Executive Times

Volume 3, Issue 2

February 2001


ã 2001 Hopkins and Company, LLC

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Pay now or pay later

Many executives are tempted to postpone or ignore sticky issues or costly initiatives. Some believe that future costs will be lower than current costs, so it can be better to wait. Others choose to let events run their course, allowing someone else’s changes to direct the future course. Some executives become so convinced of their own point of view that they are unable or unwilling to listen to other perspectives, or accept the fact that what they observe may not be the whole truth. Effective leaders often decide that the smallest loss is the first one, so it’s better to face up to problems and issues immediately. Visionary leaders look ahead and prepare their organizations for what can happen in the future. Our best leaders listen to a variety of points of view. Recent news stories have been packed with stories of executives whose actions or inactions have led to larger than expected problems for their organizations. Read about how other executives are leading and consider what actions you might take if you were in their place.


The Dark Ages 

Once upon a time it must have seemed like child’s play to run a public utility. Layers of regulation protected the organization from serious problems or competition. A friendly group of commissioners could be convinced to go along with growth plans to ensure that the lights in the community would always remain on. Rolling blackouts in California, reported everywhere during January, prove that running a utility today involves more than a handful of challenges for any executive. Faced with public opposition to new power plants, managers were unable to keep capacity ahead of demand. In a flawed staged implementation of deregulation reminiscent of the approach used for savings and loans, the wholesale prices for energy floated with market conditions, while retail prices remained fixed. In the S&L situation, the rate paid to depositors floated with the market, while the rate charged for loans remained fixed. California power consumers had no incentive to reduce consumption when wholesale prices rose, since their retail prices remained low. Utilities ended up selling power at significantly lower prices than it cost them to acquire the power. Here’s what Pacific Gas & Electric President Gordon R. Smith had to say about the situation: “For months, California's utilities, including Pacific Gas and Electric Company, have faced a growing financial challenge, due to a badly broken wholesale power market and price gouging by wholesale power sellers. In order to ensure continued service to our customers during this time, Pacific Gas and Electric has virtually exhausted its financial resources, borrowing an average of $1 million per hour to pay for the power we deliver to Californians. No company can continue to operate indefinitely under such conditions.” When the California Public Utilities Commission issued a temporary restraining order to ensure that both PGE and Southern California Edison would continue to deliver power, both companies were outraged. Parent company of SCE, Edison International announced, “The Chairman and CEO of Edison International, John Bryson, today described the decision of the California Public Utilities Commission (CPUC) to issue a temporary restraining order (TRO) forbidding Southern California Edison (SCE) from withdrawing from its obligation to serve ‘an insult to the ethic of the 13,000 employees of SCE who have worked to keep the lights on for their customers. In fact, SCE has borrowed billions of dollars, which threatens the company's solvency, through 8½ months of inaction and delay by the CPUC, in order to continue to serve its customers.’” We can expect more finger pointing and rhetoric from executives and politicians while this crisis continues.


When faced with crisis, what do you do? How would you react to an untenable situation like floating costs and fixed prices? When will lashing out against critics turn into perceptions that you’re not taking responsibility and that you are passing blame to others? How do you align the interests of various stakeholders? When politics confuses issues, how do you influence the outcome? Do you think Bryson’s statement about an insult to SCE’s 13,000 employees made the workers feel better about the situation? What else would you be doing if you were a utility executive facing this set of issues?


Accrual for arrogance

You may have read over the past year about the recall of genetically altered corn, StarLink, meant for animal feed which entered the human food supply in the form of taco shells. Mistakes happen. In this case, the cost of the mistake for the seed producer came to light recently when the Iowa Attorney General announced that Aventis CropScience will pay somewhere between $100 million and $1 billion in damages to farmers whose corn proceeds were reduced because StarLink corn was commingled with other corn through no fault of the farmers. Two of our favorite writers, Kurt Eichenwald and Gina Kolata, contributed to a long article in The New York Times (1/25/01) that tells the story of Monsanto and other companies in managing the entry of genetically altered food into markets. Here’s our favorite quote about the methods used to introduce genetically altered foods from Robert Shapiro, vice chairman of Pharmacia, which acquired Monsanto: “We've learned that there is often a very fine line between scientific confidence on the one hand and corporate arrogance on the other. It was natural for us to see this as a scientific issue. We didn't listen very well to people who insisted that there were relevant ethical, religious, cultural, social and economic issues as well.”


When does your confidence turn into arrogance? Do your methods of quality control ensure that you don’t face significant damages in the future as a result of how your products are used? What makes you sure that the impact of your decisions does no harm? How well do you listen to people whose perspective is different from your own? Can you think right now of three or four people who can give you a different point of view about something important to your organization? Do they feel that you listen to them and to their concerns?


Pay up

Most corporate pay plans have inconsistencies that get corrected with revised pay plans that create new inconsistencies. Most organizations are vulnerable when the administration of their pay plans faces detailed scrutiny. Forbes columnist Dan Seligman, one of our favorite writers, suggests (Forbes, January 22, 2001) settling fast when faced with lawsuits in this area. Seligman called attention to a press release from the Equal Employment Opportunity Commission that announced a new compliance manual on compensation discrimination. It seems that a change from “equal” to “similar” in the manual opens the door to class action suits around pay differences where similar jobs receive different pay, and gender or race differences make the pay scheme appear discriminatory. Heads up or pay up.


To what extent are you confident that your pay schemes are immune to successful discrimination claims? When was the last time you personally looked for troublesome patterns in pay within your organization? Are human resources professionals in whom you place confidence answering your questions in this area?


Booby on the Bridge

Our best leaders know how to distinguish one thing from another and steer an organization on a clear course. Tarquino Arevalo, captain of the oil vessel, Jessica, when making an unscheduled stop at San Cristobal, mistook a lighthouse for a buoy, and ended up smashing the ship on rocks in aptly named Shipwreck Bay, spilling tons of oil near the Galapagos Islands. Ecuador has arrested Captain Arevalo who may face up to five years in prison for his mistake, which he has admitted (International Herald Tribune 1/25/01). “I didn’t do it on purpose. This has nothing to do with my crew. It was my fault, not theirs. The truth is I didn’t even know the rock was there. It was over-confidence on my part. I am completely to blame.” Meanwhile, rare species like the red-footed booby and blue-footed booby may face problems should the oil not be cleaned up quickly. So far, four penguins are dead, and a dozen sea lions were smeared with oil.


When do you know that you’re off course? Can you distinguish the difference between a lighthouse and a buoy in navigating the ship you steer? What rocks are you unaware of? How quickly would you accept complete responsibility for your actions when things go wrong? How easily would you absolve your crew?


If a Tree Falls

Weighing in

Few consumers notice when the weight of inexpensive packaged goods changes slightly. According to The New York Times (1/2/01), some companies have found an effective way to increase prices for the new year: put less product in the package. “In our business, there are certain magical price points: 99 cents, $1.29, $2.99,” said Lynn Markley, spokeswoman for Frito-Lay, a division of Pepsico. “We’ve learned that we need to stay within them.” “If you want to keep faith with the customers, be honest with them,” said Carol Tucker Foreman, food policy director of the Consumer Federation of America. Every label discloses the weight and price, so these companies are providing honest information to consumers. For products with weight standards, like a gallon of milk, price changes are easily noticed. It’s pretty easy to hide price changes on a bag of pretzels, for example, where there are no standards for bag size.


Are you more inclined to want your customers to know what you’re doing, or to meet their need for stable pricing, and your need for profitability by hiding some changes from them? Does an educated customer help or hurt your business? How would you reconcile a customer’s desire for price stability with a customer’s preference for honesty in this situation? Do you feel that packaging disclosure is adequate?



