‘Watch the bull, not the man'
From The Ten Commandments of Business Failure by Donald R. Keough. Copyright 2008 by the author. Published by Portfolio, a member of Penguin Group (USA) Inc. (www.penguin.com).
In my teens, while working during the summer at the Sioux City stockyards, I became acquainted with a number of cattle buyers and sellers. One day one of them asked me to help him by becoming a bull buyer. Bulls were shipped in one at a time and were scattered across the complex. When bulls outlived their reproductive usefulness, they were sold for slaughter. But for most buyers it wasn't profitable to spend the time needed to wander all over the yards in order to buy one bull here and one bull there. However, an energetic summer student willing to go around and purchase 15 or 20 bulls a day to fill a railcar could earn a fairly tidy commission, like $20 or so.
I became a summer bull buyer for Doyle Harmon, the uncle of the famous Michigan football player Tommy Harmon. After my first day on the job, he came by and asked to see what I'd bought. It turned out I'd paid too much for quite a few of the bulls. Harmon reminded me that I was among salesmen and because of my young age, they would try to flatter me, be nice to me, distract me, but he pulled out a chart and said here's exactly what you are looking for in a bull. No matter what anyone says, never deviate from these basic requirements of conformation. He said, “Watch the bull, not the man.”
That simple advice has stuck with me through my years in business even to this day in the world of investment banking. I always tried to separate the product from the presentation. That may seem like it would be easy, but it's not. No matter how sophisticated you might think you are, if you allow yourself to take your eyes off the bull for a moment and concentrate instead on the man, you can get drawn into the most preposterous ventures.
Donald R. Keough is chairman of investment banking firm Allen & Company. He was president, COO, and a director of Coca-Cola Co. from 1981 to 1993, and has served on a number of prominent boards, including McDonald's Corp., Washington Post Co., and H.J. Heinz Co.
An about-face on a succession decision
From The Turnaround Kid by Steve Miller. Copyright 2008 by the author. Published by Collins, an imprint of HarperCollins Publishers (www.harpercollins.com).
My final effort to help find a true leader for Waste Management led to a pair of solid candidates. Dave Cote was a hotshot at the best-run corporation in the world, General Electric. No company is a better training ground for executive talent, and everyone knew that a GE vice president was a prize catch. Our other candidate was a more rumpled, workaday CEO named Maurice “Maury” Myers of the Yellow Corp., a big trucking concern, who had also worked at Ford and for several airlines. Myers was down-to-earth and likeable. Once, during our extended deliberations I asked him to be patient, and he said, “Don't worry about it. I know you're just keeping me warm while you check out your other options. Call me when you decide.”
Younger than Myers, David Cote was brilliant and polished, and as head of appliances for GE, he knew how to work with union labor, having once been an hourly worker himself. He was intrigued by the challenge at Waste Management, but we sensed that he had reservations about the trash business and moving to Houston. He was from the Northeast and asked us about moving headquarters in that direction.
Slightly intoxicated by the notion of capturing a GE superstar, we actually entertained the idea of moving the company headquarters for the second time in as many years to make Cote happy. We offered him the job, and he took some time to think about it. I went home to Sunriver, where I had a long conversation with my most reliable adviser, my wife Maggie Miller. When I told her what we were doing, she had to restrain herself from physically shaking some sense into me.
“You've got one guy who's down-to-earth and enthusiastic about the job. He's worked in airlines and trucking and understands what Waste Management does. He doesn't want a gold-plated contract, and he doesn't want to move the headquarters. The other guy is not in love with the job, and he doesn't want to go to his next cocktail party and explain that he works for a garbage company. He is never going to be comfortable at Waste Management.”
She was right, and after consulting with the board, I called Cote and withdrew our offer. He was stunned, as if the idea of us turning him down was beyond his comprehension. Maury Myers, on the other hand, was calmly pleased when we offered the post to him. He moved to Houston and dug into the job with both hands. Before he retired in 2004, Maury Myers had Waste Management completely stabilized.
Steve Miller has been involved for the past 30 years in restructuring and turnaround assignments with a number of companies, starting with Lee Iacocca's rescue team at Chrysler Corp. and, most recently, as chairman and CEO of auto parts manufacturer Delphi Corp.
