Executive Times
Volume 1, Issue 6 September, 1999

Whom do you trust?

Executives are accountable for all conditions under their purview, whether they are personally involved or not in particular activities or events. The best executives ask lots of questions and work diligently to oversee all areas of their operations. Even with focused attention, things can go wrong. Executives place their trust in others, and create a management and control system that helps them see whether or not their trust is well placed. Here are some recent stories about a loss of trust that some executives have faced.

Where was Snoopy during all this?

MetLife
announced in mid-August an ending of class action litigation that's been going on for over four years. They reached a settlement agreement relating to sales practices between 1982 and 1997 that may have misled 7 million policyholders and which will cost MetLife $1.7 billion to settle. (From MetLife press release, August 18, 1999). The Wall Street Journal (August 19) reported that plaintiffs argued that MetLife agents sold financial products either by misrepresenting life insurance as an investment, churning policyholders out of valuable old policies, or misleading customers that cash values would rise fast to pay premiums. The settlement paves the way for MetLife to put this issue behind them and become a publicly traded company.

What are your salespeople actually selling? Do you know what representations your salespeople make to your customers every day? Do your sales incentives encourage salespeople to lead customers in a direction that an observer might conclude isn't in the customer's best interest? Do your customers trust your salespeople? Do you trust your salespeople?

All fall down

The search for blame has replaced the search for survivors following the devastating earthquake in Turkey in mid-August. Politicians are blamed for failing to act quickly and effectively. Builders are being blamed for using low quality materials including cement with too much sand and steel rods thinner than specifications. Government employees are being blamed for not monitoring construction standards. We can expect that after the shock of the disaster wears off, there will be systemic changes in Turkey. Stay tuned.

What kind of disaster makes you and your organization vulnerable? Are the individuals you hold responsible for quality taking appropriate steps to assure you of the scope of your risk? If you are involved in a system that has gaps in effectiveness, what should you do to close those gaps? Do you take pride in your work? Do the people who work with you take pride in their work? On whom do you rely? Is your confidence well placed?

Do you know me?

The Bank of New York's
history began in 1784 with its formation by Alexander Hamilton. Last month marked a special milestone: their first FBI raid. It seems that the bank may have been the site of money laundering for some time by Russian organized crime. Chairman and CEO Thomas Renyi mustn't be pleased with the negative coverage by major media around the world. It seems that the bank has taken all the appropriate steps in handling this situation, from suspending two employees quickly, and firing one of those within two weeks, to close cooperation with federal authorities. The bank actively pursued relationships with Russia's largest banks, and now faces questions from federal investigators about those relationships. One of the Russian banks went bankrupt and another is suspected of looting Russian government funds. The Bank of New York has not been accused of wrongdoing, and no customer or bank funds have been lost. What has been damaged is the reputation of the oldest bank in America. Investigations are underway in both the U.S. and Russia. The current session of the U.S. Congress considered legislation requiring banks to take certain actions when they observed unusual patterns in customer bank accounts. That legislation went nowhere over privacy and administrative cost concerns. We expect the issue to remain alive.

How aggressively do you pursue lucrative business relationships? How well do you monitor the propriety of relationships? What controls do you have in place to monitor unusual levels of business activity? How well do you know your most important business partners? Are they trustworthy? Do you extend the appropriate amount of trust?

Way outside the Loop

Executive Times
was taken aback when we viewed a Chicago Transit Authority billboard from a Chicago expressway in August. The text read "You can still use taxis ... on your expense report." While we acknowledge that the purpose of good advertising is to get your attention, and this ad was successful in that regard, we're amazed at the content. Does the CTA want to stand for supporting lying and cheating? Or, do so many employees cheat on expense reports that this ad is acceptable?

Can you make a joke about matters of integrity? Even if "everybody" pads expense reports, can you, as an executive, condone that behavior? At what level does fraud become serious enough for your involvement and action? What behavior do you reinforce by the environment you create? Who makes decisions at your company about how ad agencies and others portray your organization?

Playing with fire

Attorney General Janet Reno
is angry. In late August, the FBI acknowledged that "a very limited number" of potentially incendiary pyrotechnic devices were used in the Waco raid on April 19, 1993. Reno trusted subordinates who assured her before and after the raid that no such devices were used. Reno made it clear that she was misled by the FBI and will launch an investigation to get to the truth. She's not alone. Members of Congress have already talked about opening hearings on this matter. There was a 3,000-page report completed from a 1993 investigation that vindicated the government from the deadly fire that destroyed the Branch Davidian complex. All those issues are now re-opened, and we can expect to hear plenty from anti-government groups who have raised questions about the FBI and Waco from the very beginning.

