01 February 2020

Where Was the Board?

"The first principle is that you must not fool yourself and you are the easiest person to fool."

--Richard Feynman, Nobel Prize in Physics (1965)

There were over 1,400 CEOs who left their jobs in the period January through November 2019 according to Challenger, Gray & Christmas.  Just days ago IBM announced Chief Executive Ginni Rometty was leaving.  IBM said she was "stepping down" after eight years in that position.        

A tally of board member departures is harder to find.  

It's safe to say there's more pressure on executive leadership than governance when it comes to performance.   In baseball, owners fire the managers and trade the players.  (Just ask the Houston Astros, Boston Red Sox, and New York Mets.)  

Who evaluates governance and its performance?  

Where boards are falling short

In a survey of 772 directors, "a mere 34% of those responding agreed that the board on which they served fully understood their companies' strategy.  Only 22% said their boards were completely aware of how their firms created value, and just 16% claimed that their boards had a strong understanding of the dynamics of their firms' industries."  (McKinsey & Company, 2013)

Another McKinsey study of 604 C-suite executives and directors worldwide said that the primary source of pressure for short-term performance and underemphasis on long-term value originated in the boardroom.  (McKinsey & Company, 2014)

When things go wrong

The expectations of a director's fiduciary duty in legal terms is "loyalty (placing the organization's interests ahead of one's own) and prudence (applying proper care, skill, and diligence to decisions)."

Here are three examples where an absence of proper oversight and complex working relationships contributed to far-reaching personal and organizational misdeeds:

Case Study:  WorldCom

At one time WorldCom was the second-largest long-distance telephone company in the U.S., after AT & T.  In 1997 WorldCom merged with MCI Communications, a $37 billion deal which was the largest merger to that point.  A proposed merger between MCI and Sprint in 1999 valued at $129 billion was opposed by the U.S. Department of Justice and didn't go through.  

In that same year, with declining stock prices, WorldCom began using fraudulent accounting methods to disguise its decreasing earnings to maintain the price of WorldCom stock.  The fraud was initially estimated at $3.8 billion.  Internal auditors revealed the scandal to the company's audit committee and 11-member board of directors in 2002.  The board immediately removed the executives responsible for the scheme.  

On July 21, 2002, WorldCom filed for Chapter 11 bankruptcy protection.  

On March 15, 2005, Bernard Ebbers, former chairman, and CEO was found guilty of fraud, conspiracy and filing false documents related to the $11 billion accounting scandal. Mr.  Ebbers was sentenced to a prison term of 25 years at the age of 63.  He died February 2, 2020, at the age of 78 after being released from prison for deteriorating health.

The CFO Scott Sullivan and controller, David Meyers, entered guilty pleas to securities fraud and other charges.  

Case Study:  Wells Fargo Bank

Beginning in 2016, Wells Fargo Bank engaged in an account fraud scandal by creating millions of fraudulent checking and savings accounts on behalf of the banks' customers without their consent.

The U.S. Consumer Financial Protection Bureau fined Wells Fargo Bank $185 million as a result of the illegal activity.  Additional civil and criminal suits were nearing $2.7 billion at the end of 2018.  

Approximately 5,300 employees were fired for this cross-selling scheme.  And former CEO, John Stumpf, was barred from the banking industry by the Office of the Comptroller of the Currency and forced to pay $17.5 million in penalties for failing to prevent the creation of fake accounts at Wells Fargo.  

An independent investigation report released in 2017 caused quite a stir.  The Los Angeles Times called the report a "whitewash" for the directors.  The San Franciso Chronicle labeled it "a perfunctory ... legal cover for the directors."    

The U.S. government recently announced that Wells Fargo had agreed to pay $3 billion to settle charges that the bank engaged in fraudulent sales practices for more than a decade.  

Case Study:  Willow Creek Community Church

The nondenominational megachurch located in South Barrington, Illinois (35 miles northwest of downtown Chicago) was founded on October 12, 1975, by Bill and Lynne Hybels also Dave Holmbo.  Additionally, Rev. Hybels created the Willow Creek Association and Global Leadership Summit which have influenced pastors and lay leaders around the world.  

