Volume 3, Issue 5
ă 2001 Hopkins and Company, LLC
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Me, myself and I
Many business articles and management books focus on the personality and character of chief executive officers. The cult of the CEO can create the illusion that a company and its leader are indistinguishable. Management always involves engagement with colleagues, and the most effective leaders are those who attract the best talent to share a common vision of success. We can observe the behavior of business leaders and gain understanding of their priorities and values. The annual release of proxy statements brings out seasonal articles highlighting attention to CEOs and especially to their pay. With high levels of corporate layoffs this year, the timing of proxies led to comparisons of what perks executives were getting in comparison to the workers being fired. As you read the following stories, think about your own approach to meeting your own needs as well as your approach to meeting the needs of others. Consider what changes will improve the alignment between your actions and the expectations of others. What’s the balance between your ego and your talent?
Our favorite example of a disconnection between managers and workers appeared in a footnote to the Motorola proxy (http://www.freeedgar.com/EdgarConstruct/Data/950137/01-500517/c59927ddef14a.htm). Former CEO Robert Galvin, father of the current CEO Christopher Galvin, while retiring at last from the board, remains an employee and will continue to receive comprehensive services for his personal airplane, a long-standing perk. Here’s what the proxy said about the plane:
“The Company employs pilots and mechanics for Company-owned airplanes. They also devote a portion of their time to Mr. R. Galvin’s airplane, including those times when it is not being used on Company business. The Company pays the salaries and the cost of fringe benefits of these employees. Mr. R. Galvin pays all of the other expenses of his airplane, except that the cost of fuel, oil and relatively minor incidental crew and flight expenses incurred solely in connection with Company business flights are paid by the Company. Mr. R. Galvin does not charge the Company when other Company personnel accompany him on his airplane on business trips. In 2000, and historically, the percentage of Company-paid expenses of the airplane has been less than the percentage of usage of the airplane for Company business. Mr. R. Galvin is retiring as a director at the May 2001 Annual Meeting. He will be continuing as an employee of Motorola and his arrangement regarding his airplane will continue.”
Motorola has continued to accommodate Galvin while laying off thousands of workers.
What do you think Motorola workers believe about the company’s commitment to cost cutting? Are family and hierarchy really more important at Motorola than producing improved business results? Do your executives perks fit today’s business conditions? Who says enough is enough?
Shareholders Unite on Pay for Performance
Most shareholder resolutions are perceived as cranky and unlikely to pass when management recommends a vote against them. We read in The Wall Street Journal (3/26/01) (http://interactive.wsj.com/archive/retrieve.cgi?id=BT-CO-20010326-005662.djml) that an ad hoc consortium of union related pension funds doubled the number of shareholder initiatives they generated this year, and feel they are making progress. Among their targets were Bank of America and Sprint relating to issues raised in the past in Executive Times. According to the Journal, the stock granted by Bank of America to retiring CEO Hugh McColl had no performance related component, and they objected to what was perceived as a windfall. (See the May 1999 issue of Executive Times on pay indexing). In Sprint’s case, the repricing of options gave upside benefits, but no downside penalty, and was inconsistent with what shareholders experienced. (See the August 2000 issue of Executive Times on the Sprint windfall).
Will shareholders and others perceive your pay plans as self-serving or aligned with the results of your company in comparison to peers? What are the principles underlying your compensation system, and how well do you think those principles work in practice? If you were an outsider examining your organization, how would you assess your compensation practices? Will it take outside pressure to change your practices?
What were the executives at Pacific Gas and Electric thinking when they delivered bonuses totaling $50 million the day before filing bankruptcy? According to the Los Angeles Times (4/8/01) (http://www.latimes.com/business/reports/power/lat_bonus010408.htm), while the top 25 executives were excluded from the payout, CEO Robert Glynn, authorized bonus payments to a third of the company’s managers and employees. The same week, the company announced the suspension of dividend payments on preferred stock. Following their bankruptcy filing, the company petitions the bankruptcy court regularly for approval of routine business actions, while continuing a public relations fight against California Governor Gray Davis. Davis commented on the bonus payments with this remark, “Management is suffering from two afflictions: Denial and greed."