Tolerated, not encouraged

Global enterprises face ethical challenges when doing business in places with different value systems. The Wall Street Journal (1/9/01) reported that during a British parliamentary hearing on overseas corruption, executives from two leading companies described their bribery practices. “Stephen Williams, joint secretary and general counsel for Anglo-Dutch food company Unilever, said modest payments were ‘tolerated, not encouraged,’ as long as they met several conditions. These included that the payment is small, designed to facilitate something that is to happen anyway, in line with local practice, and a public transaction. Reg Hinkley, group vice president and general auditor of BP Amoco, said managers often have to make tough judgments in difficult situations. He said that these payments may be made sometimes to prevent delays, rather than to gain an unfair advantage over competitors. ‘I don't think it's the beginning of a slippery slope -- it's not something that we like,’ Mr. Hinkley said.” We’re not sure how Unilever communicated the several conditions for issuing “modest payments,” or how BP employees distinguish between preventing delays and gaining “an unfair advantage.”


How clearly do your employees know how to behave when faced with challenging ethical situations? How do you communicate your expectations to them? Do you think the approaches used by Unilever and BP are reasonable and practical? How slippery is your organization’s ethical slope?


Follow Up

Here are selected updates on stories covered in prior issues of Executive Times:

Ø      The January 2001 issue of Executive Times mentioned in the lead story a Fortune list of the 100 Best Companies to Work for. Business Week also started the year with a list, the Top 25 Managers. Yawn. Somewhat more interesting was the list of managers to watch during 2001. If someone were watching your performance this year, what are they likely to see? Will you be at the top of your game in 2001?

Ø      We mentioned some aspects of the transition in leadership at GE in the January 2001 issue of Executive Times. A detailed description of the GE succession process appeared in Fortune (1/8/01).



He put the H in H-P

Bill Hewlett had a way of working with employees that changed management styles for thousands of companies during the 20th century. Along with co-founder David Packard, Hewlett laid the foundation for Silicon Valley and a workplace at Hewlett-Packard that values the contribution of individual workers, and gives them a stake in the business. The New York Times (1/12/01) said, “Despite his position and great wealth, Hewlett lacked all pretense -- delighting in working on new products side-by-side with employees or playing penny ante poker with them.” Hewlett died in his sleep of natural causes on January 12 at age 87. H-P CEO Carly Fiorina said, “Our hearts go out to the families, as we join them in mourning the loss of a great and gentle man. We, as stewards of his legacy, will cherish and nurture Bill's bright spirit of invention, remembering and celebrating the rich heritage that he and Dave entrusted us with.”


 (Note: readers of the web version of Executive Times can click on the book covers or titles to order copies directly from amazon.com.  When you order through these links, Hopkins & Company receives a small payment from amazon.com.  Subscribers to the print version of Executive Times can receive the web version at no additional cost. Send e-mail to hopkinsandcompany@att.net 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 http://www.hopkinsandcompany.com/bookshelf.html for other book selections. For expanded reviews of Executive Times selections and other books, visit our book review site at http://www.hopkinsandcompany.com/books/list.htm. Note the new star rating system for 2001.)


Be Strong

We have a strong bias in favor of those non-fiction self-help books that are useful and practical and against books that sound good but offer little that’s really useful. Once in a great while, we run across a book that’s likely to provide lots of useful, practical guidance. Now, Discover Your Strengths is one of those rare books, and receives our first (Outstanding) rating. Marcus Buckingham and other folks at The Gallup Organization who brought us last year’s highly recommended First, Break All the Rules, are back with a fine book on what to do next. Their research shows that instead of focusing on our weaknesses, we should be developing our strengths and talents. Using a multi-million person database, Gallup developed 34 themes, and buyers of Now, Discover Your Strengths can go online and obtain their own StrengthsFinder® Profile that will identify your top five themes. Once you’ve identified your top five themes, the book can help you develop those themes into strengths. Some organizations will want to use this widely, and utilize the themes as a common language, clumsy as it may be (not all the theme names are of the same type; some refer to category like Empathy, others refer to person like Achiever, others refer to quality like Adaptability). While the Myers Briggs Type Indicator places an individual into one of sixteen personality types, the 34 themes of the StrengthsFinder® Profile can generate huge numbers of possible top-five theme combinations. The section on how to manage a person with a particular theme can be highly useful since it contains practical ideas on how to deploy someone with this theme as a developed strength. We also enjoyed this quote, “The best human resources departments must learn the language of business. They must be able to explain mathematically the subtle but significant effects of human nature on business results. Only then will they prove themselves as valuable as the other departments and garner the respect they truly deserve.” For a longer review of this book, visit http://www.hopkinsandcompany.com/books/Now Discover Your Strengths.htm. Recommendation: (Outstanding).