As of December 2018, the church reported weekend average attendance of 24,000 at eight locations in the Chicago area.  

Here's a timeline for Willow Creek's unraveling:  

-March 23, 2018, the Chicago Tribune reports detailed allegations of sexual misconduct by Pastor Hybels.  The Tribune also published that an internal review conducted by the Elders led to no findings of misconduct.  Three leaders of the Willow Creek Association's board resigned over what they believed to be an insufficient inquiry.  Rev. Hybels denied the allegations.

-April 20, 2018, Bill Hybels announces his immediate retirement as lead pastor of Willow Creek Community Church, initially slated for October of the same year.  Steve Gillen, the pastor of the North Shore campus, was named interim senior pastor.*  

-April 21, 2018, the Chicago Tribune and Christianity Today reported more misconduct allegations, not in the original investigation.

-August 5, 2018, The New York Times reported about another victim not included in previous investigations.  Co-lead pastor Steve Carter resigned that same day.

-August 8, 2018, the entire Elder Board and Co-lead pastor, Heather Larson resigned following a joint apology for mishandling the investigation.  

-In September 2018 Willow Creek Community Church and Willow Creek Association announced the formation of an Independent Advisory Group (IAG) to investigate the allegations against founder, Bill Hybels.  

A six-month independent review was conducted by four evangelical leaders--Jo Anne Lyon, general superintendent emerita, The Wesleyan Church; Gary Walter, past president, Evangelical Covenant Church; Margaret Diddams, provost, Wheaton College; and Leith Anderson, president, National Association of Evangelicals.

According to Religious News Service, the report, completed in February 2019, found the accuser's allegations against Rev. Hybels to be credible.  The IAG study also found that the Elders and Willow Creek Association leadership failed to hold him accountable. 

What can we learn?

1. There's immense pressure on leaders in business and the nonprofit sector to succeed.  However, those demands in no way justify illegal or unethical behavior.  

2. Boards impact organizational culture the most by the leadership they put in place.       

3. "Why am I here," and "What difference do I make?" are questions often asked by new board members.  All three case studies needed boards who understood their role as taking care of what belongs to others.  

4. The lessons of a bad experience can evaporate when wholesale personnel changes are made following a crisis.  WorldCom went away.  Wells Fargo Bank and Willow Creek Community Church still exist.  Who is responsible for institutionalizing lessons learned?  

5. Under the right circumstances, anyone can be fooled.  



*The Elders announced on January 30, 2020, that Rev. Steve Gillen, interim senior pastor, is leaving in March of this year.  The search for a permanent senior pastor at Willow Creek continues as the Elders released the two finalists they were considering for the role.  (www.willowcreek.org)




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01 January 2020

The Strategic Mind

"It is a process of diverting one's scattered forces into one powerful channel."

--James Allen

Did you happen to shop at Target over the Christmas holidays?  I went to one of their stores a few weeks ago to purchase an item and was pleasantly surprised by a redesigned interior--everything from attractive gray wood flooring; neatly stocked shelves; deliberately locating women's apparel closer to the front entrance, but especially the spotlights and circular lighting making the Big Box store glimmer with a new look.  

And that's one of the messages Target is wanting to send to the marketplace.   

At least some of the physical components of a turnaround by Target's CEO Brian Cornell and the leadership team were right before my very eyes.  


Related image
(C) Target Corporation

In 2017, up against giants Walmart ($514 billion revenue) and Amazon ($232 billion revenue), Target's board and top management bet $7 billion that more affluent shoppers still want an in-store experience provided the environment and customer service were inviting enough. As a part of recreating itself Target ($75 billion revenue) raised wages for a large number of its 320,000 employees as "guest" and "team member" satisfaction are one and the same.  


Developing a corporate strategy and implementing it close to the original plan is something to behold.  Few leaders pull that off as looking ahead and seeing short is hard to do.

