Bold Exec

This Blog is All About You...the Aspiring Bold Exec

In this site you'll find an encyclopedia of turnaround methods I have used and proven, over the years, in fixing over a dozen dysfunctional companies, operating as one of America's most successful turnaround CEOs. These techniques and principles are applicable to companies and governments alike. In fixing and saving a dysfunctional company or government, breakthrough changes--rather than marginal ones--are always required. I have stopped weekly postings as i'm now fixing companies again. But the library is still intact for you to explore.

Remember, it's not what you intend to do, it's not even what you do, it's how you do it!! Also, go to www.plagueofgoodintentions.com for more on turnaround techniques applied to dysfunctional countries.

Rubik's cube logic

Congress is considering significantly raising the cap (currently $75M), or completely removing it, for damages caused by oil spills. But some senators are against it saying that smaller oil companies wouldn't be able to compete. Is this a logic rubik's cube?

1. We want all drilling companies to make sure their wells are as safe as can be and that contingency plans are in place to handle mistakes (money doesn't assure attaining those conditions, but lack of money assures they're not). This takes a hunk of cash. Smaller drilling companies don't have a hunk of cash.

2. But we like competition; so let's cap the liability and at a low number, allowing smaller drilling companies to drill (but maybe with not enough cash to fund the highest and most costly safety procedures and capitalized contingency plans).

3. Now even the large well-capitalized companies, doing their economic trade-off calculations, therefore find an incentive to shave a bit on safety and contingency plans.

4. So now we've increased the probability of further environmental/economic disasters, from both small and large drilling companies.

5. And now the resulting more probable and huge resulting environmental/economic costs are borne almost exclusively by  various governments and tax-payers.

If i just spin this logic rubik's cube central plane one more time, surely the colors will all line up.

IT DOESN'T TAKE HINDSIGHT

Here's a short business test. Try it, it's not difficult. Suppose you have an extremely large revenue and profit project:; I mean extremely large. It's success will be of overwhelming importance to your company.  It utilizes really complicated technology in an extremely harsh environment, but others have done it and had no failures. Failure is seen to be of extremely, extremely low probability. However, a failure would be unprecedented in scope, and not only create a problem which threatens your entire company but the lives and fortunes of thousands of others as well. And you have no idea how to cope with such a failure. You face three choices (sorry, you'll have to click through to see those choices):

Unions and Government: Oil and Water

We must decide that organizing government employees is illegal, and that public labor unions must be abolished. Why? Because balance of power, or balance of will, does not exist. In a corporation, if management gives in too often over an extended period and resulting work rules, wages, pensions, and benefits choke the company, there are several potential outcomes to adjust and correct. Management, recognizing the company's financial limits, convinces the union that there have to be changes and an accord is reached to keep all entities alive. Or a bankruptcy court mandates a diminishment of some provisions of the labor contracts, as well as hacking into the rights of secured debt, unsecured debt, and equity holders. Or the company fails and everyone loses.

In government there is no balance of power or of will. The unions are permanent, they persevere, they wear down any elected opposition. Their counter-parties--elected mayors, governors, commissioners--know that they will be skewered in the media and within the electorate if they try to rein in the negotiated contract provisions on seniority, work rules, pay, and pensions. No benefit accrues to the elected officials for taking them on: au contraire any such action results in creating a vocal, loud and powerful enemy. Here are some examples:

Au Contraire Newsweek Part I

 The cover page headline onthe Feb 15 edition of Newsweek was "LAYOFFS ARE BAD FOR BUSINESS"; the downside of downsizing. I'm sure, as in all things in life, some (layoffs) are bad, some are necessary, some are good; it depends. However this article, authored by someone who should know better, a professor of organizational behavior at Stanford University's Graduate School of Business, is an amateurish and wrong-headed treatise and draws erroneous and just plain silly conclusions. The author makes the point that all layoffs are bad for the company, for the economy (as laid off people don't spend as much--quite a revelation), and for the individual (another startling finding). Hard to dispute these latter two but I don't believe they meet the test of the ink and paper used. Regarding the first conclucion, there's much to dispute just using common sense: in my dispute process I'll also insert some experience and reality based study, and over the next four weeks pick off their most absurd conclusions.

Top Heavy

  AMF, several years ago, was ripe for a hostile takeover. The company had (a) many self-sustaining and viable operating divisions (AMF bowling, Rossignol skis, etc.), (b) serious financial problems (never a single quarter of positive operating profit), (c) Taj-Mahal-like corporate headquarters, and (d) a corporate staff of 293. The division presidents stated that the large corporate staff burdened them with constant information requests, report requirements, etc., adding to their costs. So we executed a hostile takeover (day 1 of new AMF): on day 2 the corporate staff was reduced from 293 to 3! The divisions flourished; to my knowledge all or most have done well...........Hmmm, let's see if I can draw any current parallels to the State of California.

Pavlov's Dog

  Pavlov's experiments related a single event, a stimuli, to a dog's reactions. The ringing bell, when implemented during feeding events, eventually was of itself sufficient to initiate the dog's salivary reactions.

