Fred Joseph: What a Board Is For

Fred Joseph, who "helped to create the junk bond business as chief executive of Drexel Burnham Lambert," as noted in the New York Times obit, died on Nov. 27 at the age of 72.

I had invited Mr. Joseph, then co-head of investment banking at Morgan Joseph & Co. Inc., to contribute to a "Best Board Advice" compendium piece that I was including in the 30th anniversary edition of Directors & Boards. The theme of this special issue, published in 2006, was "Wisdom of the Ages." Mr. Joseph's piece of advice certainly was a worthy one. Here is what he offered up:

"A tempting as it may be to impress your friends, a board is not merely for show and tell. As difficult as it is to share your concerns with them, a board should be used to help you make your most important and stressful decisions."

Well said, Mr. Joseph. He passes on at a much too young age. But this insight is a timeless one.

[Photo courtesy of Time Life]

Sighted: A Long-Term Thinker

Close readers of this blog know of my admiration for Harold Geneen, the legendary leader of legendary conglomerate International Telephone & Telegraph Co. The incisive management mind of Hal Geneen has been cited regularly in this blog and in my editor notes for the Directors & Boards print journal and e-Briefing newsletters.

Thoughts again turned to Geneen when I read Rachel Sanderson's superbly reported and written Nov. 27th Financial Times profile of Michele Ferrero (pictured), patriarch of the Italian confectionary company that is in the mix over possibly bidding for Cadbury. Take note of this passage from Sanderson's story:

"He is still busy. Ferrero's latest invention is a dessert tasting of Sicilian lemons called Gran Soleil which, when put in the freezer and shaken, turns into a kind of ice cream. It was designed to be easily transported in China, India and Africa. In a rare interview, Mr. Ferrero told local journalists: 'You'll see, in 50 years time it will be as big as Nutella' " (another Ferrero invention).

What's so striking about that? Simply this: here is a company leader now in his 85th year (he was born in 1925, according to the FT article) doing some product line projecting five decades into the future. Is this not the rarest sighting in business today — a long-term thinker?

What's the Geneen connection? You'll readily see it in this anecdote told by David J. Mahoney, an impressive leader himself of the old Norton Simon Inc. juggernaut, who counted the ITT master builder among his most important influences. In an excerpt that I published from his memoir, Mahoney wrote of Geneen: "[He] always taught me to look forward. When I complained that a certain project would not pay out for 10 years, he replied, 'Yes, but it will pay out in 12.' He was 77 at the time."

Peter Drucker's Humble Assertion

Today marks the 100th anniversary of Peter Drucker's birth, about which a big deal is being made in the business media and throughout the business world. Activities include an international conference in Vienna, the city where he was born.

Drucker made several appearances in the pages of Directors & Boards. The first such appearance is the most memorable — an eight-page Q&A interview conducted by another expert on leadership, Warren Bennis. We published it in early 1982, just a few months after I joined the journal. (What an early coup for the new editor.) And what a textbook case of two brilliant guys sitting around talking about "The Invention of Management," as we titled the article.

Drucker made a rather charming admission in our article. "I am ashamed to admit how little I knew about management," he recounted to Prof. Bennis about his early forays into studying industrial organizations. "It was amazing, not because I was so ignorant but because nobody knew anything."

As he explained: "You could find all the books you wanted about salesmanship — and they have not improved since, by the way. You could find all you wanted about accounting; of course, that has improved. You could find an enormous amount about insurance and insurance law and banking. But management? Nothing.

"So maybe I can claim to have been the first, in my one-eyed way, and with very poor vision in that eye. I saw management as a generic function in the future of industrial man. That, I think, is the one and only contribution I've really made to management."

I'm sure all those convening today and throughout the month to honor this management thinker on the centennial of his birth would vigorously dispute his humble assertion.

Portrait of Peter Drucker that accompanied his 1982 Directors & Boards article.

Sam Heyman: No Gin Rummy for Him

I always thought Sam Heyman, who died on Nov. 7 at age 70, got a bad rap when he was lumped in with all the other quick-buck takeover artists roaming the land in the 1980s. The New York Times called him a "corporate raider" in its obit but got it closer to the truth when it noted that he "preferred to hold on to the companies that he bought and run them rather than sell them for a quick profit."