When have you asked enough questions? How thorough does an audit or investigation need to be? Who do you count on to provide you with accurate and timely information? Are you sure that you. re getting the truth? What impact does the action of others have on your reputation?

Good bye now

Faster changes at the top

Executive Times has observed that top executives seem to have less time than ever to produce results. Either that, or great managers are concluding that if they can't see results fast enough, they'll change companies. Here are just a few of the recent changes at the top of companies:

  • SGI CEO Richard Belluzzo surprised the market when he announced in late August that after about 18 months trying to turn around Silicon Graphics, he's moving to head the Internet business at Microsoft. Previously, he spent 24 years at Hewlett-Packard, rising to number two.
  • The Wall Street Journal reported on August 16 that Waste Management's board fired number two executive Rodney Proto "in the wake of earnings disappointments, a simmering accounting scandal and the sale by Mr. Proto and other insiders of big blocks of company stock." Proto has been number two since the July 1998 merger with USA Waste Systems. Proto's May stock sales were at levels about twice the current market price.
  • Iomega, the maker of Zip drives, announced in late August that CEO Jodie Glore resigned after ten months in that job.
  • Toys "R" Us CEO Robert Nakasone resigned at the end of August, the third high-level executive to leave the company this year, according to The Wall Street Journal (August 27). Nakasone had been CEO for 18 months.
  • After a whirlwind three years leading ABC Entertainment, Jamie Tarses announced her resignation at the end of August. The New York Times (August 27) quoted Tarses: "I definitely never want to be an executive again."
  • Boris Yeltsin is the overall winner in this fast change category, with his August appointment of yet another Russian prime minister, the fifth in eighteen months.
How will you know when it's time for you to move on? Will you be told by others, or will you initiate a change yourself? Are you engaged in carrying out actions that will produce results only in the distant future? Is that appropriate and realistic, given today's focus on faster results?

Snap, crackle, pop

Kellogg
announced in mid-August the closing of most of its Battle Creek, Michigan cereal plant. Fewer people are eating cereal for breakfast, and those who are enjoy the lower prices of store brands, hurting earnings at Kellogg. This closing is part of overall efforts to reduce costs and increase efficiency. Maybe Battle Creek will have to stop calling itself "Cereal City."

Are you hanging on to an asset for nostalgic value? Can you afford to do that? How do you go about marking your assets to market and to the cost structure of competitors? When your customers change behavior, how quickly can you adjust your business?

Strange, but true

"You've got mail"

"You've been fired." According to ZD Net News (August 12), just before Commercial Financial Services in Oklahoma declared bankruptcy earlier this summer, they sent a corporate wide e-mail informing over a thousand people at once that they would be out of work. Executives are caught between using a tool like e-mail to ensure that important messages reach all employees at the same time, and the impersonal and cold delivery of messages that employees feel should be delivered in person.

How do you choose which method you use to deliver messages? When items are in development for long periods of time, and certain people know about changes before others, how do you contain the delivery of messages? How do you get feedback about the methods you chose for delivering your messages?

Devolution

The Kansas Board of Education made the news everywhere when they announced on August 11 that the state. s science standards would change to play down evolution. On August 27, The Kansas City Star listed fallout on many fronts, including: condemnation from the National Academy of Sciences and the American Chemical Society; ACLU letters to 304 school districts calling attention to U.S. Supreme Court decisions that outlawed teaching biblical creationism in science classes; and proposals for state legislation to require the study of evolution. Cartoonists have perfected their ape drawings, and the media have made Kansas look foolish.

What do you do when you lose control over a message? How well do you anticipate the likely reactions to your messages? What approach do you take when it comes to damage control? How important is your personal and corporate reputation, and what actions do you take to preserve and protect that reputation?

Segmenting people with legs

Wide bodies, too

"Now boarding passengers with legs between 36 and 45 inches." We may start hearing that announcement at airports now that United Airlines has reconfigured selected seats with an additional five inches of legroom. While price remains the most important concern of flyers, comfort rates pretty high, and all airlines receive complaints about tight quarters in coach. The seating section is called Economy Plus, and is targeted to frequent flyers (as a perk for Mileage Plus members). We can expect a price premium to appear on these seats before long.

What methods do you use to uncover differences among your customers? How do you decide what improvements to make to your products or services?

