Volume 4, Issue 1
ã 2002 Hopkins and Company, LLC
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Most 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?
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?
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?
Here 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.
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.
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