Volume 4, Issue 3
ã 2002 Hopkins and Company, LLC
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We decided to lay off for at least a month on stories about that company in Houston with a five-letter name that begins with a popular vowel. Having read hundreds of articles about that company, we thought a pause would be in order. It’s hard to tell right now how long that pause will last. We may wait until a good reporter like Kurt Eichenwald packages all his stories into an insightful book. We’ll still read the daily articles by him and others and see whether it seems appropriate to resume calling your attention to some insight or other about that company and its many woes. In the meantime, this month’s issue examines the business climate and finds weather conditions more than partly cloudy. Companies with complexity have been hammered by the stock market and the expectations of appropriate business behavior continue to evolve rapidly. Executives remain in the public eye both in their executive roles and in their home life, as one executive recently found out painfully.
There are two four-star ratings on the list of fifteen books at the back of this issue, and they have nothing in common. Jim Collins’ Good to Great presents fact-based stories about eleven companies that moved beyond good results into great results over sustained periods of time. Calvin Trillin’s Tepper Isn’t Going Out had us laughing on many pages, and caused fond recollections of our own challenges with alternate side of the street parking in New York City.
Is Dennis a Menace?
The stock price of Tyco International performed a giant slalom since the beginning of the year, going from a price of almost $60 a share, to a low of $22, and is now hovering just below $30. CEO Dennis Kozlowski told shareholders in January that since the market didn’t value highly enough the conglomerate he put together from hundreds of acquisitions, he’d sell off the pieces in four segments. Shareholder activist and corporate governance expert Robert A. G. Monks, who served on the Tyco board from 1985 through 1994 and supports Kozlowski, was quoted in The Economist (http://www.economist.com/people/displayStory.cfm?Story_ID=953836) as saying, “The music changed, and Dennis knew when to stop.” He may have stopped dancing a little too late. The slide in stock price accelerated after the announcement, and old and new stories about Tyco’s accounting methods, disclosure and insider dealings have been all over the media this year. Tyco is now holding weekly investor conference calls to restore confidence in the company. For now, it appears that Tyco has broken no rules or laws. The problem for Kozlowski and Tyco is that expectations for behavior and disclosure are evolving, and Tyco’s past practices appear too complicated for today’s desire for immediate transparency. Kozlowski admitted regret (Forbes, 2/8 http://www.forbes.com/newswire/2002/02/08/rtr508221.html), for paying board member Frank Walsh $10 million (and another $10 million to a charity where Walsh is a trustee) when Tyco acquired CIT last year. No apology was made for failing to disclose 700 acquisitions over the past three years, since the individual acquisitions were not material and the company followed SEC requirements to the letter (Forbes, 2/15 http://www.forbes.com/home/2002/02/15/0215simons.html). Since that surprise caused a negative market reaction, we can expect future acquisitions to be disclosed whether material or not. While no apology was made about Kozlowski and CFO Mark Schwartz making $500 million by selling shares back to the company and not disclosing that for a year (no disclosure was required in this situation), all future stock activity by these two insiders will be disclosed in advance. They are currently buying 500,000 shares each in the open market with their own funds. The company saves about $300 million a year in U.S. taxes because it’s been based in Bermuda since its acquisition of ADT in 1997. Some observers wonder if being based offshore means Tyco is trying to hide something. The company announced on February 25 (http://investors.tycoint.com/news/20020225-72855.cfm) that a district court dismissed 38 class action suits pertaining to its accounting disclosures during 1998 and 1999. Stay tuned to see if Tyco’s letter of the law compliance continues to work, and if the markets become confident again in management.
How do you decide when it’s appropriate to follow the letter of a law and when to exceed what’s required? When the market misunderstands you, what are your alternative courses of action? How do you look ahead to future expectations to ensure that you and your organization will not be caught short by emerging needs?
President George W. Bush appointed Treasury Secretary Paul O’Neill to lead a panel on corporate governance. Executives received an early indication of the panel’s direction through recent O’Neill speeches, according to the Chicago Tribune (2/26 http://chicagotribune.com/business/chi-0202260015feb26.story?coll=chi%2Dnews%2Dhed). O’Neill “made it clear that he feels executives and companies have an obligation to follow the spirit as well as the letter of the law, and to behave ethically as well as legally.” We look forward to finding out what that means. While the current system punishes executives only for reckless negligence, O’Neill would like to see sanctions when a CEO should have known something and didn’t, or should have advised the market about something but remained silent. One possible outcome of the panel is a self-regulating code of conduct. That worked well for the accounting profession. We’re expected to hear the panel’s recommendations within a few months.
What should you know that you don’t? Is there some aspect of your job in which you are a bit negligent? How do you discern the “spirit of the law?” Do you feel an expectation to follow the spirit as well as the letter of the law in your organization? Do you think you should? What code of conduct do you follow? Does that code of conduct protect you and your organization from changing expectations of constituents?
Blowing in the Wind
Every executive finds ways to relieve the stress that can build up from intense work activity. According to a page one story in The Wall Street Journal (2/15 http://online.wsj.com/article/0,,SB1013726658434606640.djm,00.html), it seems that Chubb CEO Dean O’Hare likes to “use loud yard equipment at odd hours, and in all sorts of weather.” After fourteen years of listening to leaf and snow blowers and garage vacuums, O’Hare’s closest neighbor in Far Hills, New Jersey, petitioned the borough council to enact a noise ordinance. The neighbor-to-neighbor dispute, including calls to the police, made both parties look foolish, but because of O’Hare’s job, he ended up apologizing to Chubb employees for any embarrassment the episode may have caused them. Our guess is that when O’Hare imagined his picture on the front page of The Wall Street Journal, he never guessed that his yard noise would be the subject of the story.
