The 'Black Swan' Report: No Calm Waters Ahead

The market is having a good run. Yesterday's gain of 188 points now has the Dow at its highest close since early November. It would be nice to believe that the Great Recession is coming to a close, as some are daring to prognosticate. In such moments of euphoria, it is worthwhile to put your hands on "Preparing for 'Black Swan' Events," a special report issued by The Dilenschneider Group Inc.

Thanks to the financial crisis, the term Black Swan has entered the everyday lexicon. This particular report describes the theory as referring to "large-impact, hard to predict, rare events and their dominant role in history." As the Wall Street Journal recently put it, " 'Black swan' alludes to the once widespread belief that all swans are white — proved false when European explorers found black swans in Australia. A black swan event is something extreme and highly unexpected."

The Dilenschneider report offers concepts the researchers believe "may be helpful in dealing with 'Black Swan' events ... a glimpse of what we might expect in the interