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Executive Times |
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Volume 4,
Issue 1 |
January 2002 |
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ã 2002 Hopkins and Company, LLC Note re: links---certain
hyperlinks assume that you are registered as a subscriber to the site. If you
are not a subscriber to certain sites, the links will fail. If you register,
the links should work. Also, certain hyperlinks expire and may not be
available when you try to go to the site. BulletproofMost executives hate
vulnerability. We try to manage organizations in ways that reduce the risk of
surprise or failure. We try to protect ourselves from harm, and often the
habits of leadership can create the illusion of personal invulnerability.
Experience proves that our efforts can be insufficient to ward off harm, and
the pain we suffer can teach us lessons about how to avoid harm in the
future. In this issue, there are examples of vulnerabilities revealed,
including: everything to do with Enron; the job applicant with longstanding
resume lies; the politician who trades off international markets for local
popularity; the CEO who quits to pick up interests he laid aside many years
ago; the CEO with a great plan that miscalculated major changes; and the
executive who plans to preserve biodiversity. Our top-rated books in
this issue also reinforce this theme. The best business book we’ve read
recently, 20/20
Foresight by Hugh Courtney, helps executives perform disciplined
strategic planning within situations rife with uncertainty. Three NYT
reporters expose a global vulnerability to germ warfare in their book, Germs.
Both books are highly recommended on page 6. The start of a new year
can be a good time to reflect on the strengths, weaknesses, opportunities and
threats facing you and you your organization. You can select which strengths
and opportunities to leverage, and which weaknesses and threats cause you the
most concern. We’re not bulletproof, but we can take actions to recognize and
mitigate our vulnerabilities. The End of Enron One could have spent three
hours a day over the past month reading stories about the disaster at Enron.
In case you overlooked a story or two, we want to call to your attention
several perspectives on this well-publicized debacle. Within a long interview
in Business Week (12/19/01) (http://www.businessweek.com/bwdaily/dnflash/dec2001/nf20011219_2981.htm),
Jack Welch was asked about his reaction to what happened. He said,
“Well, Enron jumped from their core business into a trading business. They
went from people in overalls and wrenches who ran pipelines and utilities to
a trading business where people wore suspenders and had $10 million salaries.
And when you change cultures that profoundly and you don't know the business
and you hire a whole new team to come in and do it and get some early success
which feels good, in this business, it proves once again that culture
absolutely counts.” Welch certainly learned that lesson at GE when he
encountered the culture at Kidder Peabody where traders lived large,
and he ended up paying millions of dollars in losses and claims. Beyond
Welch’s description of the change in culture and in the type of employee at
Enron, The Wall Street Journal (12/5/01) (http://interactive.wsj.com/archive/retrieve.cgi?id=SB1007502843500372680.djm
described in a detailed page one
feature story the culture of secrecy that dominated life at Enron, and led to
its downfall. The secrecy included strained relations with analysts and the
use of accounting approaches that obscured material matters. Here’s the WSJ
description of former CEO Jeffrey Skilling and how he epitomized the
culture of secrecy: “As Enron concentrated on trading of complex instruments,
it came to resemble a vast financial-services empire, handling billions of
dollars of other people's money. But to analysts and investors seeking to
understand it, Enron wasn't very informative. Officials could be dismissive
of inquiries, even rude. Closely questioned during a conference call last
spring, Mr. Skilling called one company critic an ‘ah.’” Accounting firms are
under fire for inadequate disclosures, and Enron’s auditor, Arthur
Andersen, faces particular scrutiny. In an op-ed in The Wall Street
Journal (12/4/01 (http://interactive.wsj.com/archive/retrieve.cgi?id=SB1007430606576970600.djm) Andersen CEO Joe Berardino said, “When a client fails, we study what happened, from
top to bottom, to learn important lessons and do better. We are doing that
with Enron. We are cooperating fully with investigations into Enron. If we
have made mistakes, we will acknowledge them. If we need to make changes, we
will. We are very clear about our responsibilities. What we do is important.
