Why Is it so Hard to Get People on Your Bus? Part Two: Controllers/CFOs, Quality Managers and Operations Managers

If you read my prior blog relating to the same subject, but directed at Sales positions, you will no doubt recognize that a fair amount of what was said about getting the right sales people on your bus also applies to other positions.  The sad fact is that most small business owners don't do a very good search job in looking for people, and that starts a process which often leads to unsatisfactory results.

If you read my prior blog relating to the same subject, but directed at Sales positions, you will no doubt recognize that a fair amount of what was said about getting the right sales people on your bus also applies to other positions.  The sad fact is that most small business owners don't do a very good search job in looking for people, and that starts a process which often leads to unsatisfactory results. 

Controllers/Chief Financial Officers

One firm I have advised over the years searched a full year for a Controller, interviewing sixteen (!) applicants before finding one who appeared to fit the organization's needs.   He was promised a review and raise after 90 days.  The owner quickly became unhappy with his work ethic.  The saying around the office was "don't stand by the door at 5 PM; he'll knock you over as he bolts for the parking lot."  One of the several things that most disturbed the CEO was the fact that he never quite completed tasks on schedule.  He was almost always late, sometimes by an hour, and sometimes by days.  She not only gave him the promised raise at 90 days in spite of her dissatisfaction, she didn't even fire him.  She suffered through almost two years of his behavior before he finally resigned to become someone else's problem. Why did it take so long?  The CEO admitted the search had taken so long and she was so uncomfortable with the financial/accounting side of the business, that she was willing to keep the "known devil", feeling her next choices would also result in sub-optimal behavior.  Interestingly, the salary she had been paying him would have easily attracted an experienced CPA!

Another firm I have worked with wanted to hire a CFO.  The owner found a candidate.  He brought the candidate's resume to a Board of Directors' meeting.  One of the outside Directors noticed that the applicant had three years experience working for an out of state CPA firm.  That Director happened to know the Managing Partner of the CPA firm.  He called him.  The Managing Partner gave the candidate a less than glowing report.  The CEO/owner hired the candidate anyway against the advice of the Board.  [Side note: while this group was legally a Board of Directors, and therefore could have blocked the hire of a senior executive, in practice the Board functioned as a Board of Advisors because the CEO was the majority owner of the company and could override his Board's recommendations any time he wanted - as he frequently did.]  It took over two years for the CEO to finally fire the CFO, much to everyones' relief.

Quality Managers

The emphasis on quality is increasing important in today's business environment.  I recently reviewed the experience of an ISO certified firm that was faced with a significant problem with the scheduled review of its quality processes after the sudden resignation of its most skilled QC Manager.  The firm hired, through a respected search firm, a new hire to take his place.  By all background checks and interviews, this person was expected to be a solid replacement.  In his first week, it was quickly determined that he had a substance abuse problem.  Confronted, he promised to clean up his act.  And he did, for almost two weeks.  Luckily, he was sober enough to guide the quality audit.  Shortly thereafter he arrived at work too drunk to walk a straight line.  Rather than cut the losses, the firm chose to send him to rehab.  A month later, the man again relapsed.  He was terminated.  And so a new search began.  Another candidate, selected from a pool provided by another respected search firm, seemed to be the real deal. However, within three days of his hiring, he informed the CEO that he had lung cancer and needed some time off to deal with the medical problem.  A week later he returned to work, only to ask for a half day off for "personal business".  The half-day off was reluctantly granted.  Two more days passed when he again asked for another half-day off for more "personal business".  Again the request was granted.  A week later he was AWOL for four days.  He didn't inform his employer during that period that he would be absent.  On Friday of that AWOL week he arrived at the firm's headquarters dressed in a t-shirt and shorts.  He said he had been in another city doing personal things.  The story got even better when he told his supervisor that his first half-day off was spent buying his wife a Mercedes Benz car, and the second half-day was devoted to purchasing her some expensive jewelry. This man was hired in the mid-30K range. The man had been on the payroll for seven weeks and was absent for eight of the thirty-five work days.  He was finally terminated.  The search firm agreed to return the deposit on his hiring and credited the company with the other 50% of the fee towards another hire.  The ultimate irony: this man recently filed for unemployment compensation. As incredible as this story seems, I did not have to make it up!:   The company is still looking.

