Executive Times

Volume 3, Issue 8

August 2001


ã 2001 Hopkins and Company, LLC

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True to You in My Fashion

Most successful executives learn when to speak and when to be silent. The masters of spin can often coach executives to communicate in ways that seem to be open and direct, but often obscure facts and issues, or manipulate data in ways that lead listeners to preferred conclusions. Auditors are trained to ask the right questions, and managers are advised to answer only the questions asked by auditors, not to lead the auditor toward the questions that should be asked. Each executive decides what secrets to keep and what facts to disclose every time an opportunity to open a mouth occurs. Some executives use each message delivered as a chance to sell something, and can be perceived as way too smooth. Other executives deliver messages clogged with detail that can confuse or bore listeners. Few executives pride themselves on their skills at creative lying, but often celebrate getting out of tight spots through verbal acuity. For some executives, alternative versions of truth eventually emerge, and confidence in the executive and their organization wanes. As you read the pages that follow about the experiences and behavior of certain executives, think about your own approach to what you and others think of as truth. What makes you decide to speak out, and when do you remain silent? In your many roles, what do you do to discern the truth?


The Resume Gap

We admit to feeling a baffling amazement when we read reporter Floyd Norris’ disclosure in The New York Times (7/16/01) (http://www.nytimes.com/2001/07/16/business/16DUNL.html) that former Sunbeam CEO Al Dunlap had an important resume gap. According to records Norris obtained from the National Archives, Dunlap had been fired for accounting fraud at two companies more than twenty years ago, and erased those jobs from his resume. “No one who checked his background discovered the omissions.” Since Dunlap was fired by Sunbeam for accounting fraud, the behavior from twenty years ago was material and significant. Norris says, “Like virtually all major companies seeking a senior executive, Sunbeam relied on an executive search firm to find the best person for the job. Daniel Margolis, a spokesman for Korn/ Ferry International said his firm ‘conducted an exhaustive search that resulted in the Sunbeam board selecting Dunlap.’ When asked how the firm had missed the holes in Mr. Dunlap's employment history, he said, ‘It is our policy not to comment on our clients' business issues.’ Spin masters will applaud Margolis’ failure to answer the question, and we expect search firms to improve their diligence in examining employment history.


When you rely on others to examine the employment history of job applicants, do you check the quality of their work? When hiring, how do you approach conversations with former employers? How likely would you be to uncover a resume gap? Do you have one in your resume?


Whistle Blows to Announce Oncoming Train

Former Xerox assistant treasurer James Bingham prided himself on applying accounting principles in ways that helped improve the company’s results. According to The Wall Street Journal (6/28/01) (http://interactive.wsj.com/archive/retrieve.cgi?id=SB993674133642973302.djm), Bingham balked when he was pressed to go further than he thought appropriate in making the company’s performance look better than it really was. “He started badgering top Xerox executives about the aggressive accounting, which he believed was being used to hide larger problems. Late last summer he was fired. But rather than disappear, he went public and filed a lawsuit accusing Xerox of firing him for objecting to ‘accounting fraud.’ He also became a star witness in a Securities and Exchange Commission investigation of his former employer.” Based on the accounting restatements by Xerox, it seems that Bingham was right: creativity in accounting had gone too far. Instead of listening to Bingham, the company moved deeper into accounting madness. According to The New York Times (7/15/010 (http://www.nytimes.com/2001/07/15/business/15ETHI.html) Johnson & Johnson studied what went wrong after a whistleblower at the company’s LifeScan unit alerted the Justice Department to a product defect in a diabetes diagnostic device. J&J pleaded guilty and paid a $60 million fine. From the investigation, J&J CEO Ralph Larsen learned that executives at LifeScan (all of whom left the company voluntarily) “had a complicated device. They felt it was the best on the market. Their interpretation was that the problems weren't serious enough to have to report them. The sad thing is they were probably right, but they should have gone to the F.D.A. and told them they had a problem.” J&J is now using the case to reinforce its corporate credo, and has highlighted procedures where employees are encouraged to go to Larsen directly if they feel a defective product is going to market.