Mr. Heyman was not a happy man when I published him in 1986. I opened up the pages of Directors & Boards for him to rail against the slapdash restructuring being done by many CEOs in the mid-'80s. He was suspicious that much of this restructuring was being done "to perpetuate entrenched managements." I titled his article "A Nation of Gin Rummy Managers" — his term for managers who were "discarding their least attractive asset at every turn" without giving the right kind of thought to the future potential of these operations and taking the hard actions to make them profitable.

One of his critiques has resonance to today's retrenchment environment, in the way companies are handling employee layoffs. Heyman worried that the layoffs that came with all the restructurings in the '80s would "deprive these companies of their brightest and ablest executives." He suggested this:

"We must adopt instead a surgical, rather than sledgehammer, approach to employee cutbacks so as to ensure that these programs serve not only to reduce costs but to permit management the latitude to choose for itself between those it wishes to retain and the nonperformers who must be weeded out in any process of this sort. This approach will surely require that managements have intimate knowledge of their organizations and people, that decisions be made strictly on the basis of performance, and that companies assume what inevitably will be some litigation risks. But by addressing the issue in a thoughtful, carefully conceived manner, companies can avoid the otherwise disastrous consequences for the future of their organizations."

Thoughtful is indeed the approach he took with GAF Corp., the company he won in a historic proxy fight in 1983 and proceeded to reinvigorate without resorting to the slash and burn techniques of other notorious restructurers, both those operating inside the corporate walls as well as those banging at the gates on the outside. Up until recently he still held the title of chairman of GAF Corp. — now that's a long-term holding.

His legacy lives on in the governance field with the Samuel and Ronnie Heyman Center on Corporate Governance, which was founded at the Benjamin N. Cardozo School of Law in 1987, shortly after his article appeared in Directors & Boards.

[Portrait illustration accompanied his 1986 article]

Heroes Are All Around Us

Veterans Day 2009. Memories stir of my service with the U.S. Navy. I am proud to have worn the uniform and to have given four years of my life to my country while the Vietnam War raged in the late 1960s and early '70s.

A few years ago my friend Bob Dilenschneider wrote a book titled A Time for Heroes, an exploration of the nature of heroism. Here is a passage:

"Some people define heroes as those who are willing to forfeit their lives for others. Like legal scholars who interpret the Constitution in a narrow way, these people might be considered strict constructionists: no sacrifice, no heroism.

"Myself, I'm a loose constructionist, if I may use that term. I believe in all manner of heroes.

"There are those who spend a lifetime in pursuit of a grand vision. Think of Nelson Mandela, imprisoned for 27 years before he triumphed over apartheid and became president of South Africa.

"Some heroes are intellectual pioneers whose ideas open up new territories of thought. Charles Darwin, Isaiah Berlin, and Sigmund Freud are examples.

"Others alert us to problems in our midst, like Rachel Carson, whose book Silent Spring warned of the dangers of pesticides.

"Some heroes motivate people to aim higher, perhaps to create a more equitable society or to actualize their own abilities.

"All of them have courage — the courage to dare, the courage to fail, the courage to persist."

Well stated, Bob. Count me as a loose constructionist, too. I believe that Corporate America's boardrooms are filled with heroes.

These are men and women who, largely out of public view, are attacking problems that are life-threatening to the enterprises that they are dedicated to protecting and preserving. Especially this past year, with the debilitating volleys that the Great Recession has hit boards with, there must be a legion of heroes taking their seats — hot seats — in boardrooms across the land, summoning up the courage to persist and prevail.

This is a good day to remember those who have worn the uniform of our country's military forces. And it's a good day to appreciate those who are showing courage in all its stripes, including those fiduciaries we call board directors.

A Walk Through the Waldorf

I walked through the lobby of the Waldorf-Astoria Hotel on my way to a business meeting today. I find the hotel a pleasurable place to attend meetings or, as I did today, just to stroll through — a grand hotel that evokes luxury and importance.

There is a delightful anecdote, recently printed in the quarterly magazine of the Philadelphia Advertising Club, of someone quite well known who enjoyed his stroll through the hotel's lobby.

Back in the early 1970s, English actor David Niven wrote the following in his autobiography. Before becoming an actor, he was a poorly paid liquor salesman living at the Montclair Hotel in New York City.

"The hotel was pretty awful and the steam heat in my tiny room was suffocating. But it was cheap and right on the edge of my territory.

