Category: Leadership


Marie Antoinette’s Soul Mate

January 20th, 2009 — 6:41pm

I’m back! I hadn’t meant to be away for five weeks, but life intervened. In my defense, I didn’t notice anyone actually breaking my door down asking about my whereabouts …

I am wondering if you heard the recent Robert Siegel interview of GM Vice Chairman Bob Lutz on NPR’s All Things Considered a few days ago. If not, it is definitely worth listening to (http://www.npr.org/templates/story/story.php?storyId=99253055), for it gives a unique insight into the travails of the US auto industry.

Mr. Lutz showed great restraint; he waxed eloquent about the stupidity of the average consumer, without actually using the word. GM produces great cars, he said, but only a handful of experts really know this. It will take time for the experts’ opinion to filter down to the great unwashed masses and GM had no choice but to wait this out. Asked about the effect of the government bailout on the workings of his company, he said, “I’ve never quite been in this situation before of getting a massive pay cut, no bonus, no longer allowed to stay in decent hotels, no corporate airplane. I have to stand in line at the Northwest counter. I’ve never quite experienced this before. I’ll let you know a year from now what it’s like.”

If anyone has any doubts about why GM is really flirting with bankruptcy, Mr. Lutz comments should have clarified the issue. The Vice Chairman of a company which went with a begging bowl to Congress acted as if he was Marie “Let them eat cake” Antoinette’s soul mate. CEO Rick Wagoner and GM’s Board should have repudiated his statements by publicly firing him, but in my heart of hearts, I knew that my life would long be over before any good sense emanated from those quarters. But hope is what keeps the world spinning, does it not?

So, did Mr. Lutz change my mind about the auto industry bailout? No! If anything, his words are proof that the bailout is needed to preserve the company until more drastic steps can be taken.

An argument – also made by a handful of others – is that without the bailout, the industry’s second and third tier companies will be irreparably weakened. This will harm the broader industry’s stronger companies, for they rely on many of these companies too. Ideologues don’t understand this is the unfortunate logic of networks: As I’ve written elsewhere, it is hard to succeed if your network is failing.

The more important, and thus far unmade, argument is: bankruptcies will not reform these companies. In the best case scenario, they would file for pre-packaged bankruptcies (in which creditors back the financial restructuring plan) without scaring customers (even though buying a consumer durable is a riskier bet than buying a ticket from a bankrupt airline). Who will manage GM through this process? People like Mr. Lutz will represent the companies. Across the table from them will be their creditors. What will the negotiations focus on? The executives will argue they can fix the problems – if everyone else makes large concessions. The creditors – rightfully – will be trying to get back their money as quickly as they can. No one will be focusing on changing the culture that allow people like Mr. Lutz to be top dogs. And without changing culture – encouraging collaboration, being open to others’ ideas, being willing to take considered risk, managing learning every day, etc. – these companies will stumble from one disaster to another. Changing culture takes great effort, committed leadership and time. All three will be in short supply during the negotiations and during the tightly choreographed marches towards tough milestones that will follow.

I hope the Obama administration’s Auto Czar, backed by the bills that Congress must pass (to provide additional funding) by March, will be able to force change. As I wrote in an earlier post, I would like to see appointees to the Boards, an orderly departure of people like Rick Wagoner and Bob Lutz, and a shifting of power to less jaded executives running smaller companies created by splitting up the behemoths. The ideologues will probably not let this happen, but extraordinary times call for extraordinary steps. Nevertheless, I’ll even take smaller steps along the lines I have proposed while hoping for more. Hope, as I said, is what keeps the world spinning, does it not?

Comment » | Business Environment, Company Performance, Corporate Culture, Financial crisis, Leadership, Organizational structure, Politics

“There’ll Be Spring Every Year Without You”

December 5th, 2008 — 5:01pm

At this week’s Senate auto industry hearing, Senator Christopher Dodd noted that a death sentence focuses the mind. It does, but for the US auto industry, it took a humiliating public whipping of its CEOs for this to happen. In my last post, I took Rick Wagoner to task; in The Spider’s Strategy, in a chapter I mostly wrote two years ago, I expressed extreme pessimism about the industry and called Chrysler “the canary in the coalmine.” I can only shake my head in disbelief at Boards of Directors which trust executives who lack basic common sense: You don’t go begging for alms wearing Armani suits and flying corporate jets!

