Executive Times

Volume 4, Issue 5

May, 2002


ã 2002 Hopkins and Company, LLC

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Who Puts the Glom in Conglomerate?

Something in the world has changed when General Electric Company, the only company left from the original Dow Jones list, decides to hold its first investor conference call. It seems that investors and analysts have glommed onto the fact that mergers have been the engine of growth at GE, and the resulting assembly of companies can be a tad difficult to understand. A new record for losses was reached in April when AOL Time Warner posted a $52 billion charge. For lots of reasons, the value of that recently merged entity has dropped, and many are wondering who glommed what from whom. Tyco International announced in January a plan to sell itself off in pieces, and now they’ve abandoned that strategy which they’ve termed a mistake, one that glommed $70 billion in market value this year. The Central Intelligence Agency may need to change from a mismanaged conglomerate to an organization that can glom information from new global sources and make sense of it quickly and accurately. As you read about the executives and organizations that are facing huge and complex problems, think about how to simplify and clarify your own situation. How adaptable are you to market changes? How prepared are you for uncertainty? Are you glomming on the right things?


Readers who noted our article on Gordon Moore’s financial commitment to preserving biodiversity in the Legacy column from the January 2002 issue of Executive Times will especially enjoy reading Edward Wilson’s book, The Future of Life, recommended in this issue. You’ve probably never heard of Mary Lawson or her first novel, Crow Lake, but that book received the only four-star rating in this issue.


Illuminating Results

After hearing loud and clear market demand for increased disclosure, General Electric Company beefed up its disclosures, and for the first time, held an investor conference call April 11 when it published its 1Q2002 results. When we read recent Pulitzer-prize winner Gretchen Morgensen’s column in The New York Times (4/14/02) titled “Wait a Second: What Devils Lurk in the Details?” (http://www.nytimes.com/2002/04/14/business/yourmoney/14GEGE.html), we knew that the folks at GE wouldn’t be pleased. Damned if you do, damned if you don’t. In response to that article, they published six additional pages of information on April 15 (http://www.ge.com/investor/response.pdf). What we found fascinating about the GE response is that the company pulled quotes from the article, and refuted what they called “factual inaccuracies and weak analysis” with additional explanations and data. Here’s our favorite quote from the cover letter to investors: “The article did articulate one point accurately if incompletely: ‘Heightened investor interest, even suspicion, toward financial reports is a completely new challenge.” It is a challenge that companies and journalists must accept and approach responsibly, so that a great number of investors are not harmed by actions of the few seeking to benefit from misinformation.” Following the debate between the company and what they call “unbalanced journalism,” CEO Jeff Immelt announced at the shareholders meeting on April 24:

“Shareholders have every right to be concerned and to ask questions. People who own GE should want to know the company and the leadership. You need to know more about where the performance comes from and where it will be in the future. You want to know even more about GE and that’s fine with me; I welcome it. In the short-term we’ve dramatically expanded our disclosure through the annual report and conference calls. We’re providing significant detail around segments and activity. We’ve dramatically increased investor touch points and we’ve met every commitment we made on disclosure. But what do you see when you look at GE? It shouldn’t be complex and confusing. It really is simple and powerful. You see leadership – number one businesses, a strong and accountable culture, and massive financial strength.”

Both simple and complex, we can look forward to increased disclosure and increased arguments about the interpretation of what’s disclosed.


How clearly do you describe the results of your organization? How well are those results understood by various constituents? Are readers of what you disseminate glomming on the key issues, or are they distracted? How complex or how simple is your personal explanation of your organization and what it does? How simply do you describe the job you do? Do you find yourself telling more, but having the listener understand less? How can you simplify your story?


You’ve Got Red Ink

When America Online and Time Warner merged, everything was about synergy and the new economy. Many expected that AOL Time Warner would set new records. During 1Q2002, they did: they recorded the highest-ever quarterly loss, $54.24 Billion. As a result of the company’s implementation of FAS 142, they marked down the value of goodwill, which they noted in the sixth paragraph of their earnings release (http://www.aoltimewarner.com/investors/quarterly_earnings/2002_1q/release.adp). With this record behind them, the company is now focused on future growth.


What’s the worst thing that can happen if your forecasts are wrong? How significant a change in value could your organization absorb in a given period? What would be the impact of a huge hit to your earnings? Is your evaluation aligned with that of your investors?