How well do you listen to things you don’t want to hear? How likely are you to listen to someone you feel is badgering you? Are dissenting voices listened to within your organization? How comfortable would any employee feel in talking to you about trouble in your organization? How vulnerable are you to someone blowing a whistle on you?


Safe Enough

Many executives decide what level of scientific evidence, or what extent of fact, is adequate to support a company’s actions. When it comes to product safety, many of those decisions involve weighing evidence and deciding what level of risk is acceptable. We read in The New York Times (7/9/01) (http://www.nytimes.com/2001/07/09/business/09GRAC.html) that W.R. Grace & Company promoted its Monokote fire proofing spray as asbestos-free, when a version of the product in the 1970s and 1980s contained low levels of asbestos. Grace claims that the level of contamination was insignificant and “says that it fully informed regulators of the contamination, and that the asbestos content always remained within legal limits.” Internal documents reviewed by The Times tell a different story. It was lobbying efforts by Grace that led to setting asbestos tolerances at levels that included Monokote. The company relied on this legality to call the product “asbestos free.” “The company was brought to the brink of disclosing the asbestos content of Monokote more than two decades ago, in 1977. With builders and architects hearing ever-louder rumors of ‘a tremolite problem,’ Grace officials met secretly at company offices in Cambridge, Mass. There, documents show, they weighed the risks and stayed the course. While silence increased the danger of being sued, they calculated, disclosure could have meant the end of Monokote. So, they decided, customers who inquired if Monokote contained asbestos were to be told that it did not.” Workers who installed the product used little protection, relying on claims of safety. Grace declared bankruptcy in April, resulting from the costs of litigation on products other than Monokote.


How do you reconcile the letter of the law with effective disclosure? If silence is to your benefit, but customers or others would benefit from your speaking out, what are you likely to do? When facts or scientific studies present conflicting evidence, what approach are you likely to take when it comes to product safety, or to disclosure? Is legality the only standard for your organization’s behavior?


Air Today, Gone Tomorrow

Round Trip the Next Day

Executives at United Airlines and US Airways are experiencing the kind of turbulence their customers face on many flights. Their on-again, off-again merger has been covered in all the business media. The deal looks less attractive today than a year ago from United’s perspective, and it tried to exit inexpensively. Facing litigation from US Airways, United reversed itself, and said it would move forward, giving the Justice Department until early August to stop the deal for anti-trust reasons, or allow it to go ahead. We wonder if United CEO James Goodwin’s cold feet and US Airways’ CEO Stephen Wolf’s pressure to move ahead came from reading the lengthy article in Business 2.0 (http://www.business2.com/ebusiness/2001/06/failure.htm) about mergers that failed to create value for shareholders but made some CEOs wealthy. Reporter Michael Craig addresses mergers and concludes, “Most of all this money changing hands is wasted. A KPMG study of 107 large mergers between 1996 and 1998 concluded that nearly a third of the deals produced no discernable difference in value, and 53 percent actually destroyed value. A KPMG update in 2001 showed that 30 percent of the 1997-1999 mergers studied created value, while nearly 40 percent produced no difference and 31 percent destroyed value.” Craig reports that CEOs didn’t get punished for this poor performance, and most were highly rewarded, especially displaced CEO’s.


How does your situation today differ from what you faced a year ago? Have you recognized good and poor performance, and rewarded or punished appropriately? How well have your plans for this year worked out? Has value increased to the extent you expected? What else can you do to improve the likelihood of superior results? What would you do differently today if given the chance? What hasn’t happened the way you wanted, and what can you to now to move ahead?


Good Citizens

Light Up for Your Country

We’ve gagged when we’ve watched those Philip Morris corporate image commercials showing all the good deeds performed by company employees. There’s only so much flak we can absorb in hearing messages about how much the people of the company do to improve the quality of life and carry out their civic citizenship with pride. So, it was with a smile when we received all the media coverage for the Philip Morris sponsored economic analysis by Arthur D. Little for the Czech Republic of the positive effects of smoking. Leading the list is the lower health costs thanks to the “early mortality” of smokers. According to The Wall Street Journal (7/16/01), “This is an economic-impact study, no more, no less,” said Robert Kaplan, a spokesman for Philip Morris's international tobacco unit in Rye Brook, N.Y. “We're not trying to suggest that there would be a benefit to society from the diseases related to smoking.”