"The front door of the Montclair was on Lexington Avenue, exactly opposite the back door of the Waldorf-Astoria. So, during the miserable cold winter, I made a point to come out each morning from the Montclair, cross Lexington Avenue, climb the long stairs at the rear entrance to the Waldorf, went my way through the vast gilded lobbies of the most luxurious hotel in New York, descend the steps to the front entrance, pass through the revolving doors and issue onto Park Avenue to start my day.

" 'Good morning, Mr. Niven,' said the doorman, saluting deferentially.

" 'Morning, Charles.' Every morning he had an instant pick-me-up. Very good for my morale."

We could all do well with a morning pick-me-up — especially those mornings when we're walking into a board meeting. Do you have one?

The Hush

Kudos to Wharton School Professor Tom Donaldson. He is being honored today in New York City by the Aspen Institute Center for Business Education with a Lifetime Achievement Award, a preeminent recognition during Aspen's 2009 Faculty Pioneer Awards event. Dubbed the "Oscars of the business school world" by the Financial Times, this annual event celebrates business school instructors who have demonstrated leadership and risk taking in integrating social, environmental and ethical issues into the MBA curriculum.

Prof. Donaldson wrote a very popular article for Directors & Boards titled "Dangerous Currents." In it he analyzed six factors that contribute to "almost every major corporate ethical disaster." One of those factors was Discussion Vacuum. Here is what he wrote about that:

"When bad things can't be talked about in a company, even worse things can happen.

"The most striking example is the U.S. tobacco industry, which was forced eventually to settle allegations against it for a cost of nearly $300 billion.

"The allegations centered on the claim that it hid the truth about cigarette smoking from its customers. From the 1950s until nearly the end of the century, lawyers in the tobacco industry concerned about liability suits had come so firmly to dominate the culture of the industry that discussions of smoking and health were virtually impossible.

"I remember a personal experience in the mid-1980s in which I spent a day conducting a workshop in Aspen, Colo., for executives of a leading U.S. tobacco company. Near the end of that day I suggested that we could no longer leave aside the question of tobacco and health.

"The response stunned me. After what seemed like a full minute of embarrassing silence, one participant announced, 'We don't believe there is a connection between smoking and health'! That was the extent of discussion of tobacco and health that I managed that day.

"I learned later that a name existed for what I had experienced — the 'tobacco hush.' Fear of liability had come so fully to dominate the tobacco industry's culture that people felt forced to remain silent. Yet, arguably, the 'tobacco hush' eventually cost the industry hundreds of billions of dollars."

It's a powerful story. It made a big impression on me when I first published his article five years ago. It certainly makes you wonder how many discussion vacuums contributed to the financial and business performance crises of the past two years. For example, was there a "leverage hush" that quashed any discussion of whether being levered at a 30 to 1 ratio made any sense?

As a board member, you need to be particularly attuned for any hushes that seem to settle unnaturally when certain issues are raised. Take a tip from Tom Donaldson's tobacco story — where there's a hush, there may be a fire.

On Turning Your Fellow Directors' Heads

In my blog post of October 30th below, I offered an excellent tactic, courtesy of Kent Thiry, on getting the best from your directors in a board meeting. Kent's tactic was one that the board chair might employ.

Here are three tactics that directors might employ to make their contribution to a board meeting more impactful. They are offered by Scott Ginsberg, a media and image adviser who has written several books on communications effectiveness:

• Bite Your Tongue: Don't say anything until the last five minutes of the meeting. That way you can collect your thoughts, clarify your position and speak confidently. By looking around, listening and learning first, your comment will contain its maximum amount of brilliance.

• Come Out of Nowhere: When the meeting leader says, "Does anybody have any questions?" or "Any final thoughts before we finish?" you raise your hand and say, "I had an observation..." All the people in the room will turn their heads, rotate their chairs and look in the direction of the one person who hasn't said anything all morning — you.

• Articulate Your Ideas: This is the best part. See, if you only say one thing, it becomes more profound because scarcity creates a perception of value. What's more, the longer you wait to say something, the more everybody else will want to know what you're thinking. Ultimately, your calmness, patience and quietude will draw them in.

Ginsberg's tactics may not be right for every director or for the dynamics of every board. But one or two, or all three, may work well for you and your participation on certain of your boards.

I can't help but think that directors using some combination of the above three tactics along with the chairman employing Kent Thiry's "airtime metric" described below would result in one heck of a productive board session.