Are you ever off-duty? How does your outside work behavior reflect on your organization? Do you think of yourself in the public eye? What newspaper stories could appear about your life outside work? Will you and others enjoy reading those stories, or be embarrassed by them?
Can you remember the three-martini lunch? There was a time when that seemed like an everyday, normal activity. How about that extravagant deal dinner when the wine bill was five times the food bill? There was a time when that seemed like an every month or so experience. We read in The New York Times (2/26 http://www.nytimes.com/2002/02/26/business/26SPLU.html) that six investment bankers from Barclays Capital celebrated in record form last July, when they paid $63,000 for a variety of wines, and the London restaurant, Pétrus, didn’t charge them for the food. “Perhaps it was the bottle of 1947 Château Pétrus for £12,300 ($17,500). Or maybe it was the 1945 vintage from the same vineyard for £11,600 ($16,500). … But the food was very much a sideshow to this particular dinner, which also included a third Château Pétrus, this one a 1946 vintage for £9,400. Then there was a 1984 Montrachet for £1,400, two bottles of Kronenbourg beer at £3.50 each, six glasses of Champagne for £9.50 each, one juice at £3, 10 bottles of water totaling £35, a pack of cigarettes for £5 and, to wash it all down, a bottle of 100-year-old Château d'Yquem dessert wine for £9,200.” Barclays was embarrassed last July when the meal, which the six employees paid for with their own funds, was publicized because the behavior was inconsistent with today’s restraint and sobriety. Since July, five of the six employees presented expense reports to recover their portion of the meal as client expenditures, and have been fired.
How do you celebrate success? What personal expenses do you expect your employer to reimburse? When attention is called to your behavior, how does that attention reflect on your employer and its image?
Pants on Fire
Looking Like a Liar
The March issue of Business 2.0 provides a helpful tool in the form of ten questions at http://www.business2.com/articles/mag/0,1640,37756,FF.html that test your personal credibility. “‘There are no reliable signs of lying,’ cautions Mark Frank, a behavioral expert at Rutgers. ‘But if you take what people think liars do and do the opposite, you'll come across as credible.’” We answered six of ten questions correctly. The other four times, our pants are on fire.
Are people more or less likely to consider you credible? When you present yourself to others, what impression are you trying to create? Is your self-image consistent with the image that others have of you? Are some of your personal habits a barrier to perceptions of your credibility?
Here are selected updates on stories covered in prior issues of Executive Times:
Ø The September 1999 issue of Executive Times led with the story of MetLife settling class action lawsuits charging racial discrimination, expected to cost the company $1.6 billion. Recently, The Wall Street Journal (2/7 http://online.wsj.com/article/0,,SB1013049441796126840.djm,00.html) predicted a reserve of $250 million to settle a New York class action suit containing similar charges.
Ø Readers of Executive Times who have noted our comments about brands may enjoy reading the article, “9 Ways to Fix a Brand,” in Fast Company 55 (February 2002 http://www.fastcompany.com/online/55/brokenbrand.html).
Ø The December 1999 Executive Times called attention to the variable auto insurance pricing used in a Texas pilot program by Progressive Insurance Company which used GPS and cell phone technology to track auto usage every six minutes and bill insurance coverage based on risk factors. The Wall Street Journal reported recently (2/20 http://online.wsj.com/article/0,,SB1014156076868954120.djm,00.html) that policy holders saved an average of 25% in insurance costs during the pilot, and the Texas legislature has now approved an option for mileage-based auto premiums.
“Press 1 for More Options”
You may not know who Gordon Matthews was, but chances are you encountered the application of one of his thirty-five patents sometime today. Matthews invented voice mail in the 1970s, and watched its slow application during the 1980s and rapid distribution during the 1990s, by which time his company was receiving royalties in the tens of millions of dollars each year. According to The New York Times (2/26 http://www.nytimes.com/2002/02/26/obituaries/26MATT.html), “Accounts of how Mr. Matthews, an entrepreneur as well as an inventor, came to invent voice mail differ. One version is that he was stuck in heavy rain when he noticed in a nearby dump a large bunch of pink ‘While You Were Out’ message slips. That sight is said to have given him the idea that an apparatus permitting callers to record substantial messages in their own voices could help do away with the multitudes of message slips and unfinished and mixed-up messages that were burdening modern communications, notably in corporations.” Thanks to Matthews, millions of messages are exchanged daily with clarity.
Dropout to Millionaire
The master of hostile takeovers from the 1960s through the 1990s died in Miami in February at age 83. Victor Posner, son of Russian immigrants, dropped out of school at age 13 and was a millionaire by the time he was 25, mostly through wise real estate investments. He had a reputation for enriching himself and not looking out for the interests of shareholders. During one of the many lawsuits he faced during his business life, one judge ruled that Posner was “contemptuous of the interests of public shareholders.” While he didn’t care much for what others thought of him, he was an active Miami philanthropist, even during the long years of his legal troubles. He’ll be remembered for showing smart executives that entrenched companies could be bought cheap and exploited, and for showing strong will in the face of fierce opposition.
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