Executive Times

Volume 5, Issue 5

May, 2003

ã 2003 Hopkins and Company, LLC

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The Faith of Followers

We’ve seen hundreds of images in recent weeks that remind all executives that we earn whatever faith followers have in our leadership, and we can lose that faith in the blink of an eye. A global audience of potential followers watched the statues of Saddam Hussein toppled, his billboards destroyed, and fervent former followers removing their shoes to pound the fallen images. We watched the outrage of union workers when they learned of the special treatment for top executives at American Airlines. We heard a CEO’s plea for forgiveness, followed by his resignation when workers with the power to destroy the company made it clear that they would not follow his leadership. We observed the quick demise of civil servants who declined to tell people the truth about the spread of Severe Acute Respiratory Syndrome. It’s trite, but true, that without followers, one is not a leader. It seemed apropos to devote this month’s issue to exploring some of the recent stories about the faith of followers and the loss of that faith. As you read about the challenges faced by other executives, think about what you do every day to build and to destroy the faith in you held by those who choose to let you be their leader, a choice they make one moment at a time.

Fifteen new books are rated in this issue, beginning on page 5, including a four-star (Highly Recommended) rating for Louis V. Gerstner’s story of his decade of leadership at IBM, Who Says Elephants Can’t Dance? You can also visit our 2003 bookshelf at http://www.hopkinsandcompany.com/bookshelf.html and see the rating table explained as well as explore links to all 2003 book reviews.

Forgive? Forget?
Success in the CEO job at American Airlines (AMR) had everything to do with employee relations over the past few decades. Former CEO Robert L. Crandall was a bully with the unions, and the company suffered from his tough negotiating style, despite occasional cost savings and revised work rules. When gruff no-nonsense Crandall was replaced with affable Donald J. Carty, there was a chance to forge new ways for management and labor to work together more effectively. In a 1999 speech, Carty said, “What those of us in management need to do is spend the time and energy needed to demonstrate to every employee across the company that we are committed to building a culture of trust, of respect and appreciation.” (The Washington Post, 4/24/03 (http://www.washingtonpost.com/wp-dyn/articles/A34774-2003Apr24.html)). Whether time and energy was spent or not, the culture of trust, respect and appreciation was never built. (See Follow-up column for a link to past, missed opportunities.) As we fast-forward to 2003, the plight of AMR got worse, and management asked the labor unions to make major wage concessions to keep the company out of bankruptcy. Just after one union voted, word got out through the late filing of form 10-K, that the AMR board had approved (in 2002) retention bonuses for senior executives, and placed pension funds for senior executives in a lockbox outside the reach of a bankruptcy judge. Carty realized he made a huge mistake when he did not inform the AMR unions in a timely manner about these two special programs for motivating senior executives to stay with AMR through its woes. Carty then followed the advice of all crisis managers: get the story out quickly and apologize. In this case, the childhood ritual dialogue doesn’t always apply in adulthood: “Say you’re sorry.” “I’m sorry.” “Ok. You’re forgiven.” Instead, the flight attendants threatened a new vote on wage concessions. Other unions were bewildered. The Board asked Carty to resign, and replaced him with Gerard J. Arpey, who has spent his entire career at AMR, and who, according to The New York Times (4/27/03) (http://www.nytimes.com/2003/04/27/business/27AIR.html), may have been the only viable candidate the Board had to consider, although some directors considered bringing back contentious Bob Crandall. 17-year board member and former Sears chief Edward A. Brennan will be the new non-executive chair. We expect it won’t take the unions long to realize that it was Brennan, in chairing the comp committee, who delivered the executive perks, and that Arpey may be more direct and honest than Carty, but he’s part of the same management team. The recent events were compromises for everyone. The future remains murky.

How have you used opportunities in your organization to build trust and goodwill between management and labor? Whether your organization is unionized or not, what do you do to improve relationships between labor and management? Which of your actions have caused those who report to you to lose their confidence in your leadership? What actions could jeopardize the trust others have in you? When following a leader in a key role, how will you be the same as your predecessor, and how will you be different? Are you prepared today to take on a new role, if asked?

Fresh Air
Some democratically elected politicians seem to keep their jobs despite shenanigans that would usually lead voters to throw the bums out. It was with surprise that we saw the speed with which the government in China made swift changes when political leaders lost the faith of their followers. Under growing global pressure, especially from the World Health Organization, the truth about the total number of Severe Acute Respiratory Syndrome (SARS) cases began to come out of China in late April. We read in The Guardian (4/21/03) (http://www.guardian.co.uk/sars/story/0,13036,940372,00.html), “Beijing's belated honesty comes after China's new leaders, President Hu Jintao and Premier Wen Jiabao, intervened last week as foreign criticism grew. The ruling central committee yesterday removed the health minister, Zhang Wenkang, who had insisted the crisis was ‘under control’, and the Beijing mayor, Meng Xuenong, from their Communist party positions, essentially sacking them from their government jobs.” The deputy health minister, Gao Qiang, said the correct number of SARS cases in Beijing as of April 20 was 339, not 37. From now on, “underreporting will not be allowed.” People in China heard the message, and are in panic in some locations as they try to protect themselves from a disease they now understand to be prevalent and potentially deadly.

