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ã 2004
Hopkins and Company, LLC
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Risky and
Responsible Business
One pleasure of summer, Shakespeare in the Park, reminded us
that exposure to the arts reinforces experience: appearance and reality are
often reversed. In many of Shakespeare’s plays, people and things are not as
they appear to be. The same is true among executives. One key requirement for
executive success involves taking risks. In the current climate of “one
strike and you’re out,” it may seem that executives are being encouraged to
take less risk. Read on to see why that may not be the case. All executives
want to, and believe they do, act responsibly, and most will say their
actions are always ethical. Why, then, are reputations damaged by unethical
practices and why do executives find themselves misled by trusted employees?
We’ll try to offer a dose of reality about executive risk and responsibility
practices in this issue. As you read, think about your personal practices and
the degree to which you are anchored in reality, and what appearances can
distract you.
Fifteen new
books are rated in this issue, beginning on page 5. We’ve awarded our top
rating, five stars and “read at once,” to James Surowiecki’s
The
Wisdom of Crowds. In this era of reliance on smart experts, this book
offers a different perspective about where and how to get the best answers to
questions in many areas of work and life. Eleven books are recommended with
three stars, two with two stars, and one with one star. You can also visit
our complete 2004 bookshelf at http://www.hopkinsandcompany.com/2004books.html
and see the rating table explained as well as explore links to all 2004 book
reviews. You can also check this same bookshelf to see what other books we’re
reading or considering. Twenty six additional books were added to the “shelf
of possibility” during June. If there’s something missing from the bookshelf
that you think we should be considering, let us know at books@hopkinsandcompany.com.
Embrace Me
There seems to be an
emerging danger that with Sarbanes-Oxley compliance concerns, increased
litigation against companies, and Boards firing CEOs
for one misstep, risk taking will be avoided. While some executives may
choose to become risk averse, others will find ample opportunities to act.
Here’s what we read in The Manager’s Journal column of The Wall Street Journal (6/22) (http://online.wsj.com/article/0,,SB108785660103143430,00.html):
“Traditional risk management seeks to contain losses. But that's just
one-half of the growth equation. By embracing strategic risk, … risk-savvy
companies have raised their growth potential in addition to reducing their
economic volatility. That's important at a time when aggregate market growth
is sluggish. The biggest risk of all is not to take the right growth risks
for the business.” The rest of the article describes how some companies are
placing and hedging strategic bets. Right after setting down that article, we
read in the July 5 issue of Forbes
(http://www.forbes.com/business/forbes/2004/0705/048.html)
that Monsanto has decided not to
market bioengineered wheat because of pressure from global activists invoking
what author Cass Sunstein
calls “The Precautionary Principle.” “The Precautionary Principle demands
that all steps must be taken to avoid risks of harm if cause-and-effect
relationships are not established scientifically.” While we’re not keen on
bioengineered food, we’re also not keen on avoiding all risk. As Sunstein says, “The Precautionary Principle has a lot of
intuitive appeal. Sensible regulators should not require unambiguous proof of
harm. Inconclusive evidence can be enough. But the problem is that while
promising safety, it can be both dangerous and incoherent. Risks are on all
sides of social situations, and regulation itself creates risks. Because
risks are everywhere, the Precautionary Principle forbids action, inaction,
and everything in between. It is therefore paralyzing; it bans the very steps
that it mandates.” Sunstein makes the point that in
the attempt to achieve a state of “better safe than sorry,” we can become
both safe and sorry, a lousy misbalancing of risks and rewards. Executives
need to think through the risks to avoid and the risks to embrace, then take,
rather than avoid, action.
How effective is your method for
balancing risks and rewards? Has your focus on containing losses distracted
you from placing strategic growth bets? Have you adopted something like the
Precautionary Principle as an operating practice? What effect has that had on
your organization, and on your strategic positioning? Has your avoidance of
risk led you toward taking the biggest risk of all? Have you embraced risk
today?
Everyday Low Equality
You couldn’t miss the
media coverage of the largest sex discrimination class-action case ever,
against Wal-Mart, claiming a
consistent pattern across the country of unequal pay between men and women in
the same jobs. We’ll let that play out for a while before drawing any
conclusions. In the meantime, you may have missed the lessons from some of
the changes in practices Wal-Mart implemented over the past year, according
to the company’s press release (6/4) following its annual meeting (http://www.walmartstores.com/wmstore/wmstores/Mainnews.jsp?).
CEO Lee Scott announced diversity
goals, and “If we do not meet our individual diversity goals for the year,
our incentive compensation will be reduced as much as 7.5 percent. Beginning
next fiscal year, that penalty will increase to 15 percent.” A new corporate
compliance team “will oversee Wal-Mart's compliance in a number of areas,
including the company's obligations to associates in terms of pay, working
hours and time for breaks.” Also, a new pay structure and scale for hourly
workers will standardize practices, requiring consistent annual pay revisions
at a set number of cents per hour, for standard performers, and a slightly
higher number of cents per hour for a small percentage of above standard
performers. Wal-Mart wants to be perceived as a leader in employment
practices, and is digging out of a hole in how their past practices have been
perceived. Wise executives will want to pay close attention to these changes
in everyday practices and how they compare with those of your organization.