Operations Managers

One firm had a revolving door for Operations Managers.  Over a ten year period there were at least seven of them.  None satisfied the owner.  Desperate for a solution, the owner finally brought the problem to his newly created Board of Advisors.  They asked him some very pointed questions: (l) Do you have a job/position description of what you want your Operations Manager to do?  (2) Have you recruited and screened potential candidates against Gino Wickman's Traction process of " Gets It, Wants It, and has the Capacity to Do it"?  (3) Have you defined the Core Values of your firm to look at "fit" of the candidate for the job? 

The answers to those questions were mostly "no".  He had done some systematic recruiting, but he mostly relied on word of mouth, friend referrals, and admitted he was batting well under 300 for a decade.  He wondered how he would ever make it to the Big Leagues. The Board recommended he change his process.  He took the rest of his management team through the Traction Core Values exercise, developed a cohesive set of standards to measure candidate fit, first by resume, next by background check, then personal interviews with key members of his management team, and finally a provisional offer of potential employment to the four candidates that got through a much more systematic and rigorous screening process than had ever been done before in his company. 

Each of the four candidates were invited to become paid two day consultants to the firm.  Those two days were disguised as "outside consultants" to do what consultants do - walk the floor, ask questions, observe, evaluate and write a report to top management with recommendations on what they felt were areas of Strengths and Weaknesses and potential actions to ameliorate weaknesses and enhance strengths.  Compensation of $1500 was offered for the two days + the report.  Three of the four accepted the offer.   What happened?  One candidate was superior in his observations and recommendations.  However, in the two days, his behavior clashed significantly with the company's desired culture.  Candidates two and three were virtually tied in their performance on this assignment, with one appearing to fit much better than the other one.  The better fit man got the job.  The company got some great recommendations on changes that needed to be made.  Luckily, the new hire worked out well.  In part due to implementation of the series of recommendations suggested by the first candidate, cost of materials and labor as a percentage of sales decreased 7% over the first two years of his employment,  on-time delivery to customers rose from 91% to 97.5%, and rework/returns decreased by 50%. 

It's nice to win once in a while!

Some Analysis

Employee selection is not an exact science.  The human factors all too frequently override common sense.  We hire people we like. We limit the scope of the search because we have found what looks like a good candidate rather than search for the best candidate.  Settling for the good hire is counter to best practices.  In the case above in hiring the Controller, the CEO was clearly out of her comfort zone.  The whole three year fiasco (remember, it took a year to hire him and two more years of being unhappy with him) could have been avoided or at least minimized by following some simple rules, detailed below.  In the Controller situation, the problem could have been minimized had she sought help from others with more experience and comfort in hiring for the position. 

Entrepreneurs can often be their own worst enemies.  I frequently conduct SWOT (Strengths, Weaknesses, Opportunities & Threats) analyses with company management teams.  It is not unusual to see the CEO listed as a major Strength and as a major Weakness of the  firm.  The CFO example happens all too frequently when the CEO is also the major shareholder and believes he doesn't have to answer to anyone. 

The Quality position problems noted above are probably exceptions to the norm, but these stories are real. 

The happy ending of the Operations Manager story is heartwarming but also disturbing.  The owner had to wander in his personal desert for a decade before he sought the help that made the company experience real progress.

Takeaways

l. Effective hiring is a process, not an event. 

2.You must define your company's Core Values before you begin any significant hiring effort.  This will shape and guide assessment of candidates for "fit" with your firm.

3. Once you have defined the Core Values, any position you need to fill must have a definite job/position description against which you can measure candidates' talents and capabilities.

4. If you do your homework properly, you will screen first on the resume, next on validation of the claims on the resume, and then by an appropriate background check.  While we all know that people are unlikely to list references who will say bad things about them, there's a lot to be gained in seeking out contacts who know the candidate.

