Executive Times |
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Volume 2,
Issue 8 |
August, 2000 |
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ă 2000 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. Three EnvelopesIf we heard this joke twenty-five years
ago, it may well have been from Professor Paul Nadler of Rutgers, a
frequent speaker at banking conferences, so we’ll give him credit for it.
When the new bank president arrived on his first day at work, the old
president greeted him, and handed over three envelopes, marked 1,2 and 3.
“Whenever you face a crisis or a difficult decision, open these envelopes in
the order indicated.” The new CEO placed the envelopes in his desk drawer and
forgot about them until three months later when an unexpected shortfall in
earnings was about to be announced.
He remembered the envelopes, opened #1and found a single card with the
words “blame your predecessor”. The earnings release came and went easily
after following the direction from inside envelope #1. Six more months
passed, and once again earnings were below expectations, and the bank
president didn’t have a plausible reason to explain the downturn. He
remembered the envelopes, opened #2, and read, “reorganize the bank”. The
announcement about dramatic changes in people and structure was well
received. When year-end results showed no performance improvement, the bank
president opened his desk drawer and stared at envelope #3. He opened it and
found the message, “prepare three envelopes.” We recalled this story in recent weeks, especially
after we read the quarterly reports coming out of various banks. Executives
yesterday and today make hard decisions and act in ways that show they’ve
learned lessons from the past. Executives form teams and create
organizational structures and processes to succeed in the future. Some
executives decide or are told that it’s time to turn the reins over to
someone else. As you think about the situations faced by other executives,
reflect on what you might have done the same or differently had you faced the
same challenges. It takes lotsa $$$ to close The Money Store In March 1998, First Union Corporation
announced
an agreement to buy The Money Store for about $2.1 billion. “We are excited by the
opportunity this partnership presents for us to fill an important gap in
meeting the credit needs of a broader range of customers with expanded and
very complementary products," said John Georgius, president of
First Union Corporation. "The combination with The Money Store fits
perfectly with our retail strategy of meeting the needs of all customers
when, where and how they want."
Georgius retired a year later. His replacement, G. Kennedy Thompson,
was tapped earlier this year to replace retiring CEO Edward Crutchfield,
who resigned for health reasons. When he took the new job, Thompson said,
“It is my honor to continue Ed's vision of the business model he has created
for the 21st Century.” Three months later, at the end of June 2000, Thompson announced
sweeping changes. The “bulk of the changes are related to a decision to
discontinue lending activities at The Money Store.” The press release stated,
“Following an extensive review of The Money Store, First Union has determined
that its long-term profitability outlook and risk profile are inconsistent
with First Union's strategic plan.” We would have thought an extensive review
would have taken place just two years ago before the bank shelled our $2
billion to buy The Money Store. We assume First Union’s strategic plan has
now changed, otherwise somebody would have found the inconsistency two short
years ago. We’re guessing that even though Crutchfield and Georgius are board
members, Thompson used envelope #1. Instead of a retail strategy of “meeting
the needs of retail customers when, where and how they want”, it seems that
from now on every operation will have to meet strict financial criteria. Major decisions to merge or divest take
place in a context and the messages relating to these decisions can come back
to haunt a company. When you make important decisions, how carefully do you
frame the messages conveyed about the decisions? The First Union turnabout on
The Money Store took place in a short period of time, allowing memories to
echo the corporate statements made in the context of two different scenarios.
How consistent are your messages? What will cause you to make a sharp change
in direction? Will you blame your predecessor? Bank One, Envelope Two Maybe it was because his predecessor had
been blamed already that Jamie Dimon, CEO of Bank One Corporation
had to jump ahead to envelope #2. At a late July investor
presentation, Dimon disclosed his actions to restructure the bank and set
it in the right direction. Correcting the past mistakes will be expensive.
