Bold Exec

Show Me The Plan: GM Part I, items 1-5

  GM has to go through bankruptcy procedings, but (a) a long drawn out bankruptcy  will degrade from a Chapter 11 (reorganization) to a Chapter 7 (liquidation), and (b) no lender is likely to step up to provide DIP (financing during bankruptcy) lending. So instead this crisis requires (c) a pre-packaged bankrupticy which allows for a rapid in/out and (d) government financing when the necessary reorganization conditions are met. Pre-packaged bankruptices aren't typically used because all the parties involved won't agree without long, stressful negotiations on actions they individually don't want to do. Too bad, they have to and any other course just postpones the inevitable and wastes government/taxpayer funds. Congress needs to say--here is the plan; do it or forget it.

I haven't studied GM in depth and therefore don't have all the facts, but i've seen enough to know that this is about where it needs to go. No constituency of GM, executive, management, hourly, dealers, suppliers or board will like any of this. But the general public doesn't like any of what GM has been doing for a decade or so, and is strongly against any bailout with some sort of half-baked and unenforceable commitment. Here's approximately what it takes. Items 1-5 this week; next week items 6-10, concerning hourly and mileage standards and board composition.

#1. White collar, management, admin. staffs, i.e. everyone other than union employees. The number of employees in this category should be halved. One test I use--look at the number of these employees when a company was last at this sales volume measured in units: For GM this was probably 10-15 or many more years ago. A company always bloats over time and when it's output becomes smaller just can't figure out how to work with the levels of staff it previously used. In addition I always go deeper than this particular algorithm because it's likely it was bloated quite even at that time. To be clear, if a company currently sells and produces 1M units, a decline from a previous peak of 2M units, go back to when it last sold 1M units and let the staffing at that time be your benchmark. And these reductions must be real, not "attrition in the future." Summary point #1, cut this category of employees by 50%.  For more see category F. Progressive Downsizing, accessed on the right of this page.

#2. Organization Chart. In parallel, reduce the levels on the organization chart (the number of levels that exist between the CEO and the first union/hourly level) by the same amount, that is 50%. Some will complain--each person will now have too many direct reports--however, the difficulties of "too many direct reports" is always overstated, while the chaos created by communication errors and bureaucratic bumbling created by too many layers in the organization chart is always understated. Summary to point #2--reduce layers by 50%.

#3. Compensation and debt conditions. The CEO can make $10M salary and all others are scaled proportionally down to the hourly worker wage. No bonuses are to be paid for the years 2009 and 2010 and also until the government debt is extinguished (paid back). Options may be awarded but the strike price will be established by the 30 day average around when the government debt is fully repaid (no individual gets the benefit of a strike price established at the current depressed levels, and this provides further incentive to repay the government loans). The government loans however carry a warrant with the strike price set for the day the government loan is awarded/placed; and the size of the warrant should reasonably allow for a 2x return on the debt. And: no golden parachutes--two times weekly salary per year of employment will suffice.

#4. Product line pruning. It is always appropriate for a company facing this degree of difficulty to do product line pruning. GM has been disinclined to do so for historic, nostaligic, can't-make-a-decision reasons.  Too bad. The proliferation of brands eats GM alive--they have attempted to grow by diffusing their focus, a destructive contrarian approach.

#5. Perks. Sorry management folks, all company owned or supported destination resorts closed/sold, all free company car leases will expire, two private company planes--maximum--will be retained (it is efficient and effective to get management to meet with dealers, suppliers, customer conventions; so do keep two) and no others private charters, any other wastes of money for management comfort or pleasure that i've missed also get jettisoned.

"The Change Will Come From Me"

Individuals who have no experience in leadership or management-- reporters, tv and radio analysts, commentators, pundits of all stripes--should be more savvy than to openly express their naivete by stating: "Many of Obama's appointees have been in government before, and in the Clinton administration: where is the change coming from?"

Their view is, of course, supported by their experience of the last 8 years where the President was, more or less, simply following the dictates of his cabinet and party leaders and other cohorts. This leadership vacuum had exactly the same results for our government that it has in companies; failure. When I come into a company that has failed as a "turnaround CEO" I have no empathy for the CEO who led it there and remove him or her immediately; but I don't necessarily fault the direct reporting staff for all the prior mistakes. Some obviously have attitudes or capability deficits that demand their immediate release, but for the others I say "History is history--your actions today and tomorrow will be the basis of my evaluation."

So to all those pundits: ease up! A true leader has the vision, puts strong people around him, listens, makes clear decisions, communicates them effectively, sets the tone,  solicits constructive even if contradictory feedback, and then expects results. We'll have a good look at the scorecard in a year or two, but for now Obama is doing everything right.

Check out more on leadership in Category L. Leadership.

Compelling Arguments

I frequently find a comment by a CEO who has successfully turned the corner on a previously under-performing company to be so "spot on" that it bears illumination. Readers' Digest was taken private by a group led by Ripplewood Holdings in 2007 and, led by CEO Mary Berner, has made great strides. A comment by her in today's NYTimes made me smile: "I'd rather change too much and get 20% of it wrong than not change enough. And to do that, everybody has to buy in."