The leadership agenda

Reversing direction requires clear priorities. What made up the centerpieces of Mr. Cornell's leadership agenda? *

o  Spruced-up stores.  Better lighting and longer sightlines. By 2020 almost 1,000 stores (out of 1,800) will have the new look.

o  Integrated e-sales.  An upgrade to store locations makes it possible to pick up online orders near your home.  About 80% of Target's e-commerce sales involve the stores.  

o  Speedier delivery. Rather than building capacity from scratch, which would have taken a lot of time, Target bought Shipt and Grand Junction to allow for faster deliveries.  

o  Fresher brands.  New and more profitable store brands, 20 at last count, earn higher margins and appeal to younger households.  

o  Selective tech. The goal with tech was practical and immediate payoff so experimentation was pushed aside.  

Is yours a strategic mind? 

Long before the first piece of flooring was laid, or lighting hung, someone had to have an idea as to what a refurbishing could look like, and how that investment might change Target's direction.  

How else would a leader be able to communicate the main goal?  

Author Henry Mintzberg once observed that strategic thinking was "seeing."  The strategic mind sees ahead, of that, there's no doubt.  The greater question is how do they see ahead?  

Here are five ways of strategic thinking that Dr. Mintzberg uses to qualify a leader as having a strategic mind:

1. You cannot see ahead unless you can see behind. Any good vision of the future has to be rooted in the past.

2. Strategic thinkers have to find the gem of an idea that changes their organization.  That comes from a lot of digging which is where gems are found.  There's no big picture ready for seeing; each strategist has to construct his or her own. 

3. Strategic thinkers see differently from other people.  They pick out the precious gems that others miss.  They challenge conventional wisdom--the recipe, the traditional strategy--and thereby distinguish their businesses. 

4. Creative ideas have to be placed into context, to be seen in a world that is to unfold.  Seeing beyond constructs the future--it invents a world that would not otherwise be.

5. For a thinker to deserve the label "strategic," he or she must be able to see it through, (something only about 10% of leaders appear able to do according to a global study by PwC).   

What's held in common

If there's one leadership tactic that improves a strategy's chance of success it's this:

The more an organization shares in common the less likely personal interests will prevail.  The less an organization shares in common the more likely personal interests will prevail.

An absence of common understanding can cause a corporate-wide initiative to get off to a false start.  Therefore it's well worth the time and effort to engage employees, customers, and vendors early on. Workforce studies consistently show that individuals at all levels rarely understand the purpose and strategy they are expected to fulfill.  

You can believe there were a lot of experience-based judgments to determine the direction that Target has chosen.  That said, no one can know everything from the beginning.  The real learning is in the doing, now underway. 

Is the strategy working? 

Like most large enterprises, some things work and others don't.  

Target reported sluggish holiday sales with toys and electronics a disappointment.  "We faced challenges throughout November and December in key seasonal merchandise categories and our holiday sales did not meet our expectations," Chief Executive Brian Cornell said. 

However, Simeon Gutman, a retail analyst at Morgan Stanely, said: "Target's ability to manage the business well through weaker sales is the silver lining."    




*Published in FORTUNE Magazine, September 2019.  


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01 December 2019

Humble Leadership

"You changed the game, man."

--Coach John Harbaugh to his Baltimore Ravens star quarterback, Lamar Jackson.

Here's the rest of that sideline conversation during a 49-12 blowout of the Cincinnati Bengals ...

"And we're going to keep it going," Jackson said. 

Then comes this warm message from Coach Harbaugh:

"Do you know how many kids in this country are going to be wearing No. 8 playing quarterback for the next 20 years?"

Lamar Jackson, who became the first quarterback in National Football League history to throw at least 3,000 passing yards and rush for 1,500 yards in his first two NFL seasons, says with a measure of humility:

"I can't wait to see it when I get older, but right now I got to get to the Super Bowl."

The power of relationships

In their book, "Humble Leadership," father/son co-authors Edgar and Peter Schein, put a spotlight on the power of relationships, openness, and trust.   They turn away from a "superstar" concept and instead consider the positive outcomes when individuals learn and share for the greater good of the business.

