Executive Times

Volume 6, Issue 11

November, 2004

 

ă 2004 Hopkins and Company, LLC

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Decisive

This issue of Executive Times heads to press just days before the completion of two decisive events: the U.S. Presidential Election and the World Series. Analysts say the presidential race is too close to call and the Red Sox are ahead in the Series, so we’re prepared for every possible outcome. Some executives and companies are also prepared for an array of outcomes, while others seem to be overtaken by events. In this issue, we’ll examine how some executives are responding to the opportunities they’ve received in leading organizations, some of which involve second acts. We’ll also look at how particular decisions led to changes at the top of prominent companies. As you reflect on these stories, think about how you make decisions. Are you more likely to look to the past for what has worked before, or to the future for what may happen? When you consider taking on a new role, how do you decide whether you think you’re the right person for the job? Does candor come naturally in your communication, or does your spin to a message mislead others? Think about how you make decisions and what you can learn from the decisions of others.

 

Fifteen new books are rated in this issue, beginning on page 5. Nine books are recommended with three stars, three are mildly recommended with two stars, and three books received 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. Thirty-six new books were added to the “shelf of possibility” during October. If there’s something missing from the bookshelf that you think we should be considering, or if there’s a book lingering on the “shelf of possibility” that you think we should read and review, let us know at books@hopkinsandcompany.com.


Swamped
Marsh& McLennan Companies (MMC) may have experienced more changes in the past two weeks than since they started business in 1871. Following an October 14 announcement (http://www.oag.state.ny.us/press/2004/oct/oct14a_04.html)  by New York State Attorney General Eliot Spitzer of “widespread corruption” in the insurance industry, MMC on October 15 suspended (http://www.mmc.com/news/pressReleases_204.pdf) its market services agreements with insurance carriers under which the insurers paid MMC contingent commissions, and pledged to investigate. Here’s part of what Spitzer had to say: “The insurance industry needs to take a long, hard look at itself. If the practices identified in our suit are as widespread as they appear to be, then the industry's fundamental business model needs major corrective action and reform. There is simply no responsible argument for a system that rigs bids, stifles competition and cheats customers.” During the press conference following the civil action against MMC, Spitzer said, in part, that his office was “mislead by the very highest levels of that company,” and urged MMC directors to “think long and hard, very long and hard, about the leadership of your company. The leadership of that company is not a leadership I will talk to; it is not a leadership I will negotiate with.” MMC shares dropped in value by almost half in the days following the announcements. According to some reports, Spitzer viewed MMC as a repeat offender, given last year’s market timing scandal at MMC’s Putnam Investments unit, the first target of that business practice of favoring some customers over others. MMC CEO Jeffrey Greenberg resigned (http://www.mmc.com/news/pressReleases_209.pdf) and former Spitzer boss Michael G. Cherkasky was named new CEO. Spitzer decided not to pursue criminal charges against MMC, but will proceed with charges against specific individuals. According to The Wall Street Journal (10/26/04) (http://online.wsj.com/article/0,,SB109873458638254937,00.html), “For his part, Mr. Spitzer acknowledges that the two men are friends who have known each other for 19 years, but he is careful to point out that appointing Mr. Cherkasky won't earn Marsh special treatment. ‘He was my boss and someone whom I respect and trust,’ Mr. Spitzer said in an interview. ‘Having said that, I don't think anybody should think that because the CEO is someone I know, they're getting off the hook.’” Cherkasky has embarked on major reforms for MMC, and his past relationship with Spitzer may have given MMC time to change. There are at least two early lessons from these two weeks: a regulator who feels mislead wields enormous power and relationships built on trust can create time to implement changes.


Is there something about your fundamental business model that needs updating? Could your communication with someone who has power over you lead them to conclude that you mislead them? How do you ensure that your messages are candid and clear? Do you have some internal way of investigating your business units with an outside perspective? What have you done recently to improve your relationship with key stakeholders? 


