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CHAPTER 3 REVIEWING PERSONNEL

AND COMPENSATION

From an investor’s viewpoint, a company is little more than the people who work for it.

Companies succeed because the people make the company succeed. A company usually

fails because the people fail. An entrepreneur alone cannot carry a company very far;

there must be a group of people dedicated to the success of the corporation. The

entrepreneur can be a quarterback and can call some extremely good plays, but without

the complete team—all the employees working together—no entrepreneur can succeed.

One of the most important areas for an investor to investigate is company personnel.

What is the true work ethic inside the company? What is the group culture? How do the

company’s personnel shape up in comparison with the competition? In this chapter we

look more closely at the due diligence involved in checking out the personnel of a

corporation.

HAW IS THE COMPANY ORGANIZED?

Academicians have studied company organizations for years. Academic and popular

press have reported revelation after revelation regarding the corporate culture. Each

season, a new group of buzzwords seems to appear to describe corporate

organizations. If you are to understand the company and how it operates, you must

understand how the company is organized.

CORPORATE ORGANIZATIONAL CHART

Organizational charts are necessary in even the smallest corporations in order to

delineate the relationships between various people and to spell out each staff member’s

responsibilities. Organizational charts give a clear visual presentation of the

corporation’s hierarchy. Every organizational chart should indicate who is at the head of

production, marketing, and finance. In the early stages of the company, one individual,

usually the president, may play several of these roles, but it is understood that

somewhere in the life of the company a person will be hired to perform each function.

Some small companies don’t have organizational charts, and when they don’t, you

should construct one while talking to the entrepreneur. Draw a chart and put people’s

names on it. Determine who reports to whom and exactly who is responsible for what

functions in the company. In turn, it will give you a very clear understanding of how the

people interact and how the corporation functions. Although some academicians argue

that organizational charts are not necessary or, at the least, that they rarely reflect the

total interaction in the company (and we concur with the latter criticism), most

investors think a chart is a good beginning. It may be that one individual reports to two

people for certain jobs in which that individual is currently carrying out two functions. It

is rare, however, to find that job functions have not been delineated in a larger

organization. When they have been delineated, it’s fairly easy to construct an

organizational chart.