So is getting it right.” Berardino went on to talk about the roles of others
in the system including regulators and investment bankers. Some observers and
disgruntled shareholders have concluded that the system failed as Enron spun
out of control; others have said that markets work and Enron was swiftly
punished for its actions. We haven’t begun to see the end of Enron stories. How would you characterize the culture of your organization? Does that culture provide strength, or does it represent vulnerability? When new people join your organization, how do they become immersed in the important aspects of your culture? How well do you and others really understand the business you are in and the risks you take? How aware are you of the things you don’t know? How important is “getting it right” in your business? As you’ve thought about what happened at Enron, what have you learned that could improve your organization? Fumble Former Georgia Tech
coach George O’Leary accepted the football coaching job at Notre
Dame and resigned a few days later. Two lies that have been on his resume
for decades surfaced: he never played football in college and he didn’t
receive a master’s degree. Here’s part of O’Leary’s statement (http://www.nd.edu/~prinfo/news/2001/12-14.html):
“These misstatements were never stricken from my resume or biographical
sketch in later years. During my coaching career, I believe I have been hired
because of the success of my players on the field and the evaluations of my
peers. However, these misstatements have resurfaced and become a distraction
and embarrassment to the University of Notre Dame, an institution I dearly
love. I regret that I did not call these facts to the attention of the
University during their search. It now seems, therefore, that in keeping with
my philosophy of personal accountability for these errors, I resign my
position and deeply apologize for any disappointment I have caused the
University, my family and many friends.” Some pundits blame Notre Dame for
not catching the lies before making a job offer. Others have pointed out that
most football programs care about results and could care less about old lies.
The religious affiliation at Notre Dame leads them to frown about lying, and
their granting of academic degrees leads them toward wanting those
designations to be respected. Within a few days, everyone involved had
regrets. At what stage
in the hiring process, do you check references and representations? When you
discover misstatements, what do you do? Have you read your own resume
recently, or the fact sheet your company presents to others about you? Is
there anything on those documents that might stretch the truth? As with an
almost forgotten political figure, did you really invent the Internet, or
were you the first to refer to it as the “information superhighway?” If your
first spouse read your resume, would he or she concur with what’s stated? Don’t Cry for Me Executives make tough choices, sometimes alienating one constituency
while appealing to a different constituency. You could almost feel the pain
when Adolfo Rodríguez Saá, the interim and unelected president of
Argentina, declared a default on the country’s $132 billion in debt. While
not a surprise, this is the largest default in history. The members of
Argentina’s congress cheered when Saá announced the suspension of payments,
according to The New York Times (12/24/01) (http://www.nytimes.com/2001/12/24/international/americas/24ARGE.html).
March elections will choose the next president of Argentina who will likely
not be able to access international financial markets for several years and
will inherit a devalued peso. Today’s populism will lead to a more uncertain
tomorrow in Argentina. What leads you to choose one constituent over another? How high a price are you willing to pay as a consequence of your choice? To what extents do your current decisions constrain your successor? If you are facing a transition in the near future, what decisions are best to defer to the next incumbent? Ma CaBell 2001 didn’t turn out to
be the year AT&T CEO Michael Armstrong expected. A mid-year
hostile takeover attempt by cable giant Comcast ended in December with
AT&T accepting a modestly higher bid from Comcast. Armstrong’s plan to
create a network that could deliver a variety of services to anyone, anywhere
was never realized. Under his leadership, AT&T made significant
investments in diversification, especially cable networks. In a reflective
interview in The New York
Times (12/22/01) (http://www.nytimes.com/2001/12/22/business/media/22MIKE.html)
Armstrong said, “I did not see the dot-com, telecom implosion. That basically
took the values out of what the market had been giving us for the investments
we had been making. It was a fast shift, and it surprised all of us.” While The Times points out that shareholders of AT&T during Armstrong’s
leadership have been better off than those at Sprint and WorldCom,