I have had the good fortune to work with several C-level executives, including CEOs and Board members. The common trait across the very best of them: they are astute politicians, who understand how to build coalitions, not just of the like-minded, but of those whose interests are not aligned with theirs. Detroit’s top executives, in contrast, did not see this in political terms. That they publicly displayed such naïveté speaks volumes about their companies’ culture: Imperialistic, with CEOs as monarchs who believe that the world would be truly worse off if they were not around. No wonder they are isolated from the real world!

In contrast, a very successful Chairman of the Board of a global company I’ve worked with had an office with glass walls which was about half the size of typical bedroom. It was located next to the operating area of a key business unit. It is not unusual for the CEO to walk into the company’s break room to pick up his own coffee. He had lunch with small groups of new hires. When I reported that a long-time employee had asked when old timers would be similarly invited, he immediately asked his secretary rectify his error; he invited his critic and a few other long-timers whom the critic thought he should know. If this CEO ever had to go to Capitol Hill and ask for help (I doubt he’d ever have to), he would not make the errors the Detroit CEOs did. Oh, by the way, this gentleman is probably as rich as, if not more than, them.

In Lerner & Leow’s My Fair Lady, Eliza Dolittle sings to Professor Henry Higgins, “There’ll be spring every year without you/England still will be here without you/ …/And without much ado/We can all muddle through/Without you.” Perhaps Mr. Wagoner, Mr. Nardelli and Mr. Mulally should play this snippet of the movie a couple of times a day on computer/video screens in their offices. It might induce them to leave the rarefied atmosphere of their sanctums and visit the real world more often. Who knows, that might cause them to rebuild their companies with policies more suited for a networked world and so create cars people want to buy. Ironically, of course, there may not be much of a spring for the American economy if these companies are not saved, despite their incompetence.

In the next post – which I promise will be soon – I’ll comment on the substance of the plans and the hearings.

Comment » | Business Environment, Corporate Culture, Financial crisis, Leadership

“What’s Good for General Motors is Good for America”

November 13th, 2008 — 1:49pm

The Federal government’s denial of the $10 billion bailout for the now aborted GM-Chrysler merger took my thoughts back to the Darden School of Business, 1981-1983. There, I first heard the saying, “What’s good for General Motors is good for America,” justified by the fact that 10% of Americans worked in the auto industry (and still do). Somehow, I was not convinced.

On the one hand, several of my classmates were GM managers on leave with full scholarships. They did not have to return to GM, but not one was even interviewing elsewhere. Surely a company that inspired such loyalty was well managed? On the other hand, a case we discussed documented years of mismanagement of GM’s Tarrytown New York plant; we had to decide whether to try to fix it or shut it down (and open a brand new plant). Moreover, Toyota had just begun thrashing the industry. A top GM executive spoke at a doctoral seminar I was auditing. He said GM had considered, and then abandoned, the idea of making small cars because it couldn’t be done profitably. That decision – and similar ones at Ford, Chrysler and AMC – made Toyota’s task a cakewalk. (The executive’s talk led me to undertake the independent research study on financial risks analysis I mentioned in a prior post on the global economic crisis.)

The more things change, the more they remain the same. In 2001, The New York Times published an article on production outsourcing at GM. The existing GM plant was rundown, filthy, and struggling; the proposed outsourcing vendor operated a computerized, almost “cleanroom conditions” plant. In more recent years, we’ve heard caterwauling from GM – and the broader industry – about the inability to anticipate the need for hybrid technology.

Should such executives be trusted with a share of the $25 billion in modernization funds they are still seeking? Over a close to 30 year period, two generations of GM executives have failed to strategically manage their company. I’ve briefly cited two virtually identical stories of factories run into the ground and lack of investment in next generation products. I don’t know about you, but I don’t get the warm and fuzzies they know much about modernization. Two epochal changes (see the very first post in this blog for a definition) and these people blow them both.

GM’s problems are not its labor or its infrastructure; they are endemic in the culture of management practiced there. It was apparent in the sheer audacity – chutzpah is a better word – of CEO Rick Wagoner comparing the denial of the $10 billion to the Treasury’s not bailing out Lehman Brothers. Did he ever consider saying, “I’m sorry America, my entire management team and most definitely I, blew it. We will tender our resignations in an orderly manner so as not to do more harm. In the meantime, please do not take out your anger at us by punishing the people and communities GM operates in.” Perhaps it is the water in Detroit … I’ll remember not to drink any next time I visit that city.