Dimon implemented a new financial philosophy that cut the bank’s dividend in
half, and the charge in the current quarter to clean up the balance sheet is
almost $2 billion. That gives the Dimon management team breathing room to
move ahead with their plans for future success. We found Dimon’s investor
presentation crystal clear and a model for executive communication. Dimon
used plain language, peppered with clear examples to explain what he’s done
and what will be done. He said he’s examined the business of the bank since
April, and has decided not to sell off assets like First Card or
wingspanbank.com. The franchises are sound and growing; the challenge is to
execute better. Dimon explained that this means integrating systems and
improving customer service. Waste will be eliminated. A new management team
is in place. We found it fascinating that part of the reorganization involves
a change to new management philosophies involving these attributes:
entrepreneurial; owners and partners; run lean and fast; open door policy;
meritocracy; high standards; teamwork and personal character. When you’ve made organizational
changes, have you communicated the philosophy or principles behind the
changes? When you’ve delivered messages about change, have your words and
meaning been easy to understand by all audiences? The next time you’re ready
to deploy the advice of envelope #2, how will you go about your
reorganization? Preparing three envelopes We opened The New York Times on July
1 and learned that Larry Ellison’s number two at Oracle,
President Raymond Lane “resigned abruptly.” Since Lane’s resignation
came days after the company admitted it had conducted a surveillance campaign
against Microsoft, some sources connected the resignation with the spy
campaign. Oracle claimed no connection between the two events. Will some event trigger your
preparation of three envelopes? How do you plan to move on? Sticks and Stones May Break My BonesBut name-calling may cost $3 million We laughed out loud when we read in The
Wall Street Journal (July 11, 2000)
that a former employee of Value Line is being sued for $3 million
because of calling a former boss names (specifically “old dodo”) in postings
on Yahoo message boards. 48-year-old former Value Line employee Christopher
Bischof said, "Of course I'm sorry for what I did. This hasn't
exactly enhanced my career." Injured CEO, 65-year-old Jean Buttner,
filed suit against 50 John Doe’s who posted messages about her on Yahoo.
After Value Line fired Bischof, he spent part of his free time blowing off
steam online about his former company and its CEO. How do you blow off steam? What do you
talk about? Who do you talk about? What do you say? Take the Money and SprintPay for performance windfall Many companies encourage
key personnel to remain with an organization involved in a merger through the
use of financial incentives. In the case of top executives, their old stock
options often become fully vested, and new options are granted to reward
continuity and enthusiasm through the merger. We read in The
New York Times (July 6, 2000)
that Sprint executives who received these merger incentives when the
deal with WorldCom was announced, can still cash them in and leave
Sprint now that the merger has been called off. Executives have begun depart
Sprint, quite a bit wealthier than they imagined. Do the terms of incentive
compensation in your organization motivate the behavior you desire? Are
certain reasonable conditions included in your plans, such as revisions if
regulatory approval isn’t obtained? Lessons in Teacher PayNEA delegates reject pay for performance
proposal We read (NEA press release, 7/5/00)
that the delegates at the National Education Association’s annual
meeting rejected an alternative pay plan structure that would reward teachers
for results. At first, we were surprised on hearing this story, and now think
we understand the issues a little better. Current teacher pay structures
reward experience (tenure) and knowledge (degrees). The best teachers can
make less money than the worst teachers in today’s plans. Teachers seem wary
that administrators or school boards could find ways to distinguish the
differences between the best and worst teachers by using any criteria other
than experience and knowledge. That resonates with our own experience. Our
best teachers wouldn’t have been well rewarded if they had to follow someone
else’s curriculum. Test results is a potential criterion fraught with land
mines. For now, the teachers want more money, but under today’s structure. How
do you build confidence in workers that the criteria used to differentiate
performance are fair and reasonable? Do workers play a role in setting the
criteria for evaluation? How do you distinguish the best workers in your
organization? Are they rewarded significantly more than average performers?
Do others know who the best performers are, and what they did to be rated
best? Hard times ahead for EZ Squirt?Makes us green with envy You’ve probably heard about EZ Squirt by
now, but may not recognize it by that name. In another brand extension, H.J.
