Volume 7, Issue 11
ã 2005 Hopkins and Company, LLC
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Executives rely on others to get the work of the organization done. The larger the organization and the more locations in which it operates, the more important the job of the executive is in articulating the values, culture and methods the organization will use or will avoid in carrying out its mission. The more complicated the business, the greater the reliance on experts to assist in understanding risks and in making effective decisions. Under pressure to reduce costs, many organizations have outsourced or subcontracted work activities to other entities. In this issue, we explore some recent stories of ways in which executives have been challenged by the activities of the expert advisors, the subcontractors and the outsourcers. As you reflect on how other executives are dealing with their situations, think about how you can learn from them in improving your executive performance.
Fifteen new books are rated in this issue, beginning on page 5. Five books are recommended with three stars; nine are mildly recommended with two-star ratings, and one book (reviewed highly elsewhere) eked out a single star rating. Our next issue will recap our best and worst books of 2005. Visit our 2005 bookshelf at http://www.hopkinsandcompany.com/2005books.html and see the rating table explained as well as explore links to all books we’re reading or considering this year. 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 by sending a message to email@example.com.
While most executives clearly consider their obligations to employees among the critical factors to consider in carrying out corporate strategies, executives at struggling companies are looking for creative ways to recast the relationship between employer and employee. We read in The Wall Street Journal (10/26) (http://online.wsj.com/article/SB113029189328179595.html) that Northwest Airlines, in addition to its well-publicized fights with the mechanics’ union, has petitioned the bankruptcy court to outsource pilot, flight attendant and ground worker jobs. According to the Journal, “It's another sign that Northwest, which filed for bankruptcy-court protection last month, wants to become a ‘virtual airline,’ with all sorts of jobs previously claimed by organized labor outsourced to cheaper workers, some overseas.” It’s almost impossible to avoid flying on an airline that’s not in bankruptcy, but we’re at a loss in anticipating what a virtual airline will be like, especially one committed to finding the lowest cost workers for every job. If “virtual” is the opposite of “real,” this strategy may turn out to be unreal. We’ve been amused on flights when an attendant or pilot forgets what the destination city is. We can anticipate announcements that end with, “Thank you for flying … what airline is this?”
How critical is the relationship between your organization and its employees? Have you drawn distinctions between those roles that can be outsourced and those that are critical to be performed by workers who feel that they are in a relationship with your organization? Can you anticipate the reaction of your customers to the use of the lowest cost workers for different roles?
There may be
no harder activity in the world today than finding civilian workers to come
Are you vulnerable to the behavior of subcontractors, brokers and other intermediaries? How clearly have you communicated the laws, rules, values, ethics and behaviors that these intermediaries must follow on your behalf? How are you sure that your expectations are being met? When your reputation is damaged by others, will the cost of repair be more or less than the cost you saved by using lower cost intermediaries?
Some executives are adept at pushing relentlessly until they get their questions answered. Others are satisfied when they receive the counsel of experts, especially when it comes to detailed due diligence. While the fiasco and probable fraud at Refco continues to unfold daily, it appears that some savvy and smart people overlooked some clever accounting, and at least one hero sniffed on the right trail and discovered trouble. According to The New York Times (10/14) (http://www.nytimes.com/2005/10/24/business/24fund.html), “Peter F. James had been working at Refco less than two months when he noticed something this summer that teams of accountants had apparently missed for years. Mr. James, a recently hired employee in the controller's office, wondered why a larger-than-normal interest payment had been made to Refco on an outstanding loan made by the company. In August he started to ask questions, eventually taking his concerns to the chief financial officer, Gerald M. Sherer. The answers would lead to the departure of the chief executive and the rapid unraveling of the company that prompted its filing for bankruptcy protection last week. ‘He's the hero in discovering this,’ a person close to the investigation said of Mr. James. ‘He just kept pushing.’” James accomplished more than the $10 million worth of diligence Thomas H. Lee Partners paid for when they acquired a majority stake in Refco in 2004.
How relentless are you in getting your questions answered? How do you go about checking the work of the due diligence and other experts you rely on for answering critical questions? How do you bring a fresh perspective that might lead to insights that are overlooking currently?