A magic wand

Mobil
found a way to capitalize on price-insensitive customers and help make them more likely to gas up at a Mobil station. It wasn't until we read the current McKinsey Quarterly that we understood somewhat clearly why Mobil is offering free speedpasses to customers. In an informative article titled "A Segmentation You Can Act On," we read that Mobil discovered through a survey that only 20% of their customers were price shoppers. In the McKinsey story, Mobil was able to raise price by two cents a gallon, and reap an extra $118 million a year. The speedpass allows a consumer to spend less time at the gas pump and may also steer consumers toward brand loyalty to Mobil. Stay tuned to see what changes come, if any, as a result of Mobil's merger with Exxon.

How Important is customer loyalty to your business? What steps are you taking to increase loyalty? What obstacles do you create to customer loyalty?

Follow Up

On target or missing the mark?

Comments from readers have led Executive Times to add a new section, which will appear in some issues, as a follow up to topics raised in prior issues, including updates on company stories, and items overlooked in the initial stories.

  • One reader reminded Executive Times that the Bill Gates book we recommended in our April 1999 issue has its own web site. Go ahead and visit www.speed-of-thought.com.
  • Within two days after releasing the August 1999 issue that called attention to the unique structure at the top of Citigroup, Sandy Weill and John Reed decided to take a step toward a more traditional distribution of power and roles. While remaining co-CEOs they no longer attend all meetings together and don't read all the same memos.
  • The stock price of Bank One dropped 23% in one day in late August when they forecast an 8% drop in earnings relating to their credit card business. The July Executive Times called attention to their internet strategy, which the Wall Street Journal labeled "a gamble" in their August 25 issue, and estimated the cost at $150 million.
  • Herb Allison resigned from his number two position at Merrill Lynch, as did chief investment strategy officer Charles Clough. Executive Times raised questions in the April and July 1999 issues about Merrill strategy and changes. Maybe instead of the rumored Chase-Merrill merger, we'll see a Merrill-Bank One consolidation.
Legacies

Building our future

In the middle of August, Philip Klutznick died in Chicago at age 93. During World War II, Klutznick was in charge of building housing for defense workers, quickly. One "instant city" he built was Oak Ridge, Tennessee, and caused Klutznick to comment to the Chicago Tribune "I don't know if the atomic bomb could have been built if it weren. t for the expandable trailer." After the war, with a partner, he built the first planned community, Park Forest, Illinois. If you've been in one of those Chicago skyscrapers with offices, shops and residences, you. ve seen the mark of Philip Klutznick who also pioneered "vertical development." Klutznick served as Secretary of Commerce at the end of the Carter administration. He was a generous philanthropist, giving both money and time to many causes. He was President of B'nai B'rith in the late 1950s, and funded a museum at their Washington headquarters. He helped build our future, and will be missed.

Reading

Survey says

The Gallup Organization interviewed a million employees and over 80,000 managers in over 400 companies as part of their twenty-five year effort to identify the characteristics of great managers. Marcus Buckingham and Curt Coffman are the co-authors of a book that digests the data and presents practical ideas for managers: First, Break All the Rules. The title is a catchy way to get our attention: great managers don't necessarily follow conventional wisdom. The Gallup research came up with twelve questions that measure the strength of a workplace. These questions measure the core elements needed to attract, focus and keep the most talented employees:
  1. Do I know what is expected of me at work?
  2. Do I have the materials and equipment I need to do my work right?
  3. At work, do I have the opportunity to do what I do best every day?
  4. In the last seven days, have I received recognition or praise for good work?
  5. Does my supervisor, or someone at work, seem to care about me as a person?
  6. Is there someone at work who encourages my development?
  7. At work, do my opinions seem to count?
  8. Does the mission/purpose of my company make me feel like my work is important?
  9. Are my co-workers committed to doing quality work?
  10. Do I have a best friend at work?
  11. In the last six months, have I talked with someone about my progress?
  12. At work, have I had opportunities to learn and grow?
The authors delve into the manager's job of selecting for talent; defining the right outcomes; focusing on strengths; and finding the right fit. The authors help describe a way of thinking by showing you how great managers do their job. Buy this book and pick and choose some approaches used by great managers that fit your individual style.

There will always be an England

You don't have to be British to enjoy Julian Barnes' England, England, but it helps if you enjoy satire. This novel describes the building of replicas of tourist sites from England on the Isle of Wight so that everything can be seen during a short vacation. Eventually, this island replica becomes a financial success and the original England falls into economic decline. Barnes develops great characters and carries off the depths of illusion and reality with aplomb.

Cut this class

Executive Times considered a "back to school" theme for the September issue. After reading J.P. Donleavy's latest book, we decided we'd take a pass. Wrong Information Is Being Given Out at Princeton tells an unusual story about unappealing characters in New York City just after World War II. Since we enjoyed Donleavy's Ginger Man so long ago, we thought this would be fun end-of-summer reading. We were wrong. Take a pass.


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