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2004 Hopkins and Company, LLC
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Decisive
This issue of Executive
Times heads to press just days before the completion of two
decisive events: the U.S. Presidential Election and the World Series.
Analysts say the presidential race is too close to call and the Red Sox are
ahead in the Series, so we’re prepared for every possible outcome. Some
executives and companies are also prepared for an array of outcomes, while
others seem to be overtaken by events. In this issue, we’ll examine how some
executives are responding to the opportunities they’ve received in leading
organizations, some of which involve second acts. We’ll also look at how
particular decisions led to changes at the top of prominent companies. As you
reflect on these stories, think about how you make decisions. Are you more
likely to look to the past for what has worked before, or to the future for
what may happen? When you consider taking on a new role, how do you decide
whether you think you’re the right person for the job? Does candor come
naturally in your communication, or does your spin to a message mislead
others? Think about how you make decisions and what you can learn from the
decisions of others.
Fifteen new
books are rated in this issue, beginning on page 5. Nine books are
recommended with three stars, three are mildly recommended with two stars,
and three books received one star. You can also visit our complete 2004
bookshelf at http://www.hopkinsandcompany.com/2004books.html
and see the rating table explained as well as explore links to all 2004 book
reviews. You can also check this same bookshelf to see what other books we’re
reading or considering. Thirty-six new books were added to the “shelf of
possibility” during October. If there’s something missing from the bookshelf
that you think we should be considering, or if there’s a book lingering on
the “shelf of possibility” that you think we should read and review, let us
know at books@hopkinsandcompany.com.
Swamped
Marsh& McLennan Companies
(MMC) may have
experienced more changes in the past two weeks than since they started
business in 1871. Following an October 14 announcement (http://www.oag.state.ny.us/press/2004/oct/oct14a_04.html) by New York State Attorney General Eliot Spitzer of “widespread
corruption” in the insurance industry, MMC on October 15 suspended (http://www.mmc.com/news/pressReleases_204.pdf)
its market services agreements with insurance carriers under which the
insurers paid MMC contingent commissions, and pledged to investigate. Here’s
part of what Spitzer had to say: “The insurance industry needs to take a
long, hard look at itself. If the practices identified in our suit are as
widespread as they appear to be, then the industry's fundamental business
model needs major corrective action and reform. There is simply no
responsible argument for a system that rigs bids, stifles competition and cheats
customers.” During the press conference following the civil action against
MMC, Spitzer said, in part, that his office was “mislead by the very highest
levels of that company,” and urged MMC directors to “think long and hard,
very long and hard, about the leadership of your company. The leadership of
that company is not a leadership I will talk to; it is not a leadership I
will negotiate with.” MMC shares dropped in value by almost half in the days
following the announcements. According to some reports, Spitzer viewed MMC as
a repeat offender, given last year’s market timing scandal at MMC’s Putnam
Investments unit, the first target of that business practice of favoring
some customers over others. MMC CEO Jeffrey
Greenberg resigned (http://www.mmc.com/news/pressReleases_209.pdf)
and former Spitzer boss Michael G. Cherkasky was named new CEO. Spitzer decided not to
pursue criminal charges against MMC, but will proceed with charges against
specific individuals. According to The
Wall Street Journal (10/26/04) (http://online.wsj.com/article/0,,SB109873458638254937,00.html),
“For his part, Mr. Spitzer acknowledges that the two men are friends who have
known each other for 19 years, but he is careful to point out that appointing
Mr. Cherkasky won't earn Marsh special treatment.
‘He was my boss and someone whom I respect and trust,’ Mr. Spitzer said in an
interview. ‘Having said that, I don't think anybody should think that because
the CEO is someone I know, they're getting off the hook.’” Cherkasky has embarked on major reforms for MMC, and his
past relationship with Spitzer may have given MMC time to change. There are
at least two early lessons from these two weeks: a regulator who feels
mislead wields enormous power and relationships built on trust can create
time to implement changes.
Is there something about your fundamental business model that needs updating?
Could your communication with someone who has power over you lead them to
conclude that you mislead them? How do you ensure that your messages are
candid and clear? Do you have some internal way of investigating your
business units with an outside perspective? What have you done recently to
improve your relationship with key stakeholders?
Rescue
There are rare
opportunities for executives, especially CEOs, to perform second acts,
especially with the same company. To gain an appreciation for those
challenges, be sure to read the October 18 story in Business Week (http://www.businessweek.com/magazine/content/04_42/b3904080_mz056.htm)
about Jamie Houghton’s return to Corning.
Houghton retired as Corning’s
CEO in 1996, three years after a near-fatal auto accident. He launched a
second career in the nonprofit world as chair of the Metropolitan Museum of Art and as a senior fellow of the Harvard Corporation. By early 2002, Corning was in trouble,
and there was pressure to bring back a Houghton, since the family has been
involved in the company for 150 years. Reluctantly, Jamie Houghton agreed to
become CEO again. He took two quick and decisive actions, one more obvious
than the other. To reduce infighting and increase teamwork, he reinstituted a
seven person management committee that makes the vast majority of corporate
decisions as a team. Second, he placed two executives who helped get Corning into trouble
into key executive roles. According to Business
Week, “With Corning in such dire straits, recruiting stellar outsiders
would have been difficult, if not impossible. He also knew that in a company
dominated by lifers, ax-wielding outsiders would have quickly alienated the
workforce and caused some of his best people to leave. So rather than fire
Weeks, who had been in charge of Corning's
entire optical-communications business, Houghton promoted him to president.