5. Candidates who pass the resume and background checks get moved into the interview stage.   A future blog in this series will examine some of the more egregious errors people make in interviewing, but for now, focus the interview on lots of listening, structuring the interview so that what the candidate "Can Do, Will Do, and has the Capacity to Do" can come through.  There's a lot to be said for having more than one interviewer in the room with the candidate. 

6. Hire people provisionally with specific, measurable goals to be accomplished by specified dates clearly enumerated and documented. And, review progress towards those goals.  Keep score.

7. Even with all of those guidelines, you are still going to make hiring mistakes.  Everybody makes hiring mistakes.  The key is to admit the mistake sooner rather than later.  Don't "put up" with someone who clearly isn't working out just because you are afraid you won't do better next time.  

8. Hire Slowly, Fire Quickly. 

These are the kinds of issues we routinely discuss and dialog about in the COSE Strategic Planning Course.  If you would like to learn more about the course, consider attending one of our information sessions (the next one is August 16, 2016) and/or look int the material about the course in this same website.

Jeffrey C. Susbauer, Ph.D. is Associate Professor Emeritus at the Monte Ahuja College of Business, Cleveland State University where he has taught strategic management and entrepreneurship courses since 1970. A long-time consultant to scores of businesses, a member of the boards of advisors to over 60 companies, he co-founded and serves as the principal instructor for the COSE Strategic Planning/CEO Development Course for the past 36 years. The course is concerned with providing entrepreneurs with education to guide their vision, strategic thinking and execution in their businesses.

Learn more about the Strategic Planning/CEO Development course or contact Jeff via email

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  • Next up: Why Should I Care About the Department of Labor’s Employee Benefits Security Administration?
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  • Why Should I Care About the Department of Labor’s Employee Benefits Security Administration?

     

    “Why should I care about the Department of Labor-Employee Benefits Security Administration?” It’s a good question. As a business owner, if you sponsor a retirement, health or cafeteria plan you’re about to learn why you should.

    The responsibility of the Employee Benefits Security Administration (EBSA) is to safeguard over $9.9 trillion in assets maintained in approximately 703,000 pension and retirement plans and 2.3 million health and welfare plans. This is accomplished by a relatively small cadre of investigators and auditors who probe for a wide range of violations. If an investigation reveals a violation of ERISA (Employee Retirement Income Security Act of 1974), EBSA takes action to obtain correction of the violation. When voluntary compliance is not achieved, EBSA may refer a case to Department of Labor (DOL) attorneys for litigation. Plan assets recovered by EBSA go directly back to the plans and participants involved; penalties go to the government. DOL may also provide information to any persons affected by a breach of ERISA (i.e., IRS, HHS, state insurance departments, parties involved in litigation against your plan).

    ·       RELATED: The Top 10 HR Mistakes Employers Make.

    (By the way, that $9.9 trillion in ERISA plans represents the single largest block of tax favored money on Earth. Consequently, it gets a tremendous amount of attention from the DOL, the IRS, SEC, HHS and all 50 state insurance commissioners. That includes your little piece of that pie, and by extension, YOU as the plan sponsor.)

    The DOL has the power to impose civil and criminal penalties and fines and to coordinate with the Justice Department to prosecute criminal violations or litigate large civil matters. For you, as the subject of this attention, it can quickly become a costly matter in terms of money, time, effort and aggravation.

    The best way to keep your risk profile as small as possible regarding your ERISA qualified benefit plans is to proactively manage them in compliance with all applicable statutes and regulations. This includes respecting and protecting participant and beneficiary rights, proper management of assets, oversight of service providers and the myriad reporting and disclosure rules. In the end, even if it is a service provider to your plans who violates ERISA, as the plan sponsor the responsibility and liability will always fall into your lap.

    Therefore, a suggestion on what amounts to “cheap insurance” – consider engaging a consultant to conduct a thorough analysis of your entire benefits program to identify potential areas of concern and to assist you in designing a “best practices” regimen of policies and procedures to get, and keep, your benefits programs in compliance. As a plan sponsor, you should be proactive in protecting yourself, your business, your plans and your employees.