How credible are the messages from your organization? How consistent are those messages with your corporate image?


Follow Up

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

Ø      The August 2000 issue of Executive Times reported that Bank One CEO Jamie Dimon studied operations of First Card and WingspanBank.com from April to August last year and decided not to sell or close the operations. We read in The Wall Street Journal  (6/29/01) (http://interactive.wsj.com/archive/retrieve.cgi?id=SB993742031496871086.djm) that the company has declared the costly WingspanBank.com a failure, and will fold it into its own site, bankone.com.

Ø      The September 1999 issue of Executive Times called attention to a $1.6 billion settlement by Metropolitan Life for deceptive sales practices, a settlement that was meant to put the issue behind the company. We read a page one feature in The Wall Street Journal (7/24/01) (http://interactive.wsj.com/archive/retrieve.cgi?id=SB995921450486615509.djm) that MetLife records show the company’s active use of racial profiling in its underwriting practices continued well past 1960, which it said last year was when it completed a phase out of the use of race in underwriting. It seems that not all major problems have been put to rest at MetLife.



Rising to the Occasion

Katharine Graham never expected to become a corporate executive. Born to a life of privilege, she found herself in charge of The Washington Post following her husband’s 1963 suicide. Her father, Eugene Meyer, bought the company out of bankruptcy in 1933, and while its fortunes had improved thirty years later, it was still a local paper. Not knowing what to do, she asked lots of questions of people who knew more than she. Under her executive leadership, the company achieved stupendous results, both in return on equity and share price growth. After he acquired 10% of the company, Kay invited Warren Buffett to join the board of directors, and it was from Buffet that she learned many financial lessons. Graham slowly grew the business, and expanded into other media, all the while protecting and growing investors’ capital. When it came to making decisions, Graham acted clearly and courageously, especially in publishing the Pentagon Papers and in supporting the Watergate investigation. Graham died in July, following a fall at a meeting in Idaho. According to one account of the eulogies at her funeral service, “Mrs. Graham was remembered not only for having altered the course of politics, journalism and women, but also for having done so with gracious modesty in a city often given to boast.” Executives who act with courage, acknowledge what they don’t know, and who act in the interest of shareholders can do well to follow the example of Kay Graham.



(Note: readers of the web version of Executive Times can click on the book covers or titles to order copies directly from amazon.com. When you order through these links, Hopkins & Company receives a small payment from amazon.com. Subscribers to the print version of Executive Times can receive the web version at no additional cost. Send e-mail to hopkinsandcompany@att.net with a request to be placed on the web version distribution list. Also, not all books we read make it to the pages of Executive Times. For expanded reviews of Executive Times selections and other books, visit our book review site at http://www.hopkinsandcompany.com/books/list.htm.)


McKinsey & Company colleagues Richard Foster and Sarah Kaplan study the data from the McKinsey Corporate Performance Database and utilize the 38 years of data therein to present a compelling case for leading corporate change in their new book, Creative Destruction: Why Companies That Are Built to Last Underperform the Market - And How to Successfully Transform Them. Here’s what to expect: “We believe that corporations must be redesigned from top to bottom based on the assumption of discontinuity. Management must stimulate the rate of creative destruction through the generation or acquisition of new forms and the elimination of marginal performers – without losing control of operations. If operations are healthy, the rate of creative destruction within the corporation will determine the continued long term competitiveness and performance of the company.” Foster and Kaplan propose escaping old ideas through divergent thinking. The destruction that flows from that thinking involves incremental, substantial and transformational change. Creative Destruction is replete with charts and company stories that help to describe and reinforce the messages from the authors. Executives who found lots of unanswered questions in books like In Search of Excellence or Built to Last, will find some of those answers in Creative Destruction. Like other good consultants, Foster and Kaplan describe how to carry out changes in the book for the price of $27.50, but the “how to” you need won’t be clear enough from these pages. McKinsey and others will be glad to provide more pricey aid. Nonetheless, this is a fine book, well worth reading, especially to stimulate thinking. Recommendation:
(Highly Recommended). To read an excerpt from this book, visit www.hopkinsandcompany.com/books/Creative Destruction.htm.