Can individuals within your organization succeed while the company fails? Where does accountability and responsibility exist within your organization? If a change in the fortunes of your company occurs because of external conditions, like changes in the cost of energy, how are rewards and penalties shared? Would you have paid bonuses if you were Robert Glynn? If your organization were facing crisis conditions, what would it take to retain valuable and motivated employees?
While the interests of Amazon CEO Jeff Bezos are fully aligned with that of shareholders, the company’s poor performance doesn’t seem to faze its leader or its board. Business Week reported (4/4/01) (http://www.businessweek.com/bwdaily/dnflash/apr2001/nf2001044_127.htm) that a too small board fails to hold Bezos accountable for results, and tolerates the way he fills management slots with himself rather than bringing in needed outside talent.
Can your organization succeed without you? Do you behave as if it can’t? Who do you rely on to tell you what you may not want to hear? Are your closest advisors so aligned with you that the advice they give falls short of what you need?
The Daily Me
We admit to subscribing to a variety of personal mail services that deliver targeted news on the topics or companies of interest to us. We read in The New York Times (4/13/01) (http://www.nytimes.com/2001/04/13/technology/13CYBERLAW.html) that MIT’s Nicholas Negroponte has called this filtering The Daily Me. While most observers conclude that news customization saves time and can increase the ease with which citizens can access information, University of Chicago law school professor Cass R. Sunstein argues that filtering can lead to “narrowing readers’ minds and souls.” We haven’t read Sunstein’s book, Republic.com that advances this thesis, mostly because we’re not that interested in the topic, probably proving his point.
What experiences broaden your exposure to alternative ideas and opinions? How frequently do you embrace those experiences? How insular and homogeneous is your daily world?
One of our favorite business writers, Patricia Sellers of Fortune, talked to CEOs about ego, and the results of her conversation appear in an amusing article in the 4/30/01 issue (http://www.fortune.com/indext.jhtml?channel=print_article.jhtml&doc_id=201650). While professing reluctance to discuss the topic, two dozen or so CEOs are named in the article and come across within a range from an exuberant Donald Trump at one extreme to a reluctant Warren Buffett at the other (Buffett said, “The truest sign of ego is wanting to be in this story.”) If you have any interest in managing your own ego or deal every day in trying to manage someone else’s, read this article. One executive Sellers didn’t interview is preparing for the biggest ego trip of all. Dennis Tito, CEO of Wilshire Associates will pay $20 million to the Russian Aviation and Space Agency to fly to the International Space Station. He’s also been asked to pay for anything he breaks. And you liked your plans for using frequent flier miles.
How well balanced is your ego in relation to your talent? What’s the positive and negative impact of your ego on those around you? Are you aware of that impact? How effective are you in managing your ego, and in relating to the egos around you?
Take the e-train
Learning at an Express Pace
Web-based training can be delivered at low cost and using an approach that paces the experience at the speed desired by each learner. The New York Times (4/18/01) (http://www.nytimes.com/2001/04/18/technology/18STEL.html) reported an estimate of the corporate market for such training will rise from $2.2 billion last year to $11 billion in 2003. Most companies are blending traditional classroom training with web-based modules that can be completed whenever an employee goes online. Circuit City, American Airlines and MasterCard are among the companies profiled in this article. A MasterCard employee compared what he learned in an online session with a similar program from a previous employer. “It gave me the information I needed. It just did it in half the time or less.”
How much time does your organization spend trying to train employees using group meetings? Have you examined lower cost alternatives that can produce superior results? Since people learn at different paces, does your method of delivery satisfy the needs of all participants?
Here are selected updates on stories covered in prior issues of Executive Times:
Ř A business magazine finally got around to paying attention to Joe Torre, whose book, Ground Rules for Winners: 12 Keys to Managing Team Players, Tough Bosses, Setbacks, and Success, we recommended in the December 1999 issue of Executive Times. Fortune includes an article (http://www.fortune.com/indext.jhtml?channel=print_article.jhtml&doc_id=201619) in its 4/30/01 issue that recommends Torre as “the model for today’s corporate managers.”
