Executive Times |
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Volume 3,
Issue 8 |
August 2001 |
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ã 2001 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. True to You in My FashionMost successful executives
learn when to speak and when to be silent. The masters of spin can often
coach executives to communicate in ways that seem to be open and direct, but
often obscure facts and issues, or manipulate data in ways that lead
listeners to preferred conclusions. Auditors are trained to ask the right
questions, and managers are advised to answer only the questions asked by
auditors, not to lead the auditor toward the questions that should be asked.
Each executive decides what secrets to keep and what facts to disclose every
time an opportunity to open a mouth occurs. Some executives use each message
delivered as a chance to sell something, and can be perceived as way too
smooth. Other executives deliver messages clogged with detail that can
confuse or bore listeners. Few executives pride themselves on their skills at
creative lying, but often celebrate getting out of tight spots through verbal
acuity. For some executives, alternative versions of truth eventually emerge,
and confidence in the executive and their organization wanes. As you read the
pages that follow about the experiences and behavior of certain executives,
think about your own approach to what you and others think of as truth. What
makes you decide to speak out, and when do you remain silent? In your many
roles, what do you do to discern the truth? The Resume Gap We admit to feeling a
baffling amazement when we read reporter Floyd Norris’ disclosure in The
New York Times (7/16/01) (http://www.nytimes.com/2001/07/16/business/16DUNL.html)
that former Sunbeam CEO Al Dunlap had an important resume gap.
According to records Norris obtained from the National Archives, Dunlap had
been fired for accounting fraud at two companies more than twenty years ago,
and erased those jobs from his resume. “No one who checked his background
discovered the omissions.” Since Dunlap was fired by Sunbeam for accounting
fraud, the behavior from twenty years ago was material and significant.
Norris says, “Like virtually all major companies seeking a senior executive,
Sunbeam relied on an executive search firm to find the best person for the
job. Daniel Margolis, a spokesman for Korn/ Ferry International
said his firm ‘conducted an exhaustive search that resulted in the Sunbeam
board selecting Dunlap.’ When asked how the firm had missed the holes in Mr.
Dunlap's employment history, he said, ‘It is our policy not to comment on our
clients' business issues.’ Spin masters will applaud Margolis’ failure to
answer the question, and we expect search firms to improve their diligence in
examining employment history. When you rely
on others to examine the employment history of job applicants, do you check
the quality of their work? When hiring, how do you approach conversations
with former employers? How likely would you be to uncover a resume gap? Do
you have one in your resume? Whistle Blows to Announce Oncoming Train Former Xerox
assistant treasurer James Bingham prided himself on applying accounting
principles in ways that helped improve the company’s results. According to The
Wall Street Journal (6/28/01) (http://interactive.wsj.com/archive/retrieve.cgi?id=SB993674133642973302.djm), Bingham balked when he was pressed to go further
than he thought appropriate in making the company’s performance look better
than it really was. “He started badgering top Xerox executives about the
aggressive accounting, which he believed was being used to hide larger
problems. Late last summer he was fired. But rather than disappear, he went
public and filed a lawsuit accusing Xerox of firing him for objecting to
‘accounting fraud.’ He also became a star witness in a Securities and
Exchange Commission investigation of his former employer.” Based on the
accounting restatements by Xerox, it seems that Bingham was right: creativity
in accounting had gone too far. Instead of listening to Bingham, the company
moved deeper into accounting madness. According to The New York Times
(7/15/010 (http://www.nytimes.com/2001/07/15/business/15ETHI.html)
Johnson & Johnson studied what went wrong after a whistleblower at
the company’s LifeScan unit alerted the Justice Department to a
product defect in a diabetes diagnostic device. J&J pleaded guilty and
paid a $60 million fine. From the investigation, J&J CEO Ralph Larsen
learned that executives at LifeScan (all of whom left the company
voluntarily) “had a complicated device. They felt it was the best on the
market. Their interpretation was that the problems weren't serious enough to
have to report them. The sad thing is they were probably right, but they
should have gone to the F.D.A. and told them they had a problem.” J&J is
now using the case to reinforce its corporate credo, and has highlighted
procedures where employees are encouraged to go to Larsen directly if they
feel a defective product is going to market. How well
do you listen to things you don’t want to hear? How likely are you to listen
to someone you feel is badgering you? Are dissenting voices listened to
within your organization? How comfortable would any employee feel in talking
to you about trouble in your organization? How vulnerable are you to someone
blowing a whistle on you? Safe Enough Many executives decide
what level of scientific evidence, or what extent of fact, is adequate to
support a company’s actions. When it comes to product safety, many of those
decisions involve weighing evidence and deciding what level of risk is
acceptable. We read in The New York Times (7/9/01) (http://www.nytimes.com/2001/07/09/business/09GRAC.html)
that W.R. Grace & Company promoted its Monokote fire proofing
spray as asbestos-free, when a version of the product in the 1970s and 1980s
contained low levels of asbestos. Grace claims that the level of
contamination was insignificant and “says that it fully informed regulators
of the contamination, and that the asbestos content always remained within
legal limits.” Internal documents reviewed by The Times tell a
different story. It was lobbying efforts by Grace that led to setting
asbestos tolerances at levels that included Monokote. The company relied on
this legality to call the product “asbestos free.” “The company was brought
to the brink of disclosing the asbestos content of Monokote more than two
decades ago, in 1977. With builders and architects hearing ever-louder rumors
of ‘a tremolite problem,’ Grace officials met secretly at company offices in
Cambridge, Mass. There, documents show, they weighed the risks and stayed the
course. While silence increased the danger of being sued, they calculated, disclosure
could have meant the end of Monokote. So, they decided, customers who
inquired if Monokote contained asbestos were to be told that it did not.”
