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January 25, 2009

Why John Thain Needs A Mirror Check

Any CEO who conducts the business of his company on the basis of the greater fool theory - who ultimately defines his success as a leader by how much money he is able to get for his shareholders by selling their stock to a greater fool than they, themselves, have already been - is a poor leader indeed.  

When Thain took over as CEO of Merrill Lynch in January, 2008, he knew Merrill Lynch was experiencing severe financial difficulties (Merrill Lynch's 2007 operating loss was $7.7 billion).  Had Thain fully understood the characteristics of a long-lived company, then he wouldn't have spent $1 on decorating his office, much less the $1.22 million that the media is reporting he actually did spend.  He would have limited his salary and asked others to do the same rather than using taxpayer dollars to pay people performance bonuses they hadn't truly earned.

Thain needs to read "Lessons from the Big Boys #5 - Leverage it Up" and pay particular attention to the attributes of a long-lived company.  Then he needs to take a good hard look in the mirror and ask himself two questions:  Did he accomplish the objectives for which he was hired or did he simply find a greater fool in Ken Lewis?  If everyone else were to run their businesses the way he ran Merrill Lynch, how would that effect the financial health of our country?

Business leaders tend to judge themselves on the success of their "deals and steals" rather than on how well they run their companies on a daily basis.  But important games are never won by the  grand slam deals executed brilliantly every once in a while, but rather by the seemingly mundane operating singles hit all day, every day.       


January 20, 2009

Dear Mr. President

As you take office today, you will be pondering the problems of this country and what contribution you should be asking the American people to make to help you turn this country around.  FDR asked people not to fear, Kennedy asked people to ask what they could do for their country.  You have our ear - what should you ask?

Yes, we need volunteerism.  Yes, we need thrift.  Yes, we need to make an investment in our children's future.  But more than a new New Deal, we need a Fair Deal.  We need to feel once again the trust that comes from being treated fairly.  You have set an amazing example and have inspired a sense of hope in this country.  But if your example is going to find fertile ground and take root, you are also going to have to inspire us to begin behaving in ways that will help others think the best of us rather than the worst. 

For this reason, the single most important thing you can ask the American people to do is to work to recapture our ethics.   We need to be asked to think twice about taking a sick day when we aren't really sick.  Think twice about walking out the door with something that doesn't belong to us.  Think twice about making personal phone calls, pleasure surfing the internet at work or gossiping around the water cooler.  We need to be asked to do the one thing no one else can do for us - raise the bar on our own personal behavior.

CEOs and other highly compensated business and political leaders don't need to be taxed more heavily.  What they need is to be asked to "Go First".  They need to be asked to think twice about the message their compensation packages send to shareholders, employees, and the public in general and then asked to work hard to change their negative image.  They need to be asked to demonstrate that they "get it" by voluntarily setting limits on executive compensation and paying for their planes, cars, golf club memberships and vacation homes out of their own pockets instead of the company's or the public's.  They need to think twice before coming up with schemes to avoid paying for overtime and employee benefits.  They need to demonstrate a willingness to put the future needs of the company before their own.  

Big changes made by some of the people will never have as much impact as small changes made by all of the people.  And raising the bar on our own behavior is a contribution every single person in this country can make.  We only need to be asked to make it.                

January 09, 2009

Don't be Fooled by the December 2008 Jobs Report

People were expecting a worse jobs report today than they got.  Here are some reasons I'm hearing in the "real world" that are making the jobs picture a lot bleaker than we think:

1)  Recently unemployed people have been receiving severance packages that include a continuation of salary for a few months.  Unfortunately, these people won't be eligible to receive unemployment benefits until their salaries stop being paid.

2)  Unemployment figures don't include job losses to the self-employed/independent contractor sector, which has become a huge component in the labor force in recent years.  Many companies tend to hire independent contractors these days because they have found this to be a good way to avoid having to pay employment benefits for these workers.

3)  Employers are getting creative.  They are using the economy as an excuse to institute even more draconian labor measures - such as terminating their corporate matching for 401(k) contributions - in lieu of layoffs.  The employees are so glad they still have jobs that they aren't even that upset by this development.  (This does not bode well for the post-recession future in these companies as benefits, once gone, rarely appear again.)   

4)  People are underemployed.  If you quit, you can't collect unemployment.  For this reason, employers have found that they can lower their unemployment expenses by keeping employees on the payroll and giving undesirables the poorest earning shifts until the right number of workers get fed up and quit.  This trick is used most often in restaurants and retail stores where the minimum wage rate is only 25% of normal (or not applicable at all) and people can only survive if their tips/commissions are decent.

5)  Under-the-table (unreported) worker compensation is dying on the vine.  Unfortunately, this country has a lot of people out there who don't want the IRS to know they have a job in the first place, so they are hardly going to raise their hands when they lose the one they have that pays cash under the table.  Maids, yard people and other discetionary services have been particularly hard-hit recently.   

6)  The unemployment numbers don't include people who are no longer eligible for unemployment benefits and are assumed to have been rehired into the system.  However, the number of workers who were hired during November, 2008 was off 26%, and the number of job openings tumbled 30% so this means that people are going to remain unemployed far longer than then average length of unemployment compensation.       



The Detroit Automakers

I've decided to start my blog with a discussion of the Detroit Automakers because, frankly, I think the attitude they displayed in their first trip to Washington is a perfect example of the worst of what I'm talking about when I talk about CEO entitlement, arrogance, and ignorance.  Why entitlement?  Because two of these guys had the nerve to fly to Washington in their swanky private company planes and also refused to commit to work for peanuts if the government would agree to lend their companies billions to keep them out of bankruptcy. 

And as Alan Mullaly repeatedly sat their saying "I'm fine where I am", he showed both the extreme arrogance and the extreme ignorance of a modern CEO who has wholly missed the point.  And the point is this:  While Mulally himself may be just fine where he is, that doesn't alter the fact that Ford, it's employees, it's shareholders, it's lenders, it's customers and it's suppliers - virtually everyone outside of the executive group who is involved with that company - is not "fine".  Those folks are hurting.  And until CEOs and other executives start defining success as making decisions that focus solely on enhancing the long-term viability of the company and not solely on getting what they can get for themselves while the getting's still good, we can never hope to attain a self-actualized work environment.        

P.S. On March 13, 2009, Alan Mulally was granted 5 million options to acquire Ford stock.  The options for Mulally carry a strike price of $1.96. Mulally may exercise one-third of the options a year from now, two-thirds after two years and all of them by March 2012.  Meanwhile, the autoworkers unions are continuing to make additional concessions.  (See Lesson From the Big Boys #2 - Do As I Say, Not As I Do to learn more about the pitfalls of options.)   It will be interesting to see how long Alan Mulally stays at Ford, how much he makes while there, and whether the company ever become profitable under his direction.  Stay tuned!