Don't wait for a tap on your shoulder
From Finding Your True North: A Personal Guide by Bill George, Andrew McLean, and Nick Craig. Copyright 2008 by the authors. Published by Jossey-Bass, an imprint of John Wiley & Sons (www.josseybass.com).
I wrote True North because I have a passion to see more people in all walks of life lead authentically and because I wanted to help people like you discover your authentic leadership. Finding Your True North: A Personal Guide will enable you to take the ideas and lessons from the book True North and apply them to your personal leadership development. This will enable you to become a highly effective — and authentic — leader who knows your True North and stays on its course.
I had to work very hard to become a leader, enduring disappointing defeats and rejections in high school and early college years and searching for many years to find the right place to flourish as a leader. I had to make the “leadership journey into my own soul” that General Electric's Jeff Immelt describes in order to find out who I am, where my real passions lie, and how I could become more effective as a leader. I didn't have a personal guide like this one to help me, so I made up my development plan as I went along, with the help of my wife, close friends, and some important mentors along the way.
I encourage you to have as many leadership experiences early in life as you can. Don't sit back and wait for these experiences to come to you. Seek them out! After each experience, you should process them by going back to your development plan to see what changes you need to make or further experiences you should have.
Recall the fundamental messages from True North:
• You can discover your authentic leadership right now.
• You do not have to be born with the characteristics or traits of a leader.
• You do not have to wait for a tap on your shoulder.
• You do not have to be at the top of your organization.
• You can step up to lead at any point in your life: you're never too young — or too old.
• Leadership is your choice, not your title.
Bill George is professor of management practice at the Harvard Business School and former chairman and CEO of Medtronic Inc. He is the author of the bestselling books Authentic Leadership and True North. Andrew McLean was the research director for True North. Nick Craig is an executive coach.
A lesson learned in the barbershop
From 1,000 Dollars & an Idea by Sam Wyly. Copyright 2008 by the author. Published by Newmarket Press (www.newmarketpress.com).
Back in Lake Providence, Louisiana, where I grew up, my family would go to town to run errands and Dad could go to the barbershop for his weekly big lather shave. It was at the barbershop in Lake Providence where I learned the fundamental concept of hedging.
The big dilemma for cotton planters like Dad was that they had to risk money in the spring to plant their cotton without any idea what the price would be after picking it in the fall. If prices went in their favor, they would make enough to get through the winter. If prices went against them, they would either have to convince the local banker to risk his depositors' money to give them another year to try, or pack up and find another way to make a living. So what many farmers did was “sell forward,” meaning they would negotiate a price with the cotton merchants in the spring for all or part of their crop in the fall. By passing the risk of dropping prices onto the merchants, the seller was losing the opportunity that, say, too much rain or not enough rain somewhere in the world would send prices climbing. But selling forward guaranteed there would be more revenue-in than costs-out. That is, as long as they physically brought the crop in; but, considering how they could get slammed by a Mississippi River flood or a plague of Mexican boll weevils, this was not always guaranteed.
One year, when all the barbershop talk was how, come fall, prices were going to rise, Dad felt particularly optimistic and decided to hold on to most of our crop rather than sell it forward. But it turned out to be an awful year and the losses we took were a big part of the reason we had to sell our white painted house with running water in town and move into an unpainted clapboard cabin with no running water or electricity out on the island plantation. The cash from the house sale helped pay down our debt on the land and, like Scarlett O'Hara in “Gone with the Wind,” we'd do anything to hold on to the land.
If we had hedged the entire crop, we never would have had to leave Lake Providence, because the hedge would have been like an insurance policy to reduce loss from the manic mood swing of the market. It was a lesson I never forgot.
Sam Wyly has been an entrepreneur for nearly half a century, founding successful companies in oil refining, insurance, computer software products, steakhouse franchising, hedge fund investing, green energy, and other businesses.
Buffett on the least independent directors
From Even Buffett Isn't Perfect by Vahan Janjigian. Copyright 2008 by the author. Published by Portfolio, a member of Penguin Group (USA) Inc. (www.penguin.com).
Advocates for good corporate governance would be hard-pressed to put their seal of approval on Berkshire Hathaway, a company in which Warren Buffett has served as both chairman and CEO for decades.