For another look at why the gap between pay for men and woman remains long
after organizations have made commitments for equality, read Aaron Bernstein’s commentary in the
6/14 issue of Business Week (http://www.businessweek.com/magazine/content/04_24/b3887065.htm).
How do you
interpret the statistics you review about your workforce? Do you look for
patterns of unintended discrimination? Are your employment practices
effective and appropriate? Can they stand up to scrutiny?
Master’s Voice
There are at least three generations of executives who have
tried to become effective through listening to the advice of management guru
Peter Drucker. Here’s a list from the 6/1 issue of The Wall Street Journal (http://online.wsj.com/article/0,,SB108605270355625419,00.html)
of the eight practices and one rule that he recommends all executives follow:
Ø
Ask “What
needs to be done?”
Ø
Ask “What is
right for the enterprise?”
Ø
Develop
action plans.
Ø
Take
responsibility for decisions.
Ø
Take
responsibility for communicating.
Ø
Focus on
opportunities, not problems.
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Make
meetings productive.
Ø
Think and
say “We.”
Ø
And one
practice he elevates to a “rule:” Listen first, speak last.
If you’re
looking for a roadmap toward executive success, these practices are a great
beginning.
Are the questions you ask
the most effective? Are your action plans producing desired outcomes? When
your messages are misunderstood, what do you do? When issues arise, do you
give direction before you’ve heard from others? How do others characterize
your meetings? How real is the responsibility you take? How do you apportion
time between solving problems and seeking opportunities? Does that balance of
time lead to better outcomes?
No Good Deed Goes Unpunished
When
we read Michael Lewis’ long
article in the magazine section of the June 6 issue of The New York Times (http://www.nytimes.com/2004/06/06/magazine/06ETHICS.html)
about corporate social responsibility, we thought of the quote attributed to Claire Booth Luce, “No good deed goes
unpunished.” Think about this reflection from Lewis: “Business executives
acting on behalf of shareholders are expected to behave in such a
self-interested fashion that even their good works -- philanthropy,
environmental sensitivity, greater-than-necessary concern for employees and
so on -- must generate profits. That's what they teach in business schools,
because that's the convention of the financial marketplace. Extreme
self-interest is what most investors demand from their corporations. But if
goodness for goodness' sake has no place in public corporations, is it any
wonder that the people who work for them exhibit less-than-ideal ethical
standards? For that matter, is it surprising, given their necessarily
relentless selfishness, that they occasionally
forget exactly for whom they are meant to act selfishly? The pressure applied
to people who run public corporations almost requires them to forget how to be
good” In the midst of this reality, executives from 400 global organizations
met at the United Nations in late
June to add a tenth principle to fight corruption to the nine existing
principles of the Global Compact, a voluntary set of core values to support
human rights, labor standards and the environment. (Visit http://www.unglobalcompact.org/Portal/Default.asp
for more information.) To whatever
extent involvement in the Global Compact is unprofitable, and we believe
Lewis and some business school professors, we can expect involvement to
cease. Stay tuned.
What core values direct the
activities of all employees of your organization? How does self-interest
influence your good works? Do you agree that investors want extreme self
interest practiced by the corporations in which they invest? To what degree
do you and others in your organization participate in collaborative efforts
like the Global Compact? Is your involvement profitable?
Follow-up
Here are
selected updates on stories covered in prior issues of Executive
Times:
Ø
Several
issues of Executive Times have referred
to the problems of Enron, but
we’ve neglected to focus much attention on Ken Lay, mostly because he’s been a bit reclusive. Readers who
want an update about Kenny Boy should read the results of Kurt Eichenwald’s
6 hour interview with Lay in The New
York Times (6/27) (http://www.nytimes.com/2004/06/27/business/27ENRO.final.html).
Among the highlights for those of us who concluded that Lay dumped stock
while telling others he was buying: “…a review of Mr. Lay's financial and
trading data shows that the facts are much murkier than is generally
believed, with the stock sales being forced by lenders as he took numerous
actions that are consistent with someone trying to minimize his sales.”
Ø
While
following up on Enron, we remembered that we last mentioned Sherron Watkins, author of a pointed e-mail
to Ken Lay, in the January 2003
issue of Executive Times. For
more about her post-Enron life, read The
New York Times magazine issue of 6/6 (http://www.nytimes.com/2004/06/06/magazine/06QUESTIONS.html).
Ø
In
the April
2003 issue of Executive Times
we told readers to rest easy because Sumner
Redstone and Mel Karmazin agreed to continue their dysfunctional
relationship at Viacom and were
positively sappy in their comments about each other. All bad things must come
to an end, though, and Viacom announced on 6/1 Karmazin’s
resignation (http://www.viacom.com/press.tin?ixPressRelease=80354155).