Heinz announced this
new product, aimed at children: green ketchup. Is nothing sacred? With the same taste as the red version, EZ
Squirt will be on store shelves in October in a soft bottle and delivering a
fine steam, handy for drawing on food and for increased accuracy during food
fights. Heinz spokesperson Deb
Manguss referred to it as a ketchup kids “can call their own.” That’s
probably because the rest of us will take a pass. Can new ideas emerge inside your
organization even if they turn existing thinking upside down? Are you willing
to give target customers a product they “can call their own?” Cutting through the Smoke“A defective product and they knew it” Most executives we’ve talked to since the
Florida jury awarded smokers with a multi-billion settlement can’t believe
what happened. One executive said, “What’s happened to personal
responsibility?” Another said, “How long have the warnings been on cigarette
packs? Didn’t you call them coffin nails when you were a kid?” Whatever
surprise we experienced over the verdict went away when we read one juror’s
quote, “Cigarettes are a defective product and they knew it.” Are
any of your organization’s products or services defective? Do you know it?
What have you done, or what do you plan to do? Follow UpHere are selected updates on stories
covered in prior issues of Executive Times: Ř The July 2000
issue of Executive Times called
attention to the expensive consequences of past price discrimination by race
at an insurance company acquired by American General. We were not
surprised to read in The
Wall Street Journal (July 13, 2000)
that similar claims over alleged racist practices have been filed against Prudential
and Met Life. Ř Both the May and June 2000
issues of Executive Times
mentioned Conseco’s woes and changes at the top. We learned from The
Wall Street Journal (July 11, 2000)
that the Board found an expensive replacement for departed founder and CEO Stephen
Hilbert. According to the Journal, in addition to paying Gary Wendt,
former head of GE Capital, $45 million, Conseco issued 10.5 million
shares of stock to GE Capital to release Wendt from his non-compete
agreement. LegaciesWhile we vaguely remember seeing a small
man on TV in 1964, we clearly remember hearing his keynote speech at the
Democratic National Convention in Atlantic City. John Pastore, the
first Italian-American elected governor and then Senator, delivered a moving
partisan address, lashing out against Republican nominee Barry Goldwater,
emotionally remembering John Kennedy, and preparing the delegates to nominate
Lyndon Johnson. Short in stature, about 5’4” tall, Pastore’s eloquence and
intelligence put him head and shoulders above most political colleagues. His
dignity and integrity separated him from other politicians, and his career
was scandal-free. His principles led him to oppose nuclear weapons and he led
support for the Nuclear Test Ban Treaty. Pastore became a role model for
aspiring immigrants; his photo hung in many living rooms around the Ocean
State during the 1950s. We recall him leading the Senate floor debate through
many controversial parts of the Civil Rights Act of 1964. Pastore served
Rhode Island in the U.S. Senate from 1950 to 1976. Pastore died in July, and during the August political
conventions this year, we’re not likely to hear a single speech (if we hear
any at all), that measure up to the one he delivered thirty six years ago. Reading (Note:
readers of the web version of Executive Times can click on the book covers or
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Subscribers to the print version of Executive Times can receive the web version at
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with a request to be placed on the web version distribution list. Also, not
all books we read make it to the pages of Executive Times. Check out other book
selections on our bookshelf at http://www.hopkinsandcompany.com/bookshelf.html).
Buckle Up Bill Vlasic and Bradley A. Stertz list almost one
hundred primary sources they interviewed to write Taken
For a Ride: How Daimler-Benz Drove Off With Chrysler. The title certainly clues the reader to
the bias these Detroit News reporters bring to the story. Biased or not, this book discloses the
behavior of key players including Bob Eaton, Jürgen Schrempp and Kirk
Kerkorian, as events took place before and after the so-called “merger of
equals”. Any executive reading this
book will wonder what different steps he or she might have taken as the story
unfolds. The authors help the reader
understand the personality of the people involved, and how action and
inaction led to the merger and the loss of Chrysler’s identity. This books reads as quickly as a good
mystery, and we recommend it. Bozos or Bobos? The recommendation on the book jacket from
Chris Buckley caused us to pick up and read David Brooks’ Bobos
in Paradise: The New Upper Class and How they Got There. Buckley
called Brooks “the smart, fun-to-read social critic of his generation.” Since
we’ve laughed through Buckley’s books, we figured we have the same experience
here. Not quite. We admit that in the almost 300 hundred pages, we laughed
out loud three, maybe four times. Perhaps thirty paragraphs were really
funny. Here’s a sample from the chapter on Consumption, in the middle of a
long description of Bobo kitchens: “Presiding over the nearby quadrants of the kitchen
will be the refrigeration complex. The central theme of this section is that
freezing isn’t cold enough; the machinery should be able to reach
temperatures approaching absolute zero, at which all molecular motion stops.