On Second Thought, Never Mind

Frustrated by a market that didn’t value highly enough the conglomerate that CEO Dennis Kozlowski assembled as Tyco International, the company announced January 22, 2002 a plan to sell off the company in four pieces. (See page 1 of the March 2002 issue of Executive Times.) In a letter to shareholders April 25, 2002, Kozlowski announced the termination of that plan. Here’s a key excerpt from the letter: Our rationale for the break-up plan was based on a simple premise.  Despite superior growth in earnings and cash flow, Tyco was being valued at a significant discount to its peers.  Among the reasons for the discount was the market’s unease with highly complex companies that are in multiple business lines with few obvious synergies. By splitting up the company, we saw an opportunity to address these concerns and accelerate the creation of value for our shareholders.  But we know now it was a mistake, and it is time for us to return our focus to what we do best. While our goal in changing the strategy was to do right by our shareholders, we came up with the wrong solution. In retrospect, it is now clear that we took the market by surprise with our announcement, and failed adequately to take into account the extraordinarily fragile market psychology and hostile environment that has distracted and damaged our business in recent months. We compounded the problem by delivering some incremental bad news, especially lower earnings expectations tied to both the distraction as well as the continued downturn in the electronics and telecom industries. As your chief executive officer, I take full responsibility and am aware that Tyco’s management has let you down.” The company announced a plan to sell off its finance business, but retain the industrial conglomerate.


How willing are you to admit your mistakes? How much responsibility do you take personally? If Plan A fails, how quickly do you move to Plan B or Plan C? How realistic are those back-up plans?



We never thought of the Central Intelligence Agency as a conglomerate until we read a lengthy and thoughtful analysis in The Economist (4/18/02) (http://www.economist.com/world/na/displayStory.cfm?story_id=1087143). In addition to the CIA, there are another dozen federal agencies involved in espionage, and as many as 100 different entities. The article’s introduction sets the stage: “Imagine a huge $30-billion conglomerate. It operates in one of the few businesses that might genuinely be described as cut-throat. Its competitors have changed dramatically, and so have its products and technologies. But its structure is the same as when it was founded, in 1947. Nobody leads this colossus (there is just an honorary chairman) and everyone exploits it. Demoralised and bureaucratic, it has just endured its biggest-ever loss. The response: the firm has been given even more money, and nobody has been sacked.”


How much overlap exists within your organization? Does the structure of your organization aid in producing desired results, or is structure an obstacle to success?


Tale of 2 Leaders

Leader or Obstacle?

All media have presented the tragic stories of sexual abuse by Catholic priests worldwide and the cover-up of criminal behavior by local bishops. Cardinal Bernard Law wrote in a letter to the priests of Boston, “As long as I am your archbishop, I am determined to provide the strongest leadership possible in this area. I know that there are many who believe my resignation is part of the solution. It distresses me greatly to have become a lightning rod of division when mine should be a ministry of unity. My desire is to serve this archdiocese and the whole church with every fiber of my being. This I will continue to do as long as God gives me the opportunity.” Meanwhile, in Ireland, Bishop Brendan Comiskey resigned, issuing a public statement saying, in part,  As bishop I should be a binding force among people and priests within the ministry of the Church. I had hoped that I could bring about reconciliation between the diocese and those who were abused. Such, I hope, might be part of their healing. It was in this spirit that I proposed last week that I would write to the four men involved in the documentary. I now recognise that I am not the person who can best achieve these aims of unity and reconciliation. My continuation in office could indeed be an obstacle to healing. For these reasons, on Thursday last I tendered my resignation as Bishop to Pope John Paul.” Comiskey said his best wasn’t good enough, and he apologized for what he was unable to do. Two leaders faced the same issue. One remains a leader; the other stepped aside.


If you mishandled some critical area of your responsibility, are you likely to stay in place, or step aside? How serious a mistake can you absorb and move on? Do your mistakes and shortcomings make you a more or less effective leader? Which leader would you prefer to follow: Law or Comiskey?



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

Ø      Many of the lists that business magazines publish pass without catching our attention, but we often call some of those we consider best to the attention of our readers. The May 13 issue of Forbes contains their list of the Best and Worst Bosses, a fine job of journalism.

Ø      In the April 2000 issue of Executive Times, we called attention to the dirty dealing by the heads of Sotheby’s and Christie’s, and in the October 2000 issue, we mentioned the scope of their price fixing civil settlement of $512 million. All media outlets reported in late April that Al Taubman would go to jail for a year and pay a $7.5 million fine.