‘I need you to lead us out of this dilemma that you helped lead us into,’ he
told the stunned executive. Similarly, he vaulted James B. Flaws, the CFO who
had helped negotiate and arrange financing for billions of now nearly
worthless photonics deals, to vice-chairman.” Stay tuned to observe two
things: how Corning
does under Jamie Houghton’s leadership this time around, and how he makes a
transition to a successor.
What are
you doing to prepare others to perform your role? Would you be willing to
return to a prior employer to clean up someone else’s mess? Is it likely that
your CEO or your Board would ask you to hang around
and fix the problems you’ve created? If asked, would you accept? How likely
is it that in response to serious problems created by someone who reports to
you that you would put that same person in charge of fixing the
problems?
Roots
Sometimes corporate
growth can distract an organization from those qualities that generated past
success. We read in The Wall Street
Journal (10/6) (http://online.wsj.com/article/0,,SB109700336539536822,00.html)
about a set of decisive actions taken by Charles
Schwab within weeks after taking back the reins as CEO of his eponymous
company. He cut trading and eliminated other fees for valued clients, committed
to improving service, and will increase advertising. He’s also committed to
staying engaged. According to the Journal,
Schwab said, “This company requires all my attention. … It's unlikely that I
will give up the CEO title as far as I can see. … Schwab has lost a little
bit of its connection with its client base.” He regretted that he gave up the
CEO role in 2003. We’ll watch to see if the latest decisions help improve the
company’s results.
How regularly do you examine the foundations of your business? Has
your organization “lost a little bit of its connection with its client base?”
What can you do to recommit to your business fundamentals and to those
qualities that have generated success for your organization?
Spinning
Most readers of the
business press have tired of the stories about Oracle and PeopleSoft since the former filed an unsolicited tender offer for
the latter in July 2003. Dulled observers have noted extensions and spin.
Attention perked up at the beginning of October when PeopleSoft announced (http://www.peoplesoft.com/corp/en/news_events/news/database/press_release.jsp?doc=31431FCC5A9909E888256F20003C94FB)
that it terminated CEO Craig Conway
because the Board lost confidence in his ability to lead the organization.
Thanks to Gretchen Morgenson
of The New York Times (10/10) (http://www.nytimes.com/2004/10/10/business/yourmoney/10watch.html),
we learned something about timing and reasons. Conway
was fired the Friday before the company appeared in Delaware chancery court on whether it
acted properly in rejecting Oracle’s offer. According to the Times, a director “testified
that one of the reasons Mr. Conway got the boot was that he made a
misstatement to analysts at a meeting on Sept. 4, 2003. … The questioner
wanted to know if customers were holding off buying PeopleSoft software out
of fear that the goods would become obsolete if Oracle eventually won the
battle. … Playing down the bid's effects, Mr. Conway said: ‘I think people
have lost interest in it. The last remaining customers whose business
decisions were being delayed have actually completed their sales and
completed their orders.’ In other words, not a disruptive factor, in Mr.
Conway's view.” But it
was, and in response to Conway’s
mistake, the company amended his comments in an obscure SEC filing to:
“Oracle's tactics have created concern among many users, and that's a problem
for us. Fortunately we've been able to overcome much of it and we expect that
we will continue to be able to do so.” Analysts heard him, but didn’t note
the revision. Spin gone bad.
How do you go about
admitting your mistakes? In your efforts to be persuasive, can you sometimes
over-spin? On whom do you rely to keep your facts accurate?
Follow-up
Here are
selected updates on stories covered in prior issues of Executive
Times:
Ø
In
the October
2003 issue of Executive Times
we called attention to Richard Grasso’s firing at the NYSE and his pay package debacle. The October 18 Fortune cover story, “The Fall of the
House of Grasso,” written by Peter Elkind, presents a comprehensive review of what happened
(http://www.fortune.com/fortune/subs/article/0,15114,709086,00.html).
We highly recommend this article, especially for the way it traces the roots
of the situation to decisions made years ago. (Readers should note that NYSE
comp committee chair Ken Langone wrote a letter to Fortune saying that he had
expected his salty language to be edited prior to publication. It wasn’t and
he didn’t want readers to think less of him for that reason. So noted. Here’s
part of what Langone said: “… my aim was for a
candid, open discourse. I have nothing to hide and I won’t compromise on
honesty. I am also a direct man and I used coarse adjectives, adverbs, and
metaphors that, seeing them in print, I regret.”)
Ø
We
led off the April
2004 issue of Executive Times
with a rating of Donald Trump as version 1.0 of an executive, not a role
model. We were pleased to read in The
Boston Globe (October 3) that many others agree that Trump’s methods lead
to problems. “In organizations with Trump-like behavior, people are running
scared. Fearful employees weaken companies.”