Legacy
Community Activist
One executive who
changed the perspective of a huge company about community involvement and
corporate social responsibility was James
Roche, who headed General Motors
as Chairman and CEO in the late 1960s and early 1970s. Roche nominated Rev. Leon Sullivan to the GM board, one
of the first African Americans to serve on the board of a major American
corporation. Roche formed a public policy committee that required the company
to look at its engagement with the community outside its facilities. Sullivan
pressed GM to leave South
Africa as a protest against apartheid. It
was Roche who publicly apologized to Ralph
Nader on discovering the company’s efforts to
discredit Nader’s accusations about the Corvair. After he reached GM’s mandatory retirement age,
he went on to work on community development projects, especially in the Detroit area. We read a
quote from Roche in the Detroit Free
Press (6/7) (http://www.freep.com/news/statewire/sw99076_20040607.htm),
“‘Anybody who achieves a top position in an organization owes a debt of some
kind,’ he told the St. Petersburg Times in 1987. ‘If you have a talent and
you have your health, you should help others.’” Roche spent his work life and
his retirement helping others. We guess that if he reflected on Michael
Lewis’ article referenced on page 3, he might have said, “Hogwash.” At the
least, his leadership concluded it was in the best interests of GM to be a
good corporate citizen. He died in Florida
in early June at age 97.
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 2004 bookshelf at http://www.hopkinsandcompany.com/2004books.html).
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Title (Link to
Review)
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Author
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Rating
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Review Summary
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Purchase
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The
Fall of the Berlin Wall
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Buckley,
Jr., William F.
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•••
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Yield. Readable story of
how the Wall came and went. Part of the Turning Points series. Energetic
writing style, cogent observations, and thoughtful insights.
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So Many
Enemies, So Little Time: An American Woman in All the Wrong Places
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Burkett,
Elinor
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•••
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Polo. A
modern Marco Polo describes experience teaching journalism in Kyrgyzstan, and
visiting surrounding countries. Colorful story telling and descriptive language
help readers better understand that part of the world.
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The
Rule of Four
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Caldwell,
Ian and Dustin Thomason
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•••
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Riddles. Readers looking
for more ancient code books, a la The
Da Vinci Code, will find many memorable
moments in this debut novel by lifelong friends.
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The Enemy
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Child,
Lee
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Bad Apples. Jack Reacher’s Army days are reprised in this novel, set after
the fall of the Berlin Wall. A few Army bad apples do serious damage, and Reacher struggles to solve murder cases.
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Warren
G. Harding
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Dean,
John W.
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•••
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Gamaliel. Nixon White House counsel writes
volume in American Presidents’ series on the man often rated as the worst. Dean
describes someone who worked himself to death, and who was deceived by
appointees.
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A
Message from Garcia: Yes, You Can Succeed
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Garcia,
Charles Patrick
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•••
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Initiative. Readers who
want to be told how to succeed by self-confident author will find the answers
here. Typical nostrums from motivational genre.
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The
Crisis of Islam: Holy War and Unholy Terror
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Lewis,
Bernard
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•••
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Primer. Scholar distills
lifetime of observation and study into a primer that answers novices’
questions about Islam and provides an historical context for today’s events
and activities.
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Shackleton’s Way: Leadership Lessons From the Great Antartic Explorer
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Morrell,
Margot and Stephanie Capparell
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•••
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Engaged. Stories from the
life of Sir Ernest Shackleton, synthesis of
lessons learned, and modern examples of executives who have followed his
example of involved and engaged leadership.
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Truth
and Beauty: A Friendship
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Patchett, Ann
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•••
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Intertwined. Poignant and
sad memoir of the friendship, love and devotion between two women leading
intertwined lives from college to one’s death.
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Dark Tide:
The Great Boston Molasses Flood of 1919
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Puleo, Stephen
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•••
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Corners Cut. Captivating
tale of ruptured tank of molasses that caused death and mayhem in a Boston neighborhood.
Lessons for today’s managers throughout, especially from transcripts of
court testimony by company officials.
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Dress
Your Family in Corduroy and Denim
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Sedaris,
David
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•••
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To Wit. 22 well-written,
usually hilarious essays of family life, coming of age, relationships, and life’s many ups and downs.
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The
Wisdom of Crowds
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Surowiecki, James
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•••••
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Collective. Groups are smarter
than the smartest person in them, and wise groups are made by fostering
diversity of opinion, independence, decentralization and aggregation. Top
rating for good writing, facts and examples, thoughtfulness, and broad
opportunity for implementing ideas.
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Venus
As a Boy
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Sutherland,
Luke
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Cupid. Popular U.K. writer
published for first time in U.S. Strange tale of Orkney youth full of sex,
drugs and alienation, bringing love to others. Some fine writing, mostly
quirky.
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Eats,
Shoots & Leaves: The Zero Tolerance Approach to Punctuation
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Truss,
Lynne
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•••
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Punchy. Punctuation
sticklers unite! Read, but stop telling us about our own errors. Funny and
practical. Read and give to someone who needs help.
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Reckless
Abandon
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Woods, Stuart
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Serial. Author brings
together characters from Stone Barrington and Holly Barker series to solve
serial murders. Not his best work, but entertaining light reading, like a
summer rerun.
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