Their idea is that a leadership process such as this can take place at any level, in any team or workgroup, in any meeting, and across all cultural boundaries.

Importantly, Schein's define leadership as "always a relationship where successful leadership thrives in a group culture of high openness and high trust."  

In that sense leadership and culture are two sides of the same coin, the book suggests.  

An unpretentious posture

I asked Edgar Schein if humbleness and humility are the same things.

"Our key point is that we don't think you have humility as a personality trait but as a situational feeling on the part of the would-be leader.  An appropriate response would be--'I don't know enough to solve this complex problem I am facing; I am in fact dependent on my direct reports and team members; therefore I must create a climate in which they will feel safe to speak up and collectively help to solve the problem.'"

Dr. Schein adds, "The goal is to know when leaders know enough to direct others and when they don't know enough, therefore seeking and accepting help."

Maybe organizations are ready for a "humble" approach as more than 1,300 CEOs have left their positions in 2019 according to executive placement firm, Challenger, Gray, and Christmas.  

Closer to home in Central Florida one of those CEO departures is Tricia Stitzel who is stepping down as Chair and CEO of Tupperware Brands.  Stitzel exits with a nearly $2 million severance and a $125,000 consultant deal even though Tupperware's stock has fallen 75% from the start of 2019 and November 26th. 

Personization

The Schein's introduce us to a new word, "personization," and define it as:

The process of mutually building a working relationship with fellow employees, teammates, bosses, subordinates, or colleagues based on trying to see that person as a whole, not just in a role that he or she may occupy at the moment.

In case you're worried about having to be too nice, relax.  The authors state that "personization is about building relationships that get the job done and that avoid the indifference, manipulation, or worse, lying and concealing that so often arise in the workplace."

Quoting from the book:  "We don't need to become friends and learn all about each other's  private lives but we have to learn to be open and honest around the work issues."

Is humble proven?

Writing in The Wall Street Journal, Matthew Kassel says humble leaders do not always inspire confidence among financial analysts.  "While humble CEOs aren't any more or less capable than their brash peers, they tend to benefit from an "expectation discount," Kassel notes.  

This style of leadership doesn't appear strong at first but delivers better results, perhaps as much as a 7% increase in total return annually, according to recent studies on the subject.

More research is needed but there's something to be said about the positive track record of contemplative leadership.  

Maturity counts a lot

In finalizing the December Strategist Blog I watched the Baltimore Raven's run over the Los Angeles Rams 45-6 at the Coliseum on ESPN's Monday Night Football (25 November 2019).  On display was an exciting second-year quarterback building relationships around openness and trust.  
Image result for images of lamar jackson and teammates
Lamar Jackson and Ravens' teammates celebrate a win
over New England Patriots, 13 November 2019.
(C) Todd Olszewski/Getty Images
Lamar Jackson is dependent on his coaches, as well as a highly-skilled offensive and defensive roster.  They are more familiar with the in's and out's of professional football, and the toll a long season takes on everyone.  That explains the necessity of older talent in the mix.

The Ravens v. Rams game was a visible reminder that if Baltimore makes it to the Super Bowl in South Florida (Miami) in February 2020, it will be a combination of gameplan execution, staying healthy, and as the book concludes, "personal cooperation and trusting relationships; the kind that makes for friendships and effective teams." 

That effort is being led by a 22-year old quarterback from the University of Louisville who is providing confident, and humble leadership.

------------------

Update:  The Baltimore Ravens lost to the Tennessee Titans in the NFL playoffs 28 - 12.  Lamar Jackson said afterward--"We just beat ourselves. I had a lot of mistakes on my behalf.  Three turnovers.  That shouldn't happen."  



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01 November 2019

Avoiding Questionable Behavior

"It is better to be alone than in bad company."