Nevertheless, I would hold my nose and give GM the money. In this networked world, the failure of this large a company will bankrupt many suppliers and dealers and most importantly – as I had mentioned in a prior post – will tank the still-struggling financial markets. However, recognizing that this company cannot be trusted to reform itself, I would insist on the following conditions:

One, the Feds get to appoint a couple of Board members who must be on GM’s Finance committee. (Some people may rage about this taking us closer to “socialism,” but surely that is preferable to the brand of capitalism practiced by Mr. Wagoner?) Two, Mr. Wagoner and his top lieutenants must resign in an orderly fashion, without their golden parachutes (If a company can seek to break binding legal contracts with its suppliers through a bankruptcy court, there must be at least 10,000 lawyers who can figure out ways of getting GM to rescind its contracts with it its executives). Three, the Fed appointees should have veto rights on the replacements for Wagoner and his associates. Four, over the next five years GM (and Ford and Chrysler) must be reduced in size, so they are no longer “too big to fail.” This will require mandatory spin-offs of relatively independent businesses (as some analysts have suggested). Five, no one in the top spots in any of the restructured companies should come from the senior-most ranks of these companies; fresh blood that is willing to be boldly rethink how to operate in a networked world, is essential.

What may be really good for GM is definitely no longer good for America. And what is good for America will most definitely not be good for GM’s management. National policy makers must make incompetent executives pay without destroying the economy. If they pull-off this balancing act, the people will cheer them on to re-election. If not, we will have to bail out many others in the years ahead.

1 comment » | Company Performance, Financial crisis, Leadership

Pyromaniacal managment

September 14th, 2008 — 7:09am

My wife considers me a workaholic; naturally, I disagree. On our European vacation, I did not work at all. I read The European Wall Street Journal only twice — and that too because when the blazing Milanese afternoons forced us to retreat repeatedly into our hotel room, I had run out of books and the hotel’s management treated all weekday guests as business people.

An August 12 article (“Sounds like a combined position? It is”) caught my eye. It reported: “Call it a sneaky way to get more work for less money. U.S. companies in some sectors that are cutting back on manpower aren’t eliminating positions entirely, bur rather have taken to melding a midlevel position with a more junior one – then advertising it as a junior slot, offering a low salary.”

I have to confess that the article left me dumfounded. Does anyone actually think that this is a smart way of doing business? Consider the logic inherent in the idea: “We have a managerial/executive position that is important enough to preclude its elimination, even in these tough times. However, it really does not matter if we offer it to an unqualified person.”

Let’s take this logic into another field – how about surgery? “Doctor X assisted in 15 (pick an appropriate number) heart surgeries while completing his internship. Let’s make him the Chief of Cardiovascular Surgery of this hospital, since we can’t afford to hire an experienced surgeon with management experience.” Or, consider a parallel to the specific example (of a contract manufacturer) in the article, “Doctor X has assisted in 15 heart surgeries. Since we cannot hire both a cardiovascular surgeon and a gastro-intestinal surgeon, we will combine the two jobs and have him do both. We should be OK, since a senior surgeon will check in on him occasionally.”

Would you go to such a hospital for a surgery? If the logic sounds asinine in medicine – or engineering or professional team sports or a dozen other fields – why is it not asinine in the running of a complex business? All these years, I had believed that the only field of human activity in which you could (routinely) find such sheer stupidity was politics. I guess the good news is that I am still living and learning.

Near the end of the article, the Journal quoted experts saying that such measures “… tend to backfire in the long run …” and “… when jobs are poorly combined, the strategy can also be bad for the firm …” because the company may be “… cut(ting) into the bone, into the things that are really adding value to your customers …”

The house can burn down and the experts are worried about the possibility of a long term decline in real estate values? Here’s what I would have said, had I been asked, “If you are a customer of such a company, immediately conduct an quality audit of everything you got from them. Also, find a replacement provider immediately. Then you won’t be singed when your provider crashes and burns.” To the Board of the provider company, I’d say, “Would you give a match and lighter fluid to a pyromaniac? No? Then fire the person who made the hiring decision. That’s an executive you can do without, particularly during tough economic times.”

Comment » | Leadership, Organizational structure

The Virtues of Horse Trading

July 26th, 2008 — 8:38am

A few weeks ago, I was teaching executives – ranging in titles from Directors to VPs – at a blue chip company that is routinely considered one of the best run in the US. While discussing interactions among structure, processes, culture and skill, I introduced the idea of networks.

Like many other huge companies, this one has many fairly independent business units (that is, an internal network) unified by little more than a brand name, a culture and a financial superstructure. As in other such companies, the executives believed that the financial superstructure impeded collaboration among business units. As such, they felt powerless to exploit the full extent of their corporate capabilities.