Only One Book
Meg Greenfield
may have written millions of words during her long career in journalism, but wrote just one book, Washington, published posthumously. Her wit, insight, and sharp intelligence shine through this fine book. Lacking the restraint of her opinion pieces and editorials, this book gives her the space to expand her views and allow the readers to understand the way Washington works, and the way insiders like Greenfield walk fine lines in their relationships. While this book represents a view of Washington in the last half of the 20th century, reading it also gives insight into Greenfield herself. We particularly enjoyed her comparison of life in Washington to life in high school. It goes on for many pages, and by the end, you see the wisdom and depth of that analogy. This is a special book, full of fine writing and insight. Enjoy reading it! Recommendation: (Highly Recommended). To read an excerpt from this book, visit www.hopkinsandcompany.com/books/Washington.htm.

Air Taxi
Which would you rather have: frequent flier miles, or travel time cut in half? In his new book, Free Flight: From Airline Hell to a New Age of Travel, James Fallows describes changes in general aviation that will make personal air transportation available in your community very soon. A combination of new aircraft design and the use of computer technology will change perceptions about the safety of small aircraft, and it’s likely that we’ll see alternatives to the major airline controlled hub and spoke systems. Free flight is “the FAA’s term for letting the computer in each plane find its own most direct route across the sky.” Thousands of small airports across the country are underutilized, while most stories we hear involve congestion at a half dozen huge airport hubs.  Fallows describes developments by two companies that offer the promise of alternatives. Cirrus Design in Duluth Minnesota, has brought to market the first new small aircraft design in many years. One feature of the plane involves a whole plane parachute, which can be used in emergencies to bring the plane to a soft landing. Eclipse Aviation in Albuquerque, New Mexico, is using the technology of small jet turbines used in cruise missiles to develop inexpensive small jet aircraft that could take you where you want to go when you want to go. Fallows recently acquired his pilot’s license, and part of this book is his personal story. We may look back on this book as prophetic of a major shift toward simpler, faster, cheaper, air transportation. Aircraft enthusiasts and “civilians” alike will enjoy reading this book, and anticipating with Fallows a new world of flying just around the corner. Recommendation:
(Recommended). To read an excerpt from this book, visit www.hopkinsandcompany.com/books/Free Flight.htm. 

Proving What?
If you enjoyed reading or viewing The Perfect Storm, you’ll probably enjoy G. Bruce Knecht’s account of the 1998 Sydney to Hobart race, The Proving Ground. This is a gripping story of death and disaster in a sailing race, told with suspense, drama and plenty of action. Larry Ellison, Oracle’s CEO, participated in the race in his 80 foot Sayonara, which also contained Rupert Murdock’s son, Lachlan. Knecht said, “Rupert Murdock was following the race as best he could. Late Sunday night, an editor on the night desk of the Daily Telegraph, News Corporation’s largest circulation newspaper in Sydney, picked up his phone and heard Rupert’s familiar voice at the other end. ‘Do you know where Sayonara is?’ ‘Last time they checked in, they were still out in front – but it’s the worst weather anyone can remember.’ ‘Good,’ Rupert chortled, somewhat missing the point. ‘It sounds like it’s character-building.’” It was almost character destroying for Lachlan and others. Six sailors died in the race. Forty-three of the 115 boats that started the race actually made it to Hobart. Five sank and seven others were abandoned. “More than twenty sailors were washed off their yachts, and fifty-five had to be pulled from the water by helicopters and rescue ships.” If you think of the gentlemanly sport of sailing as a way to relax, read this book for a different perspective. Recommendation: (Mildly Recommended). To read a sample from this book, visit www.hopkinsandcompany.com/books/The Proving Ground.htm.



A total of 25 book reviews were added during July 2001 at http://www.hopkinsandcompany.com/books/list.htm. Pick something to read from that list.




ã 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). 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 hopkinsandcompany@att.net, 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 hopkinsandcompany@att.net. 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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