    Disclaimer: This document is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The Gertsburg Law Firm Co., LPA and Marsh & McLennan Agency LLC shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting or legal matters are based solely on our experience as consultants and are not to be relied upon as actuarial, accounting, tax or legal advice, for which you should consult your own professional advisors. Any modeling analytics or projections are subject to inherent uncertainty and the analysis could be materially affective if any underlying assumptions, conditions, information or factors are inaccurate or incomplete or should change.

    Frank J. Bitzer, Director of Legal Compliance & Employee Health & Benefits at Marsh & McLennan Agency LLC. He can be reached at frank.bitzer@marshmma.com.

    Charlie Filisko is Vice President of Property, Casualty & Surety at Marsh & McLennan Agency LLC. He can be reached at charlie.filisko@marshmma.com.

    Alex Gertsburg is the CEO and Founder of the Gertsburg Law Firm Co., LPA. He can be reached by email at ag@gertsburglaw.com or by phone at 440-571-7775.

    Stop worrying if your company is vulnerable to lawsuits or liability and schedule a confidential, no-cost CM6 Vulnerability Check with Gertsburg Law Firm. CEO Alex Gertsburg will walk you through the minefields in your documents and key processes and tell you how to fix them yourself. Call 440-571-7774 or e-mail cz@gertsburglaw.com to schedule your CM6 Vulnerability Check today. Explore the full CoverMySix legal audit suite at covermysix.com.

    Securities offered through MMA Securities LLC (MMA Securities), member FINRA / SIPC, and a federally registered investment advisor. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Variable insurance products distributed by MMA Securities LLC.  MMA and MMA Securities are affiliates owned by Marsh & McLennan Companies.

     

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  • Next up: Why Succession Planning Matters to Your Bank – And You
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  • Why Succession Planning Matters to Your Bank – And You

     

    Putting plans in place to keep your business operating in the event you don’t want to or are unable to continue to run the show makes good sense. The path you choose to exit the business will depend on your circumstances, your desire to continue a family-run company or your choice to sell or merge with another entity. While you’re the right person to decide your business’s long-term fate, involving your bank and keeping your banker informed of your plans benefits you, your business and your relationship with your financial services partner.

    “When we understand a business owner’s vision for the company’s future, our relationship with the business gets stronger,” said Kurt Kappa, chief lending officer at First Federal Lakewood. “We can be confident in the longer-term view and help the business owner avoid pitfalls along the way.” 

    Unplanned Events

    While a business owner cannot foresee the exact timing of unexpected changes or unplanned life events, making a plan to protect the business when change inevitably occurs makes the aftermath easier and less risky.  Sharing the plan with the banker allows the business financial partner to understand who will be in charge, what skill and knowledge gaps need to be filled and what other organizational changes need to be made so the business continues to operate. Banks want to protect their interests in businesses to ensure loans and obligations are met and disruption to the business is minimized. 

    Every experienced banker has seen businesses fail because the owner was unprepared. For example, if the owner dies suddenly, is there a life insurance in place to protect the company? In the same scenario if the spouse inherits the business, will they be able to run it? If not, is there a sell plan in place? Is there a life insurance policy in place that will be able to cover the company’s debt? There are a lot of questions to consider and if there are no answers, a lot could go wrong and negatively affect the lending relationship. Planning before a life-changing event occurs is one of the best steps a business owner can take.

    Planning for an Exit

    Some types of business changes can be timed carefully using an exit or succession plan. If a business is transitioning to a next generation of family, the banker will want to get to know the new leaders before they take seats at the leadership table. These relationships are often personal and having the banker know the succession plan and the people involved can smooth the transition. The next generation will need to be able to demonstrate industry knowledge, experience, operational acumen and the desire to continue the business’s success. 

    Business sales and mergers are complex transactions. Bankers understand the nuances. A business banker knows the business’s financial condition, has awareness of market and industry conditions and is up to date on economic trends. They may even be able to connect potential buyers with sellers and others who can offer sound advice.  Most importantly, a business banker can help ensure that if an owner prepares for a sale by building up the balance sheet income statement or taking money out of the business, loan covenants which can delay or derail a sale aren’t triggered. These presale activities are, in themselves, fine and understandable as long as the short- and long-term financial implications are understood. 