How do you deliver reassurance to those who look to you for leadership? When do you tell them the unvarnished truth? Have you found yourself withholding information from followers because it’s in “their best interest” not to know? When the information comes out eventually, do you expect to be followed? When those who report to you hide facts from you and others, how do you respond?

Not So Big Easy
Lack of faith can enter institutional relationships as well as individual ones, sometimes with acrimony and surprise. Lawsuits usually follow. Clever attorneys presented a suit that recently would lead the defendant toward a finding of either negligence or self-dealing. We read in The New York Times (4/9/03) (http://www.nytimes.com/2003/04/09/business/09MARR.html) that the owners of several New Orleans hotels sued Marriott claiming that the methods used by the Ritz Carlton brand created a conflict of interest. Ritz appropriately placed its fiduciary interests for parent Marriott over the financial returns for the hotel owners. If Ritz did its proper job, it was looking out for the interests of Marriott. In so doing, it incurred higher than expected expenses by using Marriott-owned suppliers, thereby harming the hotel owners. When full, the Ritz sent guests down the street to a Marriott property rather than to another hotel owned by the partners of the Ritz. Despite lots of management books touting “co-opetition,” maybe using the services of a competitor isn’t the key to success.

How do you choose your business partners? In whose interests do you expect your service providers to act? Do your agreements define expected actions in real-world situations? How do you reconcile the differing expectations of your customers and your owners? How do you approach service relationships with your competitors? What controls ensure that your interests will be well-represented? Do you have enough faith in the skills of a competitor to let them manage part of your business?

The Razor’s Edge

Some employees hold key roles in managing the relationships between your organization and your customers or suppliers. In many organizations, one individual provides the only “face” that clients ever see, and they conclude that whatever this person does is exactly what management of your organization wants done. The level of faith in your organization is a direct result of the actions of that front line representative. To mitigate the risk of behavior by rogue employees, some organizations communicate directly with a variety of stakeholders to ensure that the community at large understands the organization’s values, and would encourage someone to come forward if an employee behaved in a way that appeared inconsistent with those organizational values. When we read on the Associated Press wire (4/12/03) (http://www.nytimes.com/2003/04/12/business/12RAZO.html) that a fired Gillette employee was arrested for engaging in a kickback scheme with retailers that netted him $600,000, we decided to dig a little deeper. It turns out that Gillette uncovered the fraud by the former director of its Permanent Merchandising Systems Department, Gino Deluca. According to the United States Department of Justice, “It is important for the public to understand that this case is the result of individual greed and not corporate misconduct. The Gillette Company through its own internal investigation identified the alleged fraud and brought this conduct to the attention of federal authorities and were fully supportive of the criminal investigation. This is an indictment of one individual who enriched himself through illegal means.” (http://www.usdoj.gov/usao/ma/presspage/April2003/Deluca-Gino-indictment.htm). The actions of a single employee can change the image of your organization by the clients or suppliers who interact with that single individual.

How long would it take your organization to uncover the actions of a rogue employee? Are you sure? How do you monitor the ways in which your organization is represented by your front line “faces?”

Follow-up

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

Ø Readers of Executive Times since the first issue in April 1999 may remember that back then we noted that Don Carty had the chance to break from the contentious labor relations policies of his AMR predecessor, Bob Crandall, but decided not to do so, costing the company an extra $50 to $75 million during an unnecessary squabble with the pilot’s union back in 1999.

Ø Ford Motor Company celebrates its first 100 years in a five-day celebration beginning June 12 in Dearborn, Michigan. We called attention to the Ford and Firestone family feud in the October 2000 issue of Executive Times and now await finding out who attend the anniversary bash, now that the financial bashing of the Explorer tire fiasco has passed.

Legacy

A Different Cityscape
The New York City skyline has been hard to look at since 9/11, because of the missing towers. During April, we were reminded about another aspect of the cityscape of the New York area that would look very different had it not been for the life’s work of Samuel J. LeFrak. Thanks to LeFrak’s forty year career as a builder, more than 200,000 affordable houses and apartments were built in the New York City metropolitan area. Often, LeFrak saw opportunities where other builders saw wasteland. From Lefrak City in Queens, started in 1960, to Newport, New Jersey, a reclaimed area across the Hudson from New York started in 1985, LeFrak turned neglect and decay into living communities. Thanks to LeFrak, the Jersey City waterfront was revitalized. In a city with Trump Tower as a symbol of affluence, LeFrak built average houses for average people.

Beyond housing, LeFrak contributed to the community through his support of the arts. As a trustee and benefactor to the Guggenheim Museum (where a gallery bears the name of LeFrak and his wife), he made art works he purchased available to museums around the world. When he received a Patron of the Arts Award from the Songwriters Hall of Fame, he said, “Music is my life, and this is where I get my fulfillment.” Through many scholarships, LeFrak saw to it that students with talent were able to learn from the best teachers.

LeFrak was honored by the United Nations for his work with Habitat International, and he addressed the UN on the topic, “Planning for Urbanization in the 21^st Century.”