Humans are a little more complex and can process multiple incentives, multiple stimuli, and multiple reactions. But sometimes we're not more intelligent. I hate to keep picking on yesterday's General Motors: I wouldn't if their atrocious management practices were isolated rather than just being more-publicized examples of broad practice.

Letting Go

Every organization has one, or several, or lots. People who just can't pull their weight. Maybe they don't have the skills, or maybe not the drive, or maybe they're misplaced. You can be certain that either: (a) they know they're not doing the job and are miserable each day or (b) they don't care. In the latter cae; who cares? In the former case, it's always a good idea to demote the person to a job he or she can do and then you'll have a great employee. But there's not always an available landing spot. So what do you do?

Decisions, Decisions; the plague of poor management

A frequent question-- "when you go into a new company turn-around assignment I suppose you find lots of bad decisions have been made!"

No that's typically not the case; rather previous management didn't make any decisions--there was a backlog. An organization suffers more from the lack of decisions than from bad decisions. Why? With bad decisions at least you learn; you get feedback; you have a frame of reference; the middle managers in the organization at least have a direction. With no decisions little is learned; you get no feedback; you have no frame of reference; and middle managers have no idea what to do. The same thought applies to governmental bodies.

Fiat Chrysler thoughts

Executives who don't take the time to find out what the 2nd and 3rd and 4th and... organizational layers think mis-use an asset of the company. As the cartoon suggests, asking those who really know what's going on is a powerful tool.

I have been highly skeptical of the Fiat Chrysler combination/takeover/arrangement but a news item of last week gave me pause, and consideration for a more optimistic viewpoint; consideration only but...

Sergio Marchionne, Fiat/Chrysler's CEO, made decisions on his managerial team by asking employees further down the ranks; they know best the real behavior patterns of the executives and have seen them in action. They can separate the theatrical staging vs. the reality of their leadership capabilities. Good for Sergio. He is renowned as a "very smart fella" by Forbes' Jerry Flint whom has covered the auto industry for 40 years.

What a surprise!!! Not.

Maybe some accounting imagination. All those wondrous years in which General Electric made their numbers quarter after quarter, and all the accolades heaped on Jack Welch during that period, seemed to be too good to be true. He did do a good job of selecting and discarding businesses, no doubt, but it turns out some financial Enron-type shenanigans, albeit on a smaller scale, were also at work.

All managements have tuck-aways, reserves created when results are good--saved for a rainy day. It is now being exposed that GE was quite aggressive on this account, but that's okay as long as these reserves were created prospectively and not the other way around. Rolling previously created extra reserves into current earnings is okay; rolling not-yet-created future reserves into current earnings, i.e. borrowing from the future like our governments do, is not okay.

The General Motors of States--California

Many people have railed about General Motors management over the years, including me. Their management sins,however, pale beside those of the state of California. Try these on:

• __________________________________________________

• What if the UAW contributed millions of dollars each year to the personal account of the GM CEO, and/or to the personal accounts of the CEO candidates, right before contract negotiation season? (jail time) Yet the California prison guards union does exactly that. They contribute--to candidates for Governor--millions of dollars per campaign, and then that Governor negotiates their labor contract. Wonder why the pay and pensions for prison guards are double (triple?) what they should be? Wonder why the cost of the prison system in California is one of the many budget breakers?
• There's more; read on:

The Final Ingredient

Even after what most people thought were the ingredients of potential success in the GM bankruptcy scrubbing, I wasn't ready to "buy in" (of course there's nothing at this point to buy in literally, as there are no publicly traded shares). Why wouldn't all these decisions give GM a significant chance of success--namely the large reductions in:

• pension funding
• corporate debt
• dealers
• brands
• labor costs
• AND a brand new, from the outside, Chairman, CEO, and board     ?????

Dead on Arrival

Do you set targets for bonus plans, incentive compensation that is, on an annual basis? Why?

"Well, that's what we've always done."

Today's business pace-of-change is such that objectives and bonus plans based on a 12 month period are interesting antiques. Such a process is antique, and the objectives are antique by the time they're realized. If you simply use bottom line financial performance as your only metric (a rather lazy bonus-setting approach) then you can get by, I suppose, with annual targets and payouts. But if you set specific, establishing targets for those items that set the stage for future growth then a much shorter fuse is appropriate. See the follow-on for such objectives.

Nits for "Nots"

Cost cutting is an art, not a science. Anyone can reduce costs, what brainpower does it take to fire a lot of people. Those, however, who recognize this as an art do it in artful ways, looking at systematic improvements, creating systemic thrusts, re-thinking how the organization works, assessing that is really required.

Those who think they need to reduce costs but have no idea how to go about it, issue press releases about the most inane, ridiculous, and meaningless cost controlling ideas. I label these "nits", meaning they are irrelevant as a cost reducing item, for "nots", meaning those that proclaim these are useful and meaningful have not any idea, about anything. Don't buy their stock, or their story. Here are some examples:

Bernie Ebbers, as WorldCom was imploding all around him and who was billions short of avoiding bankruptcy, stopped watering the plants in their corporate headquarters building.

Monster CEO Iannuzzi proclaimed he was eliminating paper cups in the break rooms.

And South Carolina governor Mark Sanford instructed his staff to use both sides of post-it notes.