Business Week (12/20/01) (http://www.businessweek.com/bwdaily/dnflash/dec2001/nf20011220_8012.htm)
concludes that AT&T receives about $45 billion for assets it acquired for
$110 billion. Comcast has paid about $4,500 per subscriber for AT&T
Broadband, and time will tell how much they over or under-paid. In the
meantime, Armstrong reflects, “AT&T, this icon, would have disappeared if
we remained just what we were. To now know that AT&T will still be around
for the next century and to be able to complete that with satisfaction and
value is something I'm proud of. I hope it will be judged fairly.” Armstrong
led the company in pursuing a plan while the business climate changed faster
than the company imagined. What could derail your current strategy? How quickly can you implement your current plans? How fast can you revise plans when situations change? How will you measure success and failure? When an entire sector suffers, will success mean that you did better than peers? How will you lead your organization toward success? Follow-upHere are selected updates
on stories covered in prior issues of Executive Times: Ø Imagine our surprise when we read that Time
named outgoing New York City Mayor Rudy Giuliani Person of the Year
for 2001. It was in the November 2001
issue of Executive Times that
we called attention to Giuliani’s legacy of leadership during a time of major
crisis. Executive Times readers
saw it here first. Ø
Readers of Executive Times have noticed our frequent
reflections on the cost to maintain the value of a brand, and the ways that
companies can over and under-spend what’s needed to support a brand. One of
the best articles we’ve read in a long time is titled “Revving Up Auto
Branding” and appears in the current issue of the McKinsey Quarterly
(2002 Number 1) (http://www.mckinseyquarterly.com/article_page.asp?tk=38030:1140:2&ar=1140&L2=2&L3=38).
Read the article and find out why the
same car fetches different prices when it sells in one location as the Toyota
Corolla and in another as the Chevrolet Prism. You’ve already guessed which
name fetches the higher price. LegacyDo Something
You’ve read often about
Moore’s law on the growth of microchip processing capacity. Gordon Moore,
co-founder of Intel, will likely be remembered for generations for
reasons other than his business acumen. Through the new Gordon and Betty
Moore Foundation, he’s donated $261 million to Conservation
International to “stop species extinctions in biodiversity hotspots
and to protect large areas of major tropical wilderness areas.” The current ten-year grant to CI is a down payment
on a thirty-year commitment of $31 billion by the Foundation. Why has Moore
made this commitment? He said, “Places I used to go that were wild and
natural, now they are high-rises and golf-courses. If people don't do
something about it, this will all disappear in another generation.” Moore has
provided seed money for careful scientific measurement of rainforests and
other hotspots and for creative thinking on how to maintain biodiversity.
It’s likely that the Moore legacy will be a lasting one. “Poetry Over
Profits”
The business community was
surprised in early December 2001 when AOL Time Warner CEO Gerald
Levin announced his
early retirement. Some observers of Levin were not surprised. In a Manager’s
Journal column titled “Poetry Over Profits!?” in The Wall Street Journal
(12/10/01), Ken Auletta disclosed that while Levin has come across as focused 100% on business,
he’s led a secret life. He dreamed of being a novelist. After his son,
Jonathan, an inner city teacher, was murdered in 1997, Levin told a board
member, “How can you tell me that growing revenues 20% is important?” The
board gave him time to grieve, and encouraged him to keep working so he could
do some very important things, which he has. Events of September 11
accelerated Levin’s transition plans, now that he’s accomplished what he set out
to do in business. In December, Levin explained to CNN’s Lou Dobbs, “I want the poetry back in my
life.” Levin told The New York Times, “My identity is much more
important to me than these corporate trappings.” Part of Levin’s legacy will
be the strength of the company he leaves. Watch what he does next as he turns
toward doing some good work that will fulfill more of his dreams. We think
Levin’s greatest legacy is still to come.
Reading (Note: readers of
the web version of Executive Times can click on the book
covers to order copies directly from amazon.com. When you order through these links, Hopkins & Company
receives a small payment from amazon.com.
Click on the title to read the full review or visit our 2002 bookshelf
at http://www.hopkinsandcompany.com/bookshelf.html).
Latest Books Read and Reviewed:
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ã 2002
Hopkins and Company, LLC. Executive
Times is published monthly by Hopkins and Company, LLC at the
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