Workers who installed the product used little protection, relying on claims
of safety. Grace declared bankruptcy in April, resulting from the costs of
litigation on products other than Monokote. How do you reconcile
the letter of the law with effective disclosure? If silence is to your
benefit, but customers or others would benefit from your speaking out, what
are you likely to do? When facts or scientific studies present conflicting
evidence, what approach are you likely to take when it comes to product
safety, or to disclosure? Is legality the only standard for your
organization’s behavior? Air Today, Gone TomorrowRound Trip the
Next Day
Executives at United
Airlines and US Airways are experiencing the kind of turbulence
their customers face on many flights. Their on-again, off-again merger has been
covered in all the business media. The deal looks less attractive today than
a year ago from United’s perspective, and it tried to exit inexpensively.
Facing litigation from US Airways, United reversed itself, and said it would
move forward, giving the Justice Department until early August to stop the
deal for anti-trust reasons, or allow it to go ahead. We wonder if United CEO
James Goodwin’s cold feet and US Airways’ CEO Stephen Wolf’s
pressure to move ahead came from reading the lengthy article in Business
2.0 (http://www.business2.com/ebusiness/2001/06/failure.htm)
about mergers that failed to create
value for shareholders but made some CEOs wealthy. Reporter Michael Craig addresses mergers and concludes, “Most of all this money
changing hands is wasted. A KPMG study of 107 large mergers between 1996 and 1998
concluded that nearly a third of the deals produced no discernable difference
in value, and 53 percent actually destroyed value. A KPMG update in 2001 showed that 30 percent of the 1997-1999
mergers studied created value, while nearly 40 percent produced no difference
and 31 percent destroyed value.” Craig reports that CEOs didn’t get punished
for this poor performance, and most were highly rewarded, especially
displaced CEO’s. How does your situation today differ from what you faced a year ago? Have you recognized good and poor performance, and rewarded or punished appropriately? How well have your plans for this year worked out? Has value increased to the extent you expected? What else can you do to improve the likelihood of superior results? What would you do differently today if given the chance? What hasn’t happened the way you wanted, and what can you to now to move ahead? Good CitizensLight Up for
Your Country
We’ve gagged when we’ve watched those Philip
Morris corporate image commercials showing all the good deeds performed
by company employees. There’s only so much flak we can absorb in hearing
messages about how much the people of the company do to improve the quality
of life and carry out their civic citizenship with pride. So, it was with a
smile when we received all the media coverage for the Philip Morris sponsored
economic analysis by Arthur D. Little for the Czech Republic of
the positive effects of smoking. Leading the list is the lower health costs
thanks to the “early mortality” of smokers. According to The Wall Street
Journal (7/16/01), “This is an economic-impact study, no more, no less,”
said Robert Kaplan, a spokesman for Philip Morris's international
tobacco unit in Rye Brook, N.Y. “We're not trying to suggest that there would
be a benefit to society from the diseases related to smoking.” How credible are the messages from your organization? How consistent are those messages with your corporate image? Follow UpHere are selected updates
on stories covered in prior issues of Executive Times: Ø The August 2000
issue of Executive Times
reported that Bank One CEO Jamie Dimon studied operations of
First Card and WingspanBank.com from April to August last year and decided
not to sell or close the operations. We read in The Wall Street Journal (6/29/01) (http://interactive.wsj.com/archive/retrieve.cgi?id=SB993742031496871086.djm) that the company has declared the costly
WingspanBank.com a failure, and will fold it into its own site, bankone.com. Ø The September 1999
issue of Executive Times called
attention to a $1.6 billion settlement by Metropolitan Life for
deceptive sales practices, a settlement that was meant to put the issue
behind the company. We read a page one feature in The Wall Street Journal
(7/24/01) (http://interactive.wsj.com/archive/retrieve.cgi?id=SB995921450486615509.djm)
that MetLife records show the
company’s active use of racial profiling in its underwriting practices
continued well past 1960, which it said last year was when it completed a
phase out of the use of race in underwriting. It seems that not all major
problems have been put to rest at MetLife. LegaciesRising to the Occasion Katharine Graham never expected to become a corporate executive.
Born to a life of privilege, she found herself in charge of The Washington
Post following her husband’s 1963 suicide. Her father, Eugene Meyer,
bought the company out of bankruptcy in 1933, and while its fortunes had
improved thirty years later, it was still a local paper. Not knowing what to
do, she asked lots of questions of people who knew more than she. Under her
executive leadership, the company achieved stupendous results, both in return
on equity and share price growth. After he acquired 10% of the company, Kay
invited Warren Buffett to join the board of directors, and it was from
Buffet that she learned many financial lessons. Graham slowly grew the
business, and expanded into other media, all the while protecting and growing
investors’ capital. When it came to making decisions, Graham acted clearly
and courageously, especially in publishing the Pentagon Papers and in
supporting the Watergate investigation. Graham died in July, following a fall
at a meeting in Idaho. According to one account of the eulogies at her
funeral service, “Mrs. Graham was remembered not only for having altered the
course of politics, journalism and women, but also for having done so with
gracious modesty in a city often given to boast.” Executives who act with
courage, acknowledge what they don’t know, and who act in the interest of
shareholders can do well to follow the example of Kay Graham. Reading(Note: readers of the web version of Executive Times
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visit our book review site at http://www.hopkinsandcompany.com/books/list.htm.) Ka-boom! Only One Book Air Taxi Proving What? A total of 25 book reviews were added during July
2001 at http://www.hopkinsandcompany.com/books/list.htm.
Pick something to read from that list. |
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ã 2001
Hopkins and Company, LLC. Executive
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