Rescue
There are rare opportunities for executives, especially CEOs, to perform second acts, especially with the same company. To gain an appreciation for those challenges, be sure to read the October 18 story in Business Week (http://www.businessweek.com/magazine/content/04_42/b3904080_mz056.htm) about Jamie Houghton’s return to Corning. Houghton retired as Corning’s CEO in 1996, three years after a near-fatal auto accident. He launched a second career in the nonprofit world as chair of the Metropolitan Museum of Art and as a senior fellow of the Harvard Corporation. By early 2002, Corning was in trouble, and there was pressure to bring back a Houghton, since the family has been involved in the company for 150 years. Reluctantly, Jamie Houghton agreed to become CEO again. He took two quick and decisive actions, one more obvious than the other. To reduce infighting and increase teamwork, he reinstituted a seven person management committee that makes the vast majority of corporate decisions as a team. Second, he placed two executives who helped get Corning into trouble into key executive roles. According to Business Week, “With Corning in such dire straits, recruiting stellar outsiders would have been difficult, if not impossible. He also knew that in a company dominated by lifers, ax-wielding outsiders would have quickly alienated the workforce and caused some of his best people to leave. So rather than fire Weeks, who had been in charge of Corning's entire optical-communications business, Houghton promoted him to president. ‘I need you to lead us out of this dilemma that you helped lead us into,’ he told the stunned executive. Similarly, he vaulted James B. Flaws, the CFO who had helped negotiate and arrange financing for billions of now nearly worthless photonics deals, to vice-chairman.” Stay tuned to observe two things: how Corning does under Jamie Houghton’s leadership this time around, and how he makes a transition to a successor.

 

What are you doing to prepare others to perform your role? Would you be willing to return to a prior employer to clean up someone else’s mess? Is it likely that your CEO or your Board would ask you to hang around and fix the problems you’ve created? If asked, would you accept? How likely is it that in response to serious problems created by someone who reports to you that you would put that same person in charge of fixing the problems? 


Roots
Sometimes corporate growth can distract an organization from those qualities that generated past success. We read in The Wall Street Journal (10/6) (http://online.wsj.com/article/0,,SB109700336539536822,00.html) about a set of decisive actions taken by Charles Schwab within weeks after taking back the reins as CEO of his eponymous company. He cut trading and eliminated other fees for valued clients, committed to improving service, and will increase advertising. He’s also committed to staying engaged. According to the Journal, Schwab said, “This company requires all my attention. … It's unlikely that I will give up the CEO title as far as I can see. … Schwab has lost a little bit of its connection with its client base.” He regretted that he gave up the CEO role in 2003. We’ll watch to see if the latest decisions help improve the company’s results.

 

How regularly do you examine the foundations of your business? Has your organization “lost a little bit of its connection with its client base?” What can you do to recommit to your business fundamentals and to those qualities that have generated success for your organization?

 

Spinning
Most readers of the business press have tired of the stories about Oracle and PeopleSoft since the former filed an unsolicited tender offer for the latter in July 2003. Dulled observers have noted extensions and spin. Attention perked up at the beginning of October when PeopleSoft announced (http://www.peoplesoft.com/corp/en/news_events/news/database/press_release.jsp?doc=31431FCC5A9909E888256F20003C94FB) that it terminated CEO Craig Conway because the Board lost confidence in his ability to lead the organization. Thanks to Gretchen Morgenson of The New York Times (10/10) (http://www.nytimes.com/2004/10/10/business/yourmoney/10watch.html), we learned something about timing and reasons. Conway was fired the Friday before the company appeared in Delaware chancery court on whether it acted properly in rejecting Oracle’s offer. According to the Times, a director “testified that one of the reasons Mr. Conway got the boot was that he made a misstatement to analysts at a meeting on Sept. 4, 2003. … The questioner wanted to know if customers were holding off buying PeopleSoft software out of fear that the goods would become obsolete if Oracle eventually won the battle. … Playing down the bid's effects, Mr. Conway said: ‘I think people have lost interest in it. The last remaining customers whose business decisions were being delayed have actually completed their sales and completed their orders.’ In other words, not a disruptive factor, in Mr. Conway's view.” But it was, and in response to Conway’s mistake, the company amended his comments in an obscure SEC filing to: “Oracle's tactics have created concern among many users, and that's a problem for us. Fortunately we've been able to overcome much of it and we expect that we will continue to be able to do so.” Analysts heard him, but didn’t note the revision. Spin gone bad.

 

How do you go about admitting your mistakes? In your efforts to be persuasive, can you sometimes over-spin? On whom do you rely to keep your facts accurate?

 


Follow-up

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

 

Ř      In the October 2003 issue of Executive Times we called attention to Richard Grasso’s firing at the NYSE and his pay package debacle. The October 18 Fortune cover story, “The Fall of the House of Grasso,” written by Peter Elkind, presents a comprehensive review of what happened (http://www.fortune.com/fortune/subs/article/0,15114,709086,00.html). We highly recommend this article, especially for the way it traces the roots of the situation to decisions made years ago. (Readers should note that NYSE comp committee chair Ken Langone wrote a letter to Fortune saying that he had expected his salty language to be edited prior to publication. It wasn’t and he didn’t want readers to think less of him for that reason. So noted. Here’s part of what Langone said: “… my aim was for a candid, open discourse. I have nothing to hide and I won’t compromise on honesty. I am also a direct man and I used coarse adjectives, adverbs, and metaphors that, seeing them in print, I regret.”)

