Memorandum to City Place

Corporate Performance Systems

Memo to City Place

Verago is one of the leading property management companies in Canada; it started its operation in the 1960 and grew rapidly due to numerous acquisitions of other smaller companies. In the later years, it became a subsidiary of Equity Pension Plan. With the harsh economic times over the years cause by the outbreak of highly contagious infections and the war on Iraq, Verigo just like any other property management firm was affected in that their performance subsided.

Some of Verigo's management branches like City Place in Toronto have faced various performance issues such as; the expenditure limit by the dollar has led to slowed operation because for large amounts, the approval has to pass through many authorizations hence delay in carrying out of activities. Lack of appropriate and free channels of communication has also hindered the performance of City Place employees. The managers are also given excess trust in that the accounting department only relies on the information given to them without verifications; this has led to the company incurring unnecessary expenditure. The shift in Verigo's business culture has led to decline in customers seeking their services hence prompting the managers to conduct expensive renovations so as to attract tenants.

The recommendations identified for the problems are; the channel of communication should be open in all directions so as to promote sharing of ideas among employees at all levels. The company should thrive to maintain its initial culture through rewarding of integrity and reminding the employees on a regular basis of the company's core values. The organization must prepare the employees for any rapid expansion or change in structures so as to avoid redundancy. They should offer regular skills and enhancement programs to increase the effectiveness and competency of the employees. Employees should be reminded of their boundaries in all their official operations and their performances evaluated on a regular basis to avoid identification of a problem when it has got out of hand.

Andrew Macmillan

Date: 20th May, 2012

Subject: Performance related problems at Verago Property Group Inc. (City Place).

After a thorough examination of the issues affecting Verago Property Group Company, putting more concern on the performance of City Place office situated in downtown Toronto, here are some of the problems and issues which must have been the contributing factors towards the company's deteriorating performance. The problems identified are;

One of the problems lies on the expenditure control part enforced by the HR department [Exhibit 1]. Though it is very crucial for the company to maintain cost advantage and retain economies of scale, failure to adhere to this process poses a threat to the daily operations at a company especially when it comes to approval of expenditures. The HR department has gone ahead to develop guidelines to authorize the payment of contractors and suppliers but the limitations to these authorizations is on the basis of dollars limits. At the same time, there is no rule for the number of invoices that can be authorized for a particular vendor at a given period of time. This can be solved by having a senior employee/accountant at every station specifically assigned to approve large sums of money after verification of whether the proposal is viable by the Property manager.

The second issue arises from the trust laid on the managers that they cannot take advantage of their authority. There is hardly any screening tool to ensure that the managers themselves do not misuse their authority; meanwhile the only existing tool is keen on ensuring that the new employees have high standards of conduct and ethical values at Vergo. The trust given to the managers is extended to the work relation between the accounting department and the managers where, the accounting department entirely relies on the information re-laid by the property managers and thus there is no formal process for accounting unit to validate the information they receive. There are no formal guidelines and inspection tools to be used by the property managers for monitoring their general managers. For instance the Jim never asked for the supporting documents on pricing contracts from Rob.

The third issue is, the company has slowly drifting from its operating culture which is relationship building to a new philosophy based on the bottom line results. This is reflected by the incentive compensation given, whereby the General Managers are evaluated on the net operating income of the property, capital project budget performance and building occupancy rate while, leaving behind the crucial part of its operations such as customer service levels, customer relationship management, and national program effectiveness which include cleaning, elevator performance and security among others. This type of culture constrains employees' actions rather than empowering them.

In addition, there is no proper mechanism to maintain the company's corporate values and beliefs, even though, the new employees go through a tight screening to ensure that they conform to the company's ethical code of conduct.

The forth problem originates from the rapid growth of Verago in the 1960s due to a series of acquisitions of other smaller firms but its later merger with the EPP led to rapid expansion of the business, but while the company expanded, its operations and manpower to handle that change was still lacking. Therefore, the company restructured its top management without reviewing their experience and re-engineering its operations to suit the changes which were enforced. This brought out the fact that the company did not have a training program for its staff to certify that the employees are competent and very effective in their duties and other related job description in the company. This was shown by the situation where Jim Dougherty (leasing vice president) was appointed the property management position without any relevant training. Jim did not have any technical background of building operations and this made him redundant at work, thus leading to demotivation of other staff because their performance standards were now lowered.

The entire internal risk management of this company such as the extent of the contracts let to related parties, spending authorization limit and other basic internal controls is only limited to the HR department. The risks should be managed at different level, for instance, it can be managed at departmental level by the senior employee in charge of the department or by any other person with the capacity to authorize.

Lastly, the business plans generated by the General Managers is only evaluated annually; hence this might provide a loop hole for these managers to overspend or spend on items not authorized within their budget. Therefore, it is important to evaluate their business plan on quarterly basis so as to reduce the risk of the company losing more money on unnecessary expenditure.

Recommendations to the noted problems

Using the belief system, first, there should be a written statement of mission and vision of the company. This should incorporate creation of a culture that rewards integrity. The employees should know the choices they can make when confronted with a unique task, for instance since Jim had a lack of knowledge on building operation, Rob would have sought approval from other property managers so as to allow some of the City Place operations to run smoothly while Jim is still being orientated on what is required of him.

Employees should also be conversant and regularly reminded of the company's core values. The company's values must be enforced at all level of management especially the senior management team, through visible action. Annual meeting with all employees should be organized to communicate the core values of the company through various designated courses that the staff must pass. Another way of communication is that the code of conduct being written and saved on the corporate website and be sent to all employees to read and give an electronic signature indicative of reading them every year.

The staffs also need to be committed to the vision and mission and strive to achieve objectives and goals of the organization. To maximize employee commitment, Verago must ensure that they have the capability to deliver the responsibilities inclusive of the cumulative set of skills required and access to required information to complete their assignments.

When organizations expand quickly and get reorganized as the result of rapid expansions, we must make sure the operation capacity is also expanding at the same rate otherwise the employees will be overwhelmed and pressured. The company's employees control system must be improved by HR. There is already a good screen tool for the recruitment process [Exhibit 1]. Furthermore, HR team must make sure that an appropriate training program is in place when people rotate jobs or get hired or promoted. The HR department should also conduct annual training designed for each unit to enhance their skills for example, conducting negotiation classes for sales people or have a representative from another unit (i.e. Finance) present how are they being interacting to that unit.

With the boundary system in place, it will take care of behaviors and actions that are off limits. Actions that warrant for boundary should be on a written document and be available to employees at all time. This system should also take care of verbal and nonverbal agreement of contract expenditure, and no cost approval beyond the budget unless being approved by senior management and financing unit

These boundaries must be revised on an annual basis and edited if necessary. When employees understand the core beliefs and boundary system, then they do not just worry about delivering the bottom line results. Instead, they will strive to deliver corporate objectives without crossing boundaries.

Diagnostic control system should also be employed into the company whereby, new processes and performance measurements must be developed for the following:

Unit occupancy rate: this strives to achieve economy of scale.

Internal auditing: There should be a team of internal auditor reporting to the accounting VP. This team must constantly review the transactions and ensuring the numbers are correct; also ensure that the controls in place and being followed to verify those numbers are correct. The Verago policies must be owned and controlled by the auditing team rather than HR.

Inspection: all the extra expenses around properties must be inspected and verified by an independent inspection team that would report directly to the head office auditing team.