Bold Exec

Fire Everyone--sorta

In just two weeks the U.S. will have a new President. Each time this occurs, the government has the opportunity to do what i have done many times in a business turnaround. Fire everyone. Hire all anew. The cleansing action is powerful. When the staffing decisions going forward are made with prime consideration given to merit and capability (not always the case and quite clearly not the case in the last change) the resurgence and capability growth can be extremely powerful.

This same powerful tool can work for you when your business is in trouble. I've fired everyone in in such circumstances--when the organization needed a new direction--however in these cases virtually and temporarily and privately. All organizations need an occasional re-shuffle; over time they get tired. Years of band aids and patches mask bureaucracy, non-performing people, bloated departments, and too many layers. Organizational lethargy results from everyone doing the same thing over and over.  Fresh thinking is stifled. This needs a fix. Create a war room (a room with white board or blank walls); Gather several of your best managers; Dedicate the time it takes to fully go through the process. Put the current organization chart on one wall including all the individuals. Then announce that everyone is fired and all departments are dismantled.  Rebuild the organization chart on the blank walls, thinking through the most critical issues that need to be addressed as your guide. Minimize the layers (difficulties from a large number of direct reports - span of control - is over-rated; difficulties of communicating through layers is under-rated). “Rehire” only those individuals that each of the managers is willing to take on (nobody is inherited; these are fresh “rehire” decisions). Re-create a brand new, re-vitalized, leaner, more effective organization. You’ve created a positive crisis atmosphere.

The Credit Crises

The current credit situation clearly qualifies as a crises. Many corporations will fail due to a direct lack of credit--others due to an inability to meet loan covenants caused by sharply falling revenues or equity values or profit margins; with the same lack-of-credit-based-failure end result.

The word crises connotes negativity (instability, danger, stressful) but there can be a silver lining. An obvious crises tunes prime constituencies (employees, suppliers, partners) to the necesity for major change. The crises may allow management to take actions that it might otherwise neither have the courage, nor the environment, to effectively implement.

A sound and straightforward set of communication policies and actions to these constituencies is one key to success. When they fully understand the severity, when they see your recognition of the problems, when your pronouncements make sense; the acceptance of tough actions will be significantly improved. (A second key to success is to "step outside yourself"--next week's topic.)

When a crises is upon you, don't hide your head in the sand as has been recently practiced by some of our financial institution CEO's--get out in front and be a leader. Enlist the inputs and support of these same constituencies even if you might have to take actions they'd rather you wouldn't--like reductions in salaries, employment, bonuses, prices. You wonder at the recent, publicized management decisions at AIG: some of my business-experienced associates have said "sound management--they had to do these events to keep up morale". I couldn't disagree more. Morale is kept up when employees (and the other relevent constituencies) recognize their management has sound thinking and policies; when they believe in their leaders. Morale is diminished when employees (and the other relevent constituencies) think their management is out of touch. Most of those employees at AIG's celebratory and relaxation events and  throughout the company, were highly embarassed--in my opinion.

See more thoughts concerning crisis issues posted in A. Positive Crises: Danger or Opportunity addressable in the upper right segment of this page.

CEO Greed: the downfall of our entrepreneurial society

It seemed to work so well, our system, until it didn't. But then--without controls, regulations, boundaries, and especially without any self-discipline and balance from self-serving CEO's, the system came totally off the tracks. The excesses, corruption, greed, mis-leading positions, posturing, and general political and politicizing bullshit, have led to a condition that crushes people's lives--all generated by an environment that says "anything goes", until it doesn't.

Hey, to some degree i'm theoretically a member of the group that caused this immaculate crises; a CEO who benefitted when companies that i operated did well. But not! Fixing companies to actually perform, to make better products, to have better margins, to provide excellent customer service, to contribute to the economic welfare of their customer community, to increase share holder value in a meaningful and lasting way: that's the American (old) way.

Getting extraordinary bonuses even when performance doesn't merit, taking undue risks in leverage and asset-protection, taking giant fees for financial maneuvering, creating artificial short-term performance at the (and knowing you're doing it) expense of long term performance, negotiating golden parachutes and receiving giant payoffs even when fired for mangling a company: man what are these boards thinking about??????

I've just published a book called "The Plague of Good Intentions" (check out www.plagueofgoodintentions.com) which dissects the problems the western world has imposed upon and into the countries of sub Saharan Africa. One tiny element of that book discusses the corruption of African leaders. Yes it exists; in bountiful amounts. But (a) we caused it, (b) our corporate executives--especially in the banking and insurance industries--have just as much corruption and greed, (c) the arrangement between political individuals and donations (bribes) is a principal ingredient, and (d) in my humble opinion, without all the corporate governance rules in place, our greedy CEO's would prevail and we would have a worse corruption history than these countries of Africa (maybe we already do even despite our "rules").

Our Government in Action

This week our government enacted legislation (the so called Bailout Plan) via a process that comports totally with two of my main points of management philosophy:

A. Positive Crises, Danger or Opportunity: obviously we have/had a crises--as credit liquidity was screeching to a halt. This crises presented the need, or the opportunity, or both to at least partially remove the draconian overhang of securitized and individual non-performing mortgages. Had this issue not developed into these macro-crises proportions, this overhang may have had great and long-lasting effects. The government took the opportunity of the crises to make a one-time change in our nation's balance sheet. Take advantage of a crises in your business by making and implementing tough decisions that you would otherwise find difficult to do.

C. Decisive Action Trumps Perfection: most everyone agrees something had to be done, hardly anyone agrees with the exact structure of the legislation. Most importantly, hardly anyone believes that we would have been better off to spend several months coming up with a theoretically perfect plan. Execution is the key to any business strategy; decisive execution of a reasonably good plan.