially important as we move from an economic depression to global recovery.

For example, in early 2008, when U.S. financial institutions staggered toward complete collapse, it was the right time to maximize cash, since cash provides the greatest flexibility in the face of an uncertain future. To do that, top management slashed expenditures: They significantly reduced head count, contributing to the nation’s high unemployment rate; slashed inventory; cut tangible capital investments; and drastically reduced human capital investments. You and your organization more than likely experienced one or all of these actions, swept up in the herd mentality reinforced by the continuous jabber of the media.

Today, however, the belief that cash is scarce and valuable — when in fact it is abundant and losing relative value — sets the wrong tone for making investment decisions. More important, it overstates cash as a competitive resource. What is scarce are the good investment alternatives that can use cash to create value for an organization.

If the learning community acts based on the belief that cash and all the management actions that create cash are the priority, it will not act powerfully to advocate investment alternatives to meet the clear and present danger, which is that, as experienced baby boomers retire, we will not have adequate leaders to guide our organizations through the next economic phase.

You need the language and the facts to advocate. You need the will and the conviction to be an empowered decision maker in executive conversations about investments in human capital.

It is a new day. Economic recovery will happen, the baby boomers will retire, and the cry for investment to develop leaders will rapidly displace the “cash is king” mantra of the immediate past.

Michael E. Echols, Ph.D., is vice president of strategic initiatives at Bellevue University and author of "ROI on Human Capital Investment"

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