As an interesting corollary to Now, Discover Your Strengths, you may want to track down a copy of Overcoming Your Strengths: 8 Reasons Why Successful People Derail and How to Get Back on Track by Lois P. Frankel. A long-time Executive Times subscriber and friend recommended this book some time ago. Frankel’s premise is that the strengths that got you where you are may not be the ones you need to succeed from here forward. She proposes that any strength taken to the extreme becomes your greatest liability (which Buckingham would disagree with). For a longer review, visit http://www.hopkinsandcompany.com/books/Overcoming Your Strengths.htm. Recommendation: (Read if your interest is strong).


Fertile Ground

In his many cold war novels, John LeCarre presented readers with characters like George Smiley and Magnus Pym whose behavior and thinking highlighted the alienation between individuals and the institutions with which they affiliated. In The Constant Gardener, LeCarre introduces us to Justin Martin, a career diplomat and gardener. After the murder of his young wife, Tessa, Justin methodically and carefully tracks down her killers. His constancy is in his loyalty and devotion to his late wife, and the duty he feels is to the garden of the world.

David Cornwall (pen name is LeCarre) is one of the finest English writers, and as with all fine novelists, his books can be read and interpreted at many levels. The Constant Gardener leaves the reader with plenty to think about. Like his flowers, Justin Martin seems to bloom into a different species as we join his pursuit of Tessa’s murderers. There were seeds inside him that germinated along the way, and he became a stronger figure as the book progressed. The flawed actions by corporate executives become cloaked in the impersonality of the corporation, and invisible to those trying to flush them out of hiding. Can immorality be corporate, or is wrongdoing found only in the actions of individuals? . You can sample chapter one of this book at: http://www.nytimes.com/books/first/l/lecarre-gardener.html. For a longer review of this book, visit http://www.hopkinsandcompany.com/books/The Constant Gardener.htm. Recommendation: (Highly recommended).


Catbert’s Manifesto

If Scott Adams (author of Dilbert) were writing a book to parody misguided Human Resources practices, he couldn’t do much better than Charlie Bishop’s new book, Making Change Happen One Person at a Time: Assessing Change Capacity within Your Organization. Catbert, the evil HR director from Dilbert could have come up with “towering strengths” “pivotal positions” and “weak links.” Unfortunately for those executives and organizations that decide to follow Bishop’s advice, this book is meant to be a roadmap, not a parody. Followers of this book will be filling out forms to profile or pigeonhole people based on their perceived “Change Response” and “Versatility”. You’ll be documenting those towering strengths, and listing key developmental needs. You’ll be writing and re-writing and shuffling paperwork until you’ve convinced yourself that whatever you really wanted to do in the first place will now work. Unless you really feel the need to separate the active responders in your organization from the passive responders, take a pass. For a longer review of this book, visit http://www.hopkinsandcompany.com/books/Making Change Happen.htm. Recommendation: --- (Don’t bother reading).



ã 2001 Hopkins and Company, LLC.  Executive Times is published monthly by Hopkins and Company, LLC at the company’s office at 723 North Kenilworth Avenue, Oak Park, Illinois 60302. Subscription rate for first class mail delivery of the print version is $60.00 per year (12 issues). E-mail subscriptions are $30.00 per year. Single issues: $10.00 print; $5.00 electronic. To subscribe, sign up at www.hopkinsandcompany.com/subscribe.html, send an e-mail to hopkinsandcompany@att.net, call (708) 466-4650, or fax to (708) 386-8687. For permission to photocopy or e-mail Executive Times, call (708) 466-4650 or e-mail to hopkinsandcompany@att.net. We will send sample copies if requested. The company’s website at http://www.hopkinsandcompany.com/archives.html contains the archives of back issues beginning in the month after the issue date. 

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