Injected into a flattering profile of Merrill Lynch Vice Chairman Bobby McCann in The New York Times (10/23) (http://www.nytimes.com/2005/10/23/business/yourmoney/23merrill.html) is a great example of executive leadership in communicating with employees. According to the Times, “In July, when an arbitration panel ruled that Merrill Lynch had to reinstate E. Hydie Sumner, a former employee who had successfully sued the firm for sexual discrimination, Mr. McCann drafted a letter to employees, which he rewrote many times. ‘While we have some questions regarding the legal foundations of the panel's ruling and are weighing our options, I want to be very clear: we have only ourselves to blame for this situation,’ he wrote in the final draft. ‘Ms. Sumner was subjected to conduct that was unacceptable and offensive. That is inexcusable. Management's response at the time failed to effectively punish those responsible.’ The language in the letter was far stronger than had been used by the firm, but he stands behind it. ‘If you are going to damage the reputation of this company, you must be held accountable,’ Mr. McCann said about the events. The obligation to ensure a safe workplace and to enforce codes of conduct seems alive under McCann at Merrill.
How well have you communicated the behaviors that are inexcusable at your organization? How do you hold individuals accountable for behavior?
We read in Fortune (http://www.fortune.com/fortune/articles/0,15114,1119285,00.html)
that BP’s CEO John Browne started to rebrand the
company as a friend of the earth in 1997 by pledging to reduce carbon-dioxide
emissions. “Ads drew attention away from its core oil and gas operations. One
read, ‘We believe in alternative energy, like solar power and cappuccino.’
BP's new slogan: Beyond Petroleum. The ads continue to feature a strongly
green theme, and BP's image makeover is a hit, regularly featured in B-school
case studies and corporate conferences. … The value in BP's rebranding, says Peter
Sealy, a professor at the
are you fulfilling your executive responsibilities to build trust and to
create favorable impressions of your organization? Does your image and that
of your organization put the wind at your back? Is the image backed up by
action? What else can you do to build trust?
Here are selected updates on stories covered in prior issues of Executive Times:
Ø We pondered in the January 2003 issue of Executive Times whether or not the Archdiocese of Boston’s former leader Cardinal Bernard Law would be indicted or incarcerated for his egregious behavior in condoning or covering up priests molesting and abusing children. That hasn’t happened, and comprehensive reports about similar executive cover-up behavior appears in the personnel files released for Los Angeles (www.la-clergycases.com), a comprehensive report about Philadelphia (http://ncronline.org/NCR_Online/archives2/2005d/100705/100705a.php), and news reports about Ireland (http://www.chicagotribune.com/news/nationworld/chi-0510260170oct26,1,3887270.story). Sooner or later, one of the bishops who enabled the perpetrators, persecuted the victims, and condoned or covered up crimes will end up in jail.
Ø We speculated in the February 2005 issue of Executive Times, about whether John Henry and his performance management measurements for the Boston Red Sox would mean the beginning of a dynasty following their 86 year gap between World Series wins. No streak began, as hometown team Chicago White Sox won their first World Series in 88 years. Readers who appreciate fine writing will enjoy an article by Julia Keller in the Chicago Tribune about the glory of this win (http://www.chicagotribune.com/sports/baseball/whitesox/chi-0510270173oct27,1,2537517.story).
prior issues of Executive Times have commented
on the woes at Ford Motor Company. Two recent articles provided
opposite views on whether or not CEO William Clay Ford, Jr. is a reluctant
CEO or not. While The New York Times reports (http://www.nytimes.com/2005/10/19/business/19ford.html)
that Ford is no longer reluctant to perform this role for the family, Fortune
that based on his overtures to executives at other car companies, there may
be a new leader coming soon.
An effective executive often creates a legacy at an organization as a result of setting a strategy that survives his or her tenure. Sometimes a strategy is right for the time, and is later reversed by those who follow because what worked yesterday may not work tomorrow. Edward R. Telling made more strategic changes as chairman and CEO of Sears, Roebuck and Company in forty days in 1981 than any of his predecessors or successors. Telling decided to leverage the contact Sears had with consumers and offer financial services products alongside retail goods, creating the expectation that people would buy their stocks where they bought their socks. Telling expected that the customers of Sears had rising incomes that would be a perfect fit to an array of financial services. The change also reduced the company’s dependence on retailing. The sweeping moves of acquiring Coldwell Banker and Dean Witter changed Sears overnight. Telling led Sears from 1978 until he retired in 1985. His successors decided to divest these acquisitions and focus more intently on retailing. Meanwhile, Wal-Mart may be working to put a Wal-Mart bank in each of its stores. Thanks to Telling’s vision and decisiveness, consumers have more financial services alternatives than ever before, and the financial services components of many companies are consistent drivers of earnings growth. In late October, Telling died at age 86.
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 2005 bookshelf at http://www.hopkinsandcompany.com/2005books.html).
2005 Hopkins and Company, LLC. Executive
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