LeFrak inherited a building business started by his father in 1901. The tagline for the company today is: “Building a Better World Since 1901.” A grandson now runs the business. LeFrak died in mid-April after a long illness. He was 85. He’ll be remembered by those who live in and near where he built housing. He’ll be remembered by all the arts groups who received his generosity. And he’ll be remembered by all those managers and leaders who see something valuable where others see wasteland.

Latest Books Read and Reviewed:

(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 2003 bookshelf at http://www.hopkinsandcompany.com/bookshelf.html).

Title (Link to Review)	Author	Rating	Review Summary	Purchase
Perfect Enough: Carly Fiorina and the Reinvention of Hewlett-Packard	Anders, George	•••	Sell. Anders tells ample stories about the past and present career of Carly Fiorina and her achievement of landing the top H-P job and merging with Compaq. Engaging stories make this book a pleasure to read.
Tales from the Boom-Boom Room: Women vs. Wall Street	Antilla, Susan	•••	Explosive. Life for women trying to succeed on Wall Street in recent decades was worse than you ever imagined. Antilla tells what happened, how women sued, how Wall Street made changes, and how legal strategists kept things quiet and inexpensive.
To Begin the World Anew: The Genius and Ambiguities of the American Founders	Bailyn, Bernard	•••	All-American Ambiguity. Bailyn analyzes several leading founders of the United States and succinctly describes both their key contributions and the inconsistencies and real humanity of their lives.
High and Mighty: SUVs: The World’s Most Dangerous Vehicles and How They Got There	Bradsher, Keith	•••	Pigs on Stilts. SUV lovers will feel their blood pressure elevate on every page of this SUV-bashing book by NY Times writer. Those who loathe SUVs will find plenty of facts to support their position. SUV myths are debunked.
Backfire: Carly Fiorina’s High-Stakes Battle for the Soul of Hewlett-Packard	Burrows, Peter	••	Unfriendly fire. Fiorina is the villain out to destroy all the good that Bill and Dave built at H-P. Too negative for our taste, but interesting to read alongside Anders’ more flattering Perfect Enough. Besides, if we expect to find souls in companies, we have more problems than Fiorina’s style.
A Consumer’s Republic: The Politics of Mass Consumption in Postwar America	Cohen, Lizabeth	••	Citizen Shopper. Prosperity arrived in Postwar America in the form of government intervention. Consumers active in political processes pushed for national action. Cohen presents what we had, what we lost, and what we can restore.
Who Says Elephants Can’t Dance? Inside IBM’s Historic Turnaround	Gerstner, Louis V.	••••	Fandango. Former head of IBM discloses why he took the job, how key decisions were made, and what it took to transform the organization. Well written, insightful, with some “aha” moments for long-time IBM watchers.
Blue Latitudes: Boldly Going Where Captain Cook Has Gone Before	Horwitz, Tony	••	South Pacific Overtures. Nothing we’ve read in years is quite like this odd book. Author and cohorts roam around to places where Cook went and compare what those places are like now to what they were like in Cook’s time.
The Growing Seasons: An American Boyhood Before the War	Hynes, Samuel	•••	Ebullient. Vivid images of one man’s formative years during the Depression, and the wisdom he’s able to covey today about those times. Upbeat memoir with the right balance of mischief and struggle.
Michelangelo and the Pope’s Ceiling	King, Ross	•••	Soars. Open these pages and leave behind your images from The Agony and the Ecstasy. Learn things you never knew about the great artist and one of his masterworks.
Thinking for a Change: 11 Ways Highly Successful People Approach Life and Work	Maxwell, John C.	•	Pastoral. Hundreds of quotes tied together by stories and upbeat, positive thoughts. Ideal for self-help fans; shallow for most of us.
The Mushroom Man	Powell, Sophie	•••	Dreamy Debut. Finely crafted, brief, first novel with enchanting view of a child’s fantasy in Wales, and the adults around her who struggle with intimacy and strained relationships.
Bay of Souls	Stone, Robert	••	Doo Voo. Superb writing wasted on weak characters. Rural Minnesota professor’s affair with stereotyped seductress from Caribbean island leads him into spirit world to neither find nor lose his soul, but change his life.
Jarhead: A Marine’s Chronicle of the Gulf War and Other Battles	Swofford, Anthony	•••	Unscrewed. Talented writer and former Marine sniper presents poetic images of life, fear, despair and exhilaration as a Marine interspersed with the salty tongue used by one Marine to another.
Becoming Friends: Worship, Justice, and the Practice of Christian Friendship	Wadell, Paul	•••	You’ve Got a Friend. Gifted teacher Wadell has been writing about friendship since his doctoral dissertation. Latest offering is animated, engaging, and expands our understanding of what it is to be and to have a friend.

ã 2003 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). Web version subscriptions are $30.00 per year. Single issues: $10.00 print; $5.00 web. To subscribe, sign up at www.hopkinsandcompany.com/subscribe.html, send an e-mail to executivetimes@hopkinsandcompany.com, 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 reprints@hopkinsandcompany.com. 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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