Ř We were totally wrong when we forecast in the April 2000 issue of Executive Times an imminent $5 billion firework display, anticipating the flameout of 72 Iridium satellites. Instead, the new owners are trying to make another go of the technology, and are offering rates as low as $1.50 a minute, a major reduction from the prior deals of $6 or $7 a minute.
Ř The lead story in the March 2001 issue of Executive Times included examples of how companies failed to monitor untrustworthy employees. We read in The Houston Chronicle (4/21/01) (http://www.chron.com/cs/CDA/printstory.hts/business/884978) that the percentage of employers who monitor employees by checking their e-mails, Internet use, telephone connections or videotaping them while they work, increased from 35% in 1997 to 80% this year.
It’s About the People
Michel Fribourg led privately owned Continental Grain Company (now known as ContiGroup Companies) for five decades. A company director called Fribourg “the premier figure in world trade in food of the 20th century” (The New York Times 4/12/01 http://www.nytimes.com/2001/04/12/obituaries/12FRIB.html). Thanks to Fribourg, a trade deal with the Soviet Union in the early 1960s defused cold war tensions, accomplishing through business what was not being done through diplomacy. He taught many executives and politicians the important lesson that trade accelerates economic development in emerging nations. Fribourg expanded Continental Grain into seventy countries. His son, Paul, the sixth generation of Fribourgs to lead the company, said that his father took pride in being a “grain man” whose word on the telephone would be trusted in trading millions of dollars worth of grain. In the years following Michel’s retirement, the company made a strategic shift and sold its grain trading operations. When presented with the company’s options, Michel’s first question was about the traders: would they find new work? "It was never, for him, about making money," Paul Fribourg recalled. "It was the people." Michel Fribourg died in New York in mid-April at age 87. His quiet and unassuming leadership style left a positive example for executives and CEOs around the world to follow.
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The first part of the book documents why performance appraisals backfire. After reading this section, we concluded that the flaws in the appraisal process are so great that they are fatal: it would be better not to do appraisals. The middle of the book explores what to do instead of appraisals in five areas: coaching, feedback, pay, promotion, and discipline. The alternative approaches can all be successful, based on the commitment of your organization to managing change. The final section of the book presents a step-by-step approach on how to stop doing appraisals and how to design alternatives.
We read that 90% of employees and managers are dissatisfied with their current performance appraisal system. Unfortunately, when faced with such data, human resource professionals decide to revise the system, instead of eliminating it. Whether you decide to implement changes along these lines or not, reading this book will likely change your outlook on pay for performance schemes and on the performance appraisal process in your organization. Read it and be armed with information to convince HR professionals that there’s a better way. Recommendation: ••••• (Outstanding).
Drinker, Sailor, Stinker, Spy
Reading Hernando de Soto’s new book, The Mystery of Capital, may change your perceptions and resolve some misconceptions about the Third World. De Soto demonstrates in this book that the major stumbling block that keeps the rest of the world from benefiting from capitalism is its inability to produce capital. Here’s a quote:
“…most of the
poor already possess the assets they need to make a success of capitalism.
Even in the poorest countries, the poor save. The value of savings among the
poor is, in fact, immense – forty times all the foreign aid received
throughout the world since 1945…If the United States were to hike its
foreign-aid budget to the level recommended by the United Nations – 0.7
percent of national income – it would take the richest country on earth more
than 150 years to transfer to the world poor resources equal to those they
Read the clear and compelling case de Soto makes in this book concerning what has caused the current state of affairs and what might be done for things to change. Recommendation: ••• (Recommended).
Border Crossing is the latest novel from Booker prizewinner Pat Barker, and her prodigious skills are evident throughout. Barker presents the complicated relationship between a psychologist, Tom Seymour, and one of his patients, while presenting the breakup of Tom’s marriage. Barker examines the borders and their crossings with precision and depth of understanding. Enjoy this fine novel. Recommendation: ••• (Recommended).
ă 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 , 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 . We will send sample copies if requested. The company’s website at contains the archives of back issues beginning in the month after the issue date.
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