As recently as 2002, Berkshire's board consisted of only seven individuals. Three were named Buffett: Chairman and CEO Warren; his wife, Susan; and their son, Howard. Vice Chairman Charles Munger was also on the board. So was Ronald Olson, a partner of the law firm Munger, Tolles & Olson LLP, which rendered legal advice to Berkshire Hathaway. Chairman of Level 3 Communications Walter Scott Jr. was on the board. He also had a major investment with Berkshire in MidAmerican Energy Holdings Co. Finally, Malcolm Chace, chairman of BankRI, was on the board. He was a member of the family that owned the textile mills Buffett purchased in 1962. This was the transaction that resulted in the birth of Berkshire Hathaway. Scott and Chace were the only members of Berkshire's board for which a case for independence could be argued; and in Scott's case, you would have had to stretch the definition quite a bit.
Buffett is not keen on how the Council of Institutional Investors defines independence. He makes an excellent point in Berkshire's 2004 annual report: “The least independent directors are likely to be those who receive an important fraction of their income from the fees they receive for board service (and who hope as well to be recommended for election to other boards and thereby to boost their income further). Yet these are the very board members most often classified as ‘independent.' ”
Buffett goes on to explain that such independent directors may make decisions that benefit themselves at the expense of shareholders. For example, an independent director who receives a significant portion of her income from her directorship may oppose a value-maximizing sale of the company if it means losing her directorship and the regular fees that go along with it. Buffett would rather have directors on his board who have a substantial investment in the company because they are most likely to think like shareholders. In other words, he wants directors who understand the business and who are capable of making important contributions to boardroom discussions, regardless of whether or not they fulfill some expert's arbitrary definition of independence.
Vahan Janjigian is vice president and executive director of the Forbes Investors Advisory Institute and is a frequent contributor to Forbes and Forbes.com.
Are you inadvertently encouraging fraud?
From Essentials of Corporate Fraud by Tracy L. Coenen. Copyright 2008 by John Wiley & Sons Inc. Published by Wiley (www.wiley.com).
Adequate staffing is a necessary component of fraud prevention, whether management accepts it or not. Understaffing can cause burdensome workloads, and employees who aren't completing work or meeting expectations might turn to fraud as a quick fix. Staff burdened under unrealistic workloads should be viewed as potential fraudsters, and steps must be taken to correct this deficiency.
Treating employees fairly and paying them at market wage rates can help prevent fraud too. One common justification for theft from a business is that an employee felt underpaid. This can be mitigated by being aware of pay rates at other companies for similar positions. Employees who feel valued and properly compensated are less likely to feel entitled to steal.
Turnover in key positions in a company is also something that should be examined. Although turnover can occur for various reasons, possible indicators of fraud include unusual frequency or particular positions being vacated.
The departure of key personnel with finance positions is worthy of further investigation.
Tracy L. Coenen, CPA, CFE, is a fraud expert and president of Sequence Inc., a forensic accounting firm.
Sure to be on the GE board agenda
From High Performance with High Integrity by Ben W. Heineman Jr. Copyright 2008 by the author. Published by Harvard Business Press (www.harvardbusiness.org/press).
I attended every GE board and audit committee meeting between 1987 and 2005. On the basis of that experience, I am convinced that the board can assess whether the CEO and company leaders are creating an effective performance-with-integrity culture in the same way that it assesses other strategic fundamentals — that is, at an appropriate, but not excruciating, level of detail. For their part, CEOs need to build credibility and trust with the board regarding their intensity, commitment — and effectiveness. Such trust is crucial when the ill winds of impropriety blow through some corner of the organization, as they inevitably will.
When the GE board rewrote the company's governance precepts in 2002, it required that the board and the CEO together determine at the end of one year the key risks and opportunities facing the company in the year ahead. Those issues then became the core board agenda and were addressed in depth at board and committee meetings scheduled systematically across the subsequent calendar year.
High-level performance-with-integrity issues have an important place on these board and committee calendars. Specific agenda items might include the audit staff's proposed work plan, the integrity dimensions of deals, environmental health and safety risk abatement, dealing with emerging market risk in China (or the Middle East or Indonesia), and the response to high-visibility, high-impact controversies. â–
Ben W. Heineman Jr. retired in 2005 as General Electric Co.'s senior vice president for law and public affairs, and was GE's general counsel from 1987 to 2003.