--George Washington

How do leaders go off course? Dartmouth College professor Sydney Finkelstein studied "spectacularly unsuccessful executives" to understand what they did wrong.  Here's a list of habits, and personality types, to avoid:

1.   Overestimating abilities.  These individuals believe so strongly in their own abilities that they assume market forces and business fundamentals no longer apply.  

2.   Blurring personal and business interests.  Because of a belief they are personally responsible for the company's success, these executives mistakenly begin to think, "If it's good for me, it's good for the company."  

3.   Attempting to be all-knowing.   Unsuccessful executives believe they must always be right.  When that attitude prevails dissent is shut down.

4.   Requiring blind allegiance.   Those who fall into this category tend to eliminate anyone who dares to contradict them.  

5.   Focusing solely on image.   Because they spend so much time in the public eye, it sometimes seems as though the main thing is advertising themselves.

6.   Underestimating obstacles.  Instead of reevaluating their original plan when they encounter problems, this type of leader pushes back harder.  


--Adapted from Why Smart Executives Fail, Sydney Finkelstein, Portfolio, published by the Penguin Group.


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01 October 2019

What's the Problem?

"A problem well-stated is a problem half solved.

--John Dewey

I took on a complex restructuring engagement several years ago and needed help.  A telephone appointment was arranged with Dr. Edgar Schein, Professor Emeritus, Work and Organization Studies, MIT, Cambridge, MA.  Dr. Schein, who is credited with founding the field of organizational culture, is one of my favorite authors. (See "Organizational Culture and Leadership" 5th edition.)

He listened politely to the proposition.  I said to think about the offer and I would call back in a week for his response.  Thankfully, Dr. Schein signed on and thus began a 36-month professional relationship with one of the great minds in strategic management. 

Dr. Schein's initial advice came in the form of a question--"What's the problem?"   He kept probing to make sure the client was thinking carefully, not rushing to find solutions.  Why that approach?  Because teams, and task forces, under pressure often try to solve difficult problems without proper judgment.  

Or they try to solve a problem when in fact it's a "polarity" to be managed. Sample polarities or tensions include short term vs long term; centralization vs decentralization; and growth vs consolidation. (See "Polarity Management" by Barry Johnson.)

Defining the problem

Regardless of your position or the nature of the enterprise, problems are ever-present.  They vary in degree, form, and come from all directions.  Some are resolved quickly by drawing on previous experiences.  Others require more time and study.  

Since problem-solving and decision making goes together, what can we do to improve the process? 

For an intricate, unsettled question involving corporate strategy, you could begin by asking this question--

"What prevents us from reaching our goal?"

You may need to state the problem in broad terms since the exact problem may not be obvious.  This is due to a lack of information to define it or you confuse symptoms with underlying causes. 

Prepare a statement of the problem and find someone you trust to review it and to talk it over.  If the problem is a job situation, review it with your supervisor or another appropriate person.  

Consider these questions

In reflecting on the situation the right questions are helpful:

o  What is the problem?
o  Is it my problem or someone else's?
o  Can I solve it?  Is it worth solving?
o  Is this the real problem, or merely a symptom of a larger one?
o  If this is an old problem, what's wrong with the previous solution?

Continuing

o  Does it need an immediate solution, or can it wait?
o  Is it likely to go away by itself?
o  Can I risk ignoring it?

o  Does the problem have an ethical dimension?
o  What conditions must the solution satisfy?
o  Will the solution affect something that must remain unchanged?

Restating the problem

Dr. Schein recommends taking your original definition of the problem and periodically updating it with new insights.  Seeing intuitively comes by observing a complicated issue from different perspectives.  It's also possible to come upon new facts by remaining open-minded and not giving up too soon.  

How often do you restate the problem?  

That depends on its nature and urgency.  Some research on this topic suggests that in almost all cases the conditions and constraints affecting the problem and its possible solutions change over time--sometimes dramatically--changing both the problem and the range of options designed to address it.  

And don't forget

As some questions have no answers certain problems have no solutions.   



*Study Guides and Strategies contributed to this post.