Legacy
Shoulders of Giants
Some executives
literally lead where none have gone before. The executives who follow can
have an easier time because of the work of these giants who have gone before
us. One such giant, Samuel L. Gravely,
Jr., died in October at the age of 82. During his 38-year career in the United States Navy, Gravely racked up
six firsts: the first African American to command a U.S. Navy warship; the
first African American to command an American warship under combat conditions
since the Civil War; the first African American to command a major naval
warship; the first African- American admiral; the first African American to
rise to the rank of vice admiral; and the first African American to command a
U.S. fleet. His wife said, “His view was that he liked the Navy. He was happy
just doing his job and doing it well. And as he was doing it, he strived to
climb the ranks.” (The Washington Post,
10/24) (http://www.washingtonpost.com/wp-dyn/articles/A57642-2004Oct23.html).
His own advice to all of us: “Success in life is the result of several
factors. My formula is simply education plus motivation plus perseverance.
Education is paramount. Motivation: one must decide what he wants to do in
life, how best to get there and to proceed relentlessly towards that goal.
Perseverance: The ability to steadfastly proceed to your goal despite all
obstacles. It is the ability to overcome.” Aye, aye, sir.
Latest Books Read and Reviewed:
(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 review or
visit our 2004 bookshelf at http://www.hopkinsandcompany.com/2004books.html).
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Title (Link to
Review)
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Author
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Rating
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Review Summary
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Purchase
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Wake Up,
Sir!
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Ames,
Jonathan
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••
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Stupor. With a bow to
P.G. Wodehouse, this novel gives us a heavy
drinking protagonist and his butler, Jeeves, and
some funny episodes. Rambling narrative and directionless plot.
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Checkpoint
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Baker,
Nicholson
|
•
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Chilling. Jay invites his
friend, Ben, to a hotel room, sets up a videotape, and proceeds to explain
that he plans to assassinate the President. Controversial, sparse and cold.
|
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The
Perfect Mile
|
Bascomb, Neal
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•••
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Excitement. Roger
Bannister, John Landy and Wes Santee vie to become
the first to run the mile in under 4 minutes. Terrific presentation of
competition and excitement.
|
|
|
Terror
and Liberalism
|
Berman,
Paul
|
•••
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Freedom. Bashes Chomsky
and others while presenting the history of liberalism and a view of the
current conflict between Islamism and the West as another totalitarian
battle against freedom.
|
|
|
Red Tide
|
Ford,
G.M.
|
•••
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Unexpected. Frank Corso returns in fourth mystery thriller, this time when
he stumbles on a bio-terror mass murder in a Seattle bus tunnel. Unexpected plot
twists and surprise motivation for the terrorist act.
|
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The
Jane Austen Book Club
|
Fowler,
Karen Joy
|
•••
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Characters. Six book club
members linked to the six Austen novels. Superb exposition of relationships
and development of characters who will resonate
for most readers.
|
|
|
The
Economics of Innocent Fraud
|
Galbraith,
John Kenneth
|
••
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Appearances. Economist
separates reality from appearances and illustrates the shift in power from
the people (whether citizens, shareholders or customers) to corporate
managers, and how that’s fraud.
|
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The
World's Most Powerful Leadership Principle
|
Hunter,
James C.
|
•
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Preachy. Hunter tries to
persuade readers to embrace the servant model of leadership by using
preachy persuasion rather than facts. Sounds good, but not convincing.
|
|
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Life 2.0
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Karlgaard, Rich
|
•••
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Drummers. Novice small
plane pilot and Forbes publisher Karlgaard travels across America to introduce readers to
people who live in locations that may seem unusual for many readers but
create ways of living large for the subjects.
|
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Double Play
|
Parker,
Robert B.
|
•••
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Healing. Stoic WW II vet
becomes bodyguard for Jackie Robinson in 1947 and finds healing and the
restoration of his feelings from the experience. Finely written with pitch
perfect dialogue.
|
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Big
Russ and Me
|
Russert, Tim
|
•••
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Everyman. Upbeat memoir
packed with positive stories of growing up in 1950s Buffalo, and the powerful lifelong
lessons that a son received from a practical and unpretentious father.
|
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War
and the American Presidency
|
Schlesinger,
Jr., Arthur M.
|
•••
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Surprises. “The study of
history teaches us that the future is full of surprises.” Brief and cogent
exploration of what’s consistent and what’s different between Iraq and
prior American conflicts.
|
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Obliviously
On He Sails: The Bush Administration in Rhyme
|
Trillin, Calvin
|
•
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Swamped. Too many poems
at once for most readers, from this collection of deadline poet columns in The Nation. Fine writing from Trillin, but a lot to laugh at during a few sittings.
|
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Oblivion:
Stories
|
Wallace,
David Foster
|
••
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Wordy. Eight
idiosyncratic and quirky stories that call for extra energy to read and
understand. Some of the longest sentences ever constructed.
|
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Democracy
Matters
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West,
Cornel
|
•••
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Instructive. Professor
provides insight into the challenges facing democracy in America. Free
markets, imperialism, nihilism, religion, hip-hop are all covered as West
turns a mirror on us.
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