In two sentences she captured a lot, including several essential points of the philosophy i have successfully used and relentlessly expoused.

#1. I am often asked "What is the one common trait you experience in the dysfunctional companies you take on--I presume it's that the previous management made many bad decisions?". No, the common trait is that the previous management did not make decisions--with the result that the entire organization is tangled up in its underwear. When required decisions are not made, nothing is learned, and the organization becomes stagnant. Berner knows that, even with 20% of the decisions winding up being wrong, the organization learns from the mistakes and makes even better decisions going forward. (See more in the subtopic Forget Brilliance found in C. Decisive Action Trumps Perfection)

#2. Everybody can't buy-in if the decisions that are made are done in a vacuum without much input from people in the organization. So involve (as Berner does) many people in the decision process. (See more in E. Aggregate Wisdom: Smart Company, Smart CEO--and especially in the subtopic "Harvest Organizational Wisdom")

#3. Effective organizational performance then comes from effectively and clearly communicating to the entire organization the directions and decisions taken. With that clear communication, middle managers are enabled to make parallel and supporting decisions and themselves become highly confident and effective. (See more in the subtopics NorthWest Strategy and Direct Communications found in C.Decisive Action Trumps Perfection)

Crisis Lessons

Does a crisis represent danger or opportunity? I have written that one must take full advantage of a business crisis, even amplifying it, by some modest amount, via clear and unvarnished communication to all constituent groups. When all members of a community, an organization, a business enterprise fully recognize that there is a crisis and that their lives will be significantly impacted by the effects of that crisis, previously rather unchangeable attitudes can be significantly changed. The reigning guru of human behavior theory, Bandura, in his acclaimed book "Social Learning Theory" states "Behavior is, in fact, extensively regulated by its consequences."

Rahm Emmanuel this week announced a parallel thought."Rule One: never let a crisis go to waste. They represent an opportunity to do big things."

There's a clear message here--one that i have discussed--and used--extensively. When your business is in trouble, don't do what many CEO's do and underplay it to your employees, directors, and all other constituencies (perhaps with an exception for customers). Don't mask it with feel-good proclamations in the fear that your employees will stampede out the doors. When you do, not only are you being a chicken, but you're thwarting one of the greatest elements of change available--necessary behavioral changes in your employees as they recognize the consequences of their normal attitudinal tendencies--maintaining status quo.

Lessons from the Presidential Race

Previously I wrote about my "Northwest Strategy" philosophy. The idea is that any organization is better off when a CEO or other type of leader clearly decides on a course, one that is directionally correct while perhaps not perfect (hence the term Northwest), and then relentlessly pursues that direction, communicating it clearly, effectively, and repetitiously so that his followers have clarity, line up appropriately, and make consistent decisions on their own. This organization can achieve a tremendous amount. If the final targeted destination requires a mild correction when the goal is near, that can be done--again with clarity and repeated communications.

The antithesis is the leader who continues to try new ideas, has new and different thoughts, throws out trial balloons, changes his mind: always searching for the perfection of a true North strategy. While it may seem to him that striving for this perfection is totally appropriate and a worthy goal, along the way his followers lose confidence, get frozen, react differently to these mixed signals, typically initiate infighting, and stand around with confused looks on their faces. Few are willing to make any decisions because they don't know if today's grand strategy will be the same as yesterdays.

So this week we have another clear, this-time-public example of the benefits of a Northwest Strategy and all it's accountrements; and an equally clear demonstration of the problems resulting from a constantly changing message. Obama's campaign epitomized the consistency of purpose, clarity and continuity of communications, and steadfastness of direction. McCain's did not. Obama inspired many and grew in presidential stature by the approach he took, McCain created confusion in his ranks and among his followers, confusion which continues to this day. Some people voted for Obama even though they didn't agree with his policies, viewing his presence and consistency as unassailable virtues.

You can learn many aspects of leadership from this campaign, and from many other daily life events. Apply the same principles you would wish to have applied to you.

Run in a Way that Optimizes Your Governance

The positioning a presidential candidate makes concerning his arguments, his treatment of the truth, his composure, and his leadership persona will impact on his ability to lead. In the political world, most people view that a composed, level-headed, positive presentation will be an enabling element in constructing coalitions to govern.

A new CEO experiences a different, but in some ways parallel, path. He or she presents to the recruiter and then to the hiring committee their accomplishments and skills: modest embellishment is inevitable and expected--more, not. The next presentation is to the operating constituencies (employees, suppliers, customers), concerning the individual but more so his views on the state of the business, the degree of difficulty, the degree that significant change that will be required, and the resulting effects to those parties. Clarity, honesty, a degree of humility, and candor set the stage for growth of your leadership persona from a constructive base.

When you are positioning yourself for that new or next CEO position, remember that your initial positioning will be remembered by all the constituencies. Don't feel impelled to unnaturally embellish your credentials and the business prospects--there's a long term price to pay for the short term ego gratification.