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01 September 2019

The Hollowing of an Organization

"How did you go bankrupt?  Two ways.  Gradually, then suddenly."

--Ernest Hemingway, "The Sun Also Rises"

This summer saw the removal of a nearly 100-year old, 100-foot sassafras tree from the property in Michigan.  During a recent inspection of all our trees arborist, John Wardlaw noticed a "cavity" in the side of that particular tree (see picture below) indicating probable damage to the center of the trunk.  He said it was possible for the outside to look okay while the inside was deteriorating.


Sassafras tree in Michigan.  

After two very large branches fell this past year we decided to take down the tree.  
The combination of shade and sassafras fragrance paled in comparison to the dangers of a falling tree causing bodily harm, or worse.

How a tree hollows

Our research into this topic shows that trees suffer injury just as humans do.  That was news to me.  When limbs break it sometimes creates an opening through the bark exposing the sapwood.  Being attacked by fungi and bacteria forms a cavity.  

Stress happens through wind, fire, heat, and lightning. We've had lots of rain this spring in Michigan and that's a contributing factor as well.

Can a tree be hollow and still live?

Indeed a hollow tree can be alive--and fruitful.  

Emily Stone, a naturalist, and educator at the Cable Natural History Museum says, "All of the growth and water transport continues in the outer shell of the tree--the sapwood--even as the center rots away." 

"In order for a tree to become hollow, though, it must start the process while it is still alive," she added. 

How a business hollows

In the same way trees stay healthy and avoid hollowing out, businesses require the right conditions to grow and be strong.   

There's a corporate soul (purpose, beliefs, and values) that resides inside an "organizational tree."  That core is strategic to the enterprise and therefore needs constant attention.   

Author Lim Lay Hsuan observed, "If leadership fails to nurture the soul, like a deprived garden, it will eventually die."

Nurturing a company begins with nurturing oneself.   Leaders who are clear about their own purpose and goals have a head start in that process.  

What else should have our attention?

"Why" the business; hiring decisions; who is the customer; developing associates; the quality of being special; ethics; changing environments; and exemplary performance or execution, not just what's required. 

Those ingredients, which necessitate maintenance, contribute to a healthy corporate culture, the most overlooked competitive advantage.  

Reflections

-What comprises the soul of your business and what is its current condition?

-Who are the guardians?  

-Do the company's beliefs and values matter to a new workforce?  

-How do you keep, and strengthen, the soul during periods of significant demographic change?

Circumvent the hollowing

While there are no guarantees it's worth trying to safeguard what's important to an organization.  A short checklist suggests ways of impeding the hollowing process--

1. Identify what matters most to your business and communicate it frequently.

2. Apply your beliefs and values consistently, especially in decision-making.

3. Be aware of the stresses that can do long-term damage.

4. Businesses, like trees, need trimming to stay healthy and flourish.

5. Hire for corporate culture.  There's nothing like a good fit.  



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01 August 2019

The State of Your Business

Best and worst states for business in 2019:

Rank

1. Texas
2. Florida
3. Tennessee
4. North Carolina
5. Indiana
6. Nevada
7. Arizona
8. South Carolina
9. Ohio
10. Georgia
11.  Utah
12.  Colorado
13.  Virginia
14.  Wyoming
15.  South Dakota
16.  Iowa
17.  Wisconsin
18.  Oklahoma
19.  Idaho
20.  Nebraska
21.  Arkansas
22.  Delaware
23.  Kentucky
24.  Missouri
25.  Alabama
26.  New Hamshire
27.  Montana
28.  North Dakota
29.  Kansas  
30.  Louisiana
31.  New Mexico
32.  Michigan
33.  Pennsylvania
34.  Maryland
35.  Maine
36.  Rhode Island
37.  Minnesota
38.  Mississippi
39.  West Virginia
40.  Alaska
41.  Vermont
42.  Hawaii
43.  Washington
44.  Oregon
45.  Massachusetts
46.  Connecticut
47.  New Jersey
48.  Illinois
49.  New York
50.  California


Source:  Chief Executive Magazine


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