    In the case of a planned business closure or liquidation, keeping the bank informed protects the relationship and sets a clear path for asset distribution and how and when outstanding debt will be satisfied. The bank’s involvement can help avoid disruption during what can be a difficult and emotional transition for the business owner.

    “Most business owners recognize the need for a succession or exit plan,” Kappa said. “We have seen how a good plan that is updated regularly can protect companies, owners, families and banking relationships.” 

    Start Now
    A business owner has likely built and run the entity and may be reluctant to think about letting go or passing on what they’ve accomplished. But change is inevitable and planning for both the unexpected and expected ensures continuity and a seamless exit. Planning sooner than later is better. 

    Get started by seriously thinking about the future of the company when the owner is no longer able or has the desire to lead and manage the business. When made aware of the succession plan, the business banker can impartially assess the impact to financials, loans and banking relationships.  Most business owners don’t want the exit to destroy the business or add undue burden to new owners and a business banker can help make sure the transition is successfully executed.  

    Gather your trusted advisors, including your banker, attorney, accountant and others. Explain your vision for the future of your business. If you’re not comfortable having the conversation just yet, make sure you have the protections in place if you are unexpectedly unable to continue involvement in your business.

    Review your succession plan just as you would your financial results or any other documents that pertain to your business. Set a date annually to make sure what you want is reflected in what you plan. Don’t put your banking relationship, lending viability or financial security at risk by not having the right plan in place at the right time and staying attuned to changing market and business conditions. The business banker can best help when kept informed of succession plan updates as they occur. 
     
    The decisions a business owner makes and the continuation path they choose are the culmination of a lifetime of hard work and determination. A good banking relationship puts a planning partner in the best position to help protect the business’s interests now and in the future.  

     
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  • Why the Recruiting Industry is a Racket

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  • Next up: Why Treasury Management Products are Key to Running a Successful Business
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  • Why Treasury Management Products are Key to Running a Successful Business

     

    Owning a business can have many ups and downs, but one thing is certain: treasury management is key to business success.

    Cash management falls under the treasury management umbrella, which refers to a business’s cash flow. Treasury management encompasses everything from cash management to business funding and investments. A streamlined treasury management system allows you to spend your time doing what you do best – running your business. 

    Over 82% of business failures are due to poor cash management, according to one study. Alarming, right? 

    “Treasury management services  give clients the tools to bank efficiently so they’re not spending time in their office,” said Alix Kaufmann, VP, Treasury Management Officer at First Federal Lakewood. “Business owners should be running their business and unfortunately, many of them are spending too much time in front of their computers.”

    Streamlining cash flow within a business doesn’t just stop at accounts receivable, either. It extends to loans, business sales and how much cash is leaving the business – also called outflow.
    “No business is too small to make money,” Kaufmann said. “Treasury management services are there so business owners can handle more clients and a bigger workload.”

    When it comes to treasury management products, Kaufmann recommends looking into a few for your business:

    1. ACH Origination
    Automated Clearing House origination (ACH origination) may be particularly helpful for those business owners who want to make a payment quickly. An ACH begins when a business owner allows their bank or other authorized originators to debit directly from their checking or savings account to make a payment. 

    “It’s something that everyone can use and ultimately is a means to replace checks for payables and receivables,” Kaufmann said. “Everyone pays themselves and it could replace bill pay, too, since no mail is going out and everything is electronic.”

    Not only that, but the ACH system is encrypted and provides business owners with a level of reassurance because payments are coming in at a certain time period. Plus, they won’t have to worry about checks clearing. 

    2. Remote Deposit
    Depositing checks remotely is a crowd favorite and allows business owners to scan checks at the office instead of taking them to a branch. Efficiency is worth its weight in gold for business owners, especially when it comes to depositing multiple checks at a time – sometimes even cutting time in half.

    “The two biggest advantages of remote deposit are the convenience and reporting aspect,” Kaufmann said. “This product logs check images and creates virtual deposit tickets so the bookkeeper can go back and pull logs easily. It’s a huge time saver to those who are depositing 20 plus checks at a time since they’re not having to make copies.”