The refrigerator itself should be the size of a minivan stood on end. It
should have at least two doors, one for the freezer section and one for the
in-law suite, in case you want to rent out rooms inside. In addition, there
should be through-the-door delivery systems for water (carbon filtered), ice
(cubes, crushed, or alphabet style to help the toddlers with their letter
recognition), and perhaps assorted microbrews. There should be gallon door
bins, spillproof split shelves, sealed snack pans, full extension slides, and
scratchproof bin windows, and the front doors should not be white, like those
regular refrigerators they sell at Sears, but stainless steel---the texture
of culinary machismo.” That’s about as good as it gets. Too much
of the book goes on and on with a more serious tone which we found far less
enjoyable to read. Take a pass. Enjoying Dr. Doom We were delighted to read Henry Kaufman’s new book On
Money and Markets: A Wall Street Memoir. If you’re searching for the
intimate disclosures found in other memoirs, search elsewhere; we found but
two in this book, so we’ll disclose them here. First, Dr. Kaufman wishes that
he told his parents how much he loved them, but in those days, such words
were unspoken. Second, if you’ve really made an impact on his life, he’s
already funded a university chair in your name. The joy in this book comes
from Kaufman’s careful and clear writing. One favorite is, “Today’s financial
community is suffering from a bad case of amnesia.” Pow! The impact of
Germany’s hyperinflation in Kaufman’s youth makes it easy to understand why
he’s remained an inflation fighter throughout his life. More than a memoir,
this is economic history at its best, along with predictions for the future,
in typical Kaufman style, such as, “…financial intermediaries will need to be
ever-more diligent to balance their entrepreneurial impulses with their
fiduciary responsibilities.” We highly recommend this book. Winner’s Circle Jane Smiley unfolds characters in Horse
Heaven, like a Las Vegas blackjack dealer presents cards: one at a
time, with precision and professionalism. In the first third of the novel,
we’re introduced to four dozen people and horses, chapter after enjoyable
chapter. By the middle of the book, we’ve come to understand certain
characters more deeply, from multiple dimensions. While Horse Heaven won’t
win the literary awards Smiley achieved for A
Thousand Acres, this is a well-written novel that’s a joy to
read. Here’s a sample from Chapter
51: “She looked at her watch. It was almost noon. Maybe
it had been a decade or two since she had spent an afternoon in a park. In
the first place, she was a culture girl, not a nature girl, and in the second
place, walking in the park was for people who had nothing else to do and no
money to do it with. In the third place, it was the third of January, which
was, perhaps, why the place was deserted. And so she walked in the park. What exactly her mood was, she could not
say. Normally, she would be feeling a
certain impatience, a certain fear of boredom at the prospect of an afternoon
alone with trees and grass. She was fifty
years old now. For the last thirty
years, with a machinelike implacability, she had planned her days, her weeks,
her years. She traveled with
guidebooks and systems. When she came
away from the new place, she had an excellent overview of historic sites,
fine-art and decorative-arts museums, better shopping, restaurants, and musical
venues. When she came back to these
places later, she always knew what she had missed and wanted to see this
time. Her friends called her all the
time and asked her what they should see and where they should eat in any
given spot, and she always had a brilliant suggestion. In retrospect, it was as if she had been
mapping the world. But what for? Perhaps, she was willing to admit, it was
because she didn’t have anything better to do.” If there’s one more pleasure book you want
to read this summer, try this one. |
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