Ø      In a way not unlike Chevy Chase’s regular announcements on the old Saturday Night Live, “Francisco Franco is still dead,” Hank Greenberg, 77-year old CEO of AIG, is still not retiring. We did read in The New York Times (4/25/02) (http://www.nytimes.com/2002/04/25/business/25INSU.html) that he’s initiated a series of changes that will make the appearance of a successor evident. We’ll see. The October 2000 issue of Executive Times led with a story of the departure of Hank’s son, Evan, from AIG, a resignation attributed in large part to the domination of Hank over this business.



Can Do

Norwegian anthropologist Thor Heyerdahl died at age 87 in mid-April. By building a balsa log raft named Kon-Tiki in 1947 and floating it from South America to the Polynesian Islands, he tested the idea that those islands could have been populated from the east, rather than from the west, as was and is commonly believed. His book on the voyage caught popular attention around the world, and he used the money from that effort to fund other expeditions, including a voyage on a papyrus boat across the Atlantic to prove that Egyptians could have introduced pyramid building to pre-Columbian Americans. Establishment academics have dismissed most of Heyerdahl’s theories. Millions of people were enlivened by his stories, and imaginations have been captivated by his proof that the capabilities of people thousands of years ago are more than most academics have acknowledged.


Mini-Mill, Maxi-Man
Few observers of American business have paid much attention to the steel business in recent years. When former CEO of Nucor, Ken Iverson, died at age 76 in mid-April, we were reminded of all that great man accomplished. When faced with aggressive competition from foreign steel companies, instead of looking for government protection of the status quo, Iverson led dramatic changes in the way the steel business operates. He built new mini-mills at lower costs than the existing uncompetitive blast furnaces, and focused on a single product line, using scrap steel. He tied employee pay to corporate performance, had few layers of management and avoided executive perks. Mini-mills now account for half America’s steel production. The Nucor workers remain unrepresented by unions. In a business written off by many managers as hopeless, Iverson injected new ideas, new technology, and solid management practices in caring for people. His success was outstanding, and his legacy lives on in employees and shareholders.  



 (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 2002 bookshelf at http://www.hopkinsandcompany.com/bookshelf.html).


Latest Books Read and Reviewed:

Title (Link to Review)



Review Summary


Henry Ford and the Jews: The Mass Production of Hate

Baldwin, Neil

Baldwin traces how Henry Ford personally fed the flames of anti-Semitism around the world during the 20th century.

Final Round

Bernhardt, William

Author leaves familiar setting of Oklahoma and criminal justice system for Georgia and the Masters. Weak dialogue and little character development.

The Buffalo Soldier

Bohjalian, Chris

Powerful novel of loss and recovery with real tension and deep feelings. The physical surroundings have a life of their own.

The Good The Bad & The Difference: How to Tell Right From Wrong in Everyday Situations

Cohen, Randy

Collection of “The Ethicist” columns from The New York Times, many of which are practical, clear, and witty.

The Leadership Secrets of Colin Powell

Harari, Oren

Few secrets and not much new about leadership. Motivating and inspirational, but not necessarily useful.

The Natural: The Misunderstood Presidency of Bill Clinton

Klein, Joe

Attempt at analysis and perspective may be too soon. Readers will know Klein’s point of view and not much else after reading this small book.

Everything’s Eventual: 14 Dark Tales

King, Stephen

Well-crafted, strange and macabre stories from a master of the short story genre. Great bedtime reading: take one a night for two weeks.

Crow Lake

Lawson, Mary

Terrific first novel full of taut emotions, complicated relationships, life and love set in Northern Ontario.

Danny Boy: The Legend of the Beloved Irish Ballad

McCourt, Malachy


100 double-spaced pages of rambling drivel that a reader couldn’t care about. Consider as a gift to someone named Dan whom you don’t like.

Please Don’t Just Do What I Tell You: Do What Needs to be Done: Every Employees Guide to Making Work More Rewarding

Nelson, Bob

Premise is that managers and employees live in different worlds and are unlikely to communicate. Beware that people might actually do some of the things in this book.

Widow’s Walk

Parker, Robert B.

Spenser’s back as Boston’s greatest private eye, and solves another mystery. Parker crafts fine dialogue and paces the plot with just the right momentum.

The Brother

Roberts, Sam

David Greenglass betrayed his sister and his country. He went to jail and she, Ethel Rosenberg, was electrocuted with her husband, Julius. Roberts tells all in 500 + pages.

Will the Circle Be Unbroken? Reflections on Death, Rebirth and Hunger for a Faith

Terkel, Studs

The master of oral history allows 62 people to tell the rest of us a thing or two about death and dying.

The Future of Life

Wilson, Edward O.

Well-written primer on what’s happening to ecosystems and what can be done to sustain biodiversity, and why we should take immediate, specific actions.


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