    However, remote deposits aren’t connected to your smartphone like other applications may be. When it comes to remote deposits, you simply connect a machine to your business computer and can start scanning checks quickly. 

    3. Cash Sweep
    If a business owner has multiple bank accounts in different institutions, cash sweeps will automatically transfer funds from one account into another if it drops below a minimum balance. 

    “A lot of business owners could benefit from cash sweeps,” Kaufmann said. “It allows them to put a threshold in their savings or checking account and if the account goes past the threshold balance, it then sweeps to other accounts to stay at that threshold. It’s a great way to keep money safe and it makes bookkeeping a breeze.”

    4. Positive Pay
    Unfortunately, fraud is a common issue that many businesses, big or small, have to deal with. Positive Pay helps counter that, thanks to its anti-fraud service.

    “Positive Pay is a popular product among business owners,” she said. “Many people have chosen this service and nothing else because they experienced check fraud and needed a new solution. Many business owners simply cannot afford to open a new account every time they experience fraud. It’s more than a second level of protection, it’s also a bookkeeper that saves business owners time and money.”

    When thinking about treasury management products for your business, be aware that there is no one-size-fits-all. Review your current products and make a decision if you need to add, remove or simply stay with what you have. Talk to your business banker for recommendations if you feel stuck – they are there to help guide you through the sometimes overwhelming process.

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  • Next up: Why You Should Consider a COSE MEWA Health Plan for Your Small Business
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  • Why You Should Consider a COSE MEWA Health Plan for Your Small Business

     

    The overall health of your business is a priority, so you require a health insurance plan that keeps your employees safe and healthy. It’s important to choose a carrier that offers the products, access and benefits you’re looking for, who also looks out for you. That’s why COSE has partnered with Medical Mutual to offer the multiple employer welfare arrangement (MEWA) to help small businesses receive the big-business benefits they deserve.

    See why you should join the 7,500 small businesses who save on their health insurance through the COSE MEWA:

    1. You have the support of the Council of Smaller Enterprises (COSE) and Medical Mutual
    If you are reading this, you are likely already a member of COSE and realize the value of your membership. COSE and Medical Mutual offer the COSE MEWA to small business owners and their employees to help with the increasing cost of healthcare benefits. 

    2. Favorable rating of likeminded companies 
    The way a MEWA works is by getting together a group of similar small business employers to pool their contributions in a self-contributing benefits plan for their employees. By pooling your contributions with other employers, you are better positioned to offer the best benefit package to your employees due to economies of scale.  

    3. Strength of network
    As a chamber member, the COSE MEWA gives you and your employees access to Medical Mutual’s high-quality network of doctors and major hospitals across the state. Whether you’re looking for a narrow or broad network plan, your employees will be able to access the providers they want and need.

    4. Specialty Products
    In addition to our health plans, we offer dental, vision and life & disability insurance coverage, plus options like hospital, accident and critical illness insurance. Through Medical Mutual, your employees have access to our SuperDental network, one of Ohio’s largest dental networks, as well as national vision carriers like VSP and EyeMed. Offering a complete benefits package to your staff can improve overall employee satisfaction and retain talent. 

    5. Cost savings
    Since the COSE MEWA is not subject to certain state health insurance regulations and benefit mandates, this type of plan may be less expensive for your group than similar plans on the exchange. In addition, your rate will be determined by expanded criteria including medical history and gender to allow us to better tailor the costs to the unique characteristics of your group.  

    6. Wellness benefits 
    Through Medical Mutual, the COSE MEWA offers a comprehensive suite of wellness and disease management programs designed to promote healthy lifestyle behaviors. These wellness programs start with a health assessment to provide a baseline to help your employees better understand their health and identify risk factors for disease. Additional programs are available including the Health Resource Center on My Health Plan, fitness discounts, access to the QuitLine program for tobacco users and a WW® (formerly Weight Watchers) reimbursement. 

    For more information on the various COSE MEWA product offerings, please contact your broker or Medical Mutual Sales representative. 

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