Ř      We led off the April 2004 issue of Executive Times with a rating of Donald Trump as version 1.0 of an executive, not a role model. We were pleased to read in The Boston Globe (October 3) that many others agree that Trump’s methods lead to problems. “In organizations with Trump-like behavior, people are running scared. Fearful employees weaken companies.”

Legacy

Shoulders of Giants
Some executives literally lead where none have gone before. The executives who follow can have an easier time because of the work of these giants who have gone before us. One such giant, Samuel L. Gravely, Jr., died in October at the age of 82. During his 38-year career in the United States Navy, Gravely racked up six firsts: the first African American to command a U.S. Navy warship; the first African American to command an American warship under combat conditions since the Civil War; the first African American to command a major naval warship; the first African- American admiral; the first African American to rise to the rank of vice admiral; and the first African American to command a U.S. fleet. His wife said, “His view was that he liked the Navy. He was happy just doing his job and doing it well. And as he was doing it, he strived to climb the ranks.” (The Washington Post, 10/24) (http://www.washingtonpost.com/wp-dyn/articles/A57642-2004Oct23.html). His own advice to all of us: “Success in life is the result of several factors. My formula is simply education plus motivation plus perseverance. Education is paramount. Motivation: one must decide what he wants to do in life, how best to get there and to proceed relentlessly towards that goal. Perseverance: The ability to steadfastly proceed to your goal despite all obstacles. It is the ability to overcome.” Aye, aye, sir.

 


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).

 

Title (Link to Review)

Author

Rating

Review Summary

Purchase

Wake Up, Sir!

Ames, Jonathan

Stupor. With a bow to P.G. Wodehouse, this novel gives us a heavy drinking protagonist and his butler, Jeeves, and some funny episodes. Rambling narrative and directionless plot.

Checkpoint

Baker, Nicholson

Chilling. Jay invites his friend, Ben, to a hotel room, sets up a videotape, and proceeds to explain that he plans to assassinate the President. Controversial, sparse and cold.

The Perfect Mile

Bascomb, Neal

Excitement. Roger Bannister, John Landy and Wes Santee vie to become the first to run the mile in under 4 minutes. Terrific presentation of competition and excitement.

Terror and Liberalism

Berman, Paul

Freedom. Bashes Chomsky and others while presenting the history of liberalism and a view of the current conflict between Islamism and the West as another totalitarian battle against freedom.

Red Tide

Ford, G.M.

Unexpected. Frank Corso returns in fourth mystery thriller, this time when he stumbles on a bio-terror mass murder in a Seattle bus tunnel. Unexpected plot twists and surprise motivation for the terrorist act.

The Jane Austen Book Club

Fowler, Karen Joy

Characters. Six book club members linked to the six Austen novels. Superb exposition of relationships and development of characters who will resonate for most readers.

The Economics of Innocent Fraud

Galbraith, John Kenneth

Appearances. Economist separates reality from appearances and illustrates the shift in power from the people (whether citizens, shareholders or customers) to corporate managers, and how that’s fraud.

The World's Most Powerful Leadership Principle

Hunter, James C.

Preachy. Hunter tries to persuade readers to embrace the servant model of leadership by using preachy persuasion rather than facts. Sounds good, but not convincing.

Life 2.0

Karlgaard, Rich

Drummers. Novice small plane pilot and Forbes publisher Karlgaard travels across America to introduce readers to people who live in locations that may seem unusual for many readers but create ways of living large for the subjects.

Double Play

Parker, Robert B.

Healing. Stoic WW II vet becomes bodyguard for Jackie Robinson in 1947 and finds healing and the restoration of his feelings from the experience. Finely written with pitch perfect dialogue. 

Big Russ and Me

Russert, Tim

Everyman. Upbeat memoir packed with positive stories of growing up in 1950s Buffalo, and the powerful lifelong lessons that a son received from a practical and unpretentious father.

War and the American Presidency

Schlesinger, Jr., Arthur M.

Surprises. “The study of history teaches us that the future is full of surprises.” Brief and cogent exploration of what’s consistent and what’s different between Iraq and prior American conflicts.

Obliviously On He Sails: The Bush Administration in Rhyme

Trillin, Calvin

Swamped. Too many poems at once for most readers, from this collection of deadline poet columns in The Nation. Fine writing from Trillin, but a lot to laugh at during a few sittings.

Oblivion: Stories

Wallace, David Foster

Wordy. Eight idiosyncratic and quirky stories that call for extra energy to read and understand. Some of the longest sentences ever constructed.

Democracy Matters

West, Cornel

Instructive. Professor provides insight into the challenges facing democracy in America. Free markets, imperialism, nihilism, religion, hip-hop are all covered as West turns a mirror on us.

 

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