A senior leader came to talk about leadership and the attendees brought up the collaboration challenge. The leader began telling of a recent product creation/launch effort that she had led. Missing a key technology, she had found the capability necessary to create it in another business unit. Her peer there said that the pressures of his own goals and resource constraints would not allow him to help her. So, for the duration of her needs, she transferred an equivalent number (and quality!) of people over to the other BU and paid for both sets of employees out of her budget. Her subsequent successful product launch gave the company clear market presence.

Quite possibly, some of my program’s participants would have felt better if the head of the BU that had the needed skills had acted out of belief in “the greater good.” Yet, there is no escaping the fact that a great win-win – there, I’ve used that overused and little believed term! – emerged here not out of altruism or any great principle, but out of enlightened self-interest. The speaker won because she got her resources and created a market leading product; waiting for altruistic behavior would have killed the launch. The other BU’s head won because he reduced his costs and possibly gained an IOU chit for the future while still retaining the capacity to meet his goals. Finally the individual employees won too, for they ended up being exposed to new challenges in their fields of expertise and just as important, were able to create new contacts that they could draw upon in the months and years ahead.

To me, her behavior is a quintessential example of what I call Operational Leadership: faced with a challenge you are passionate about, instead of simply talking, can you get something done? She did not simply extol the importance of collaboration and bemoan its lack in the company’s internal network. Instead, she figured out a way of assuring collaboration and showed her peers, bosses and direct reports how to make it happen.

What do you think about the story and my takeaway? Do you agree or disagree? How what are the upsides and the limits to such behavior? Do you have stories to tell either supporting or challenging this notion?

Comment » | Leadership, Organizational structure

The Prototype Boss of the 21st Century?

July 5th, 2008 — 4:17pm

A recent Financial Times article about Neville Idsell, Coca Cola’s retiring CEO (“Final encore for a man of the people”) struck a chord because of the contrast it posed with a prior Coke CEO, Douglas Ivestor.

Ivestor became CEO in late 1997 after Roberto Goizuetta sudden death. Michael Watkins wrote a HBS case (The Coca Cola Company (A): The Rise and Fall of M. Douglas Ivestor) about the succession. Wall Street was so certain of his credentials that it almost ignored the beloved Goizeutta’s passing. Ivestor was a financial genius, and as the following quotes from the (meticulously footnoted) case show, a ruthless competitor and hard driving operator:
_ “… play by the rule of McDonald’s founder Ray Kroc, ‘What do you do when your competitor is drowning? Get a live hose and stick it in his mouth.’”
_ “The highly disciplined organizations are the most creative. If you can create high discipline, in effect you’ve created security and safety…. It’s follow-up. It’s returning phone calls. … We operate with a rigid control system. It is an enabler, not a restrictor.”

Yet, 18 months into his tenure, Ivestor stepped down. The man whom Fortune magazine had called the “prototype boss for the 21st century” could not solve the huge problems that had their roots in policies initiated – with Ivestor’s active participation – during Goizuetta’s reign.

In mid-2004, Coke’ Board lured Neville Idsell, a former Coke executive, out of retirement after Ivestor’s successor, Douglas Daft also failed to make headway. Four years later, he is leaving Coke in much better shape. Idsell succeeded not by charting a new path, but by changing how Coke operated. The FT article quotes him saying, “My major was sociology; I am a qualified social worker. I do think it is all about people.” Early in his tenure, he appointed a top executive to focus on internally on Coke’s people and a team to focus on building better relations with Coke’s bottlers. He brought in 150 top executives into a powwow on what ailed Coke and listened to them. He passed over his protégée and anointed a successor whom he called “ambassadorial” and “… one of the world’s great best networkers …”

Idsell, rather than Ivestor, deserves to be called the “prototype boss for the 21st century” – and he is not alone. Two years ago, the Idsells of the world would have stood no chance; today, they are in demand. For example, John Thain replaced Stan O’Neil at Merrill and Jeffrey Kindler replaced Henry McKinnell at Pfizer.

This new breed of executive will not get a free ride on performance. Charles Prince brought a softer edge to Citigroup, but was forced out for failing to resolve Citi’s mounting problems. Interestingly, Citi’s Board did not rush to get back a Sandy Weil look-alike, but sought out an executive with an even bigger reputation for collaborative management: Vikram Pandit.

These CEO choices don’t mean that Boards of Directors are going soft in the head. My money is on the idea that they are belatedly coming to the understanding that the “It’s my way or the highway” style of management preferred by the Ivestors and O’Neils and McKinnells doesn’t work in a networked world.

Let’s build a list of this new breed of CEOs and collectively keep tabs on how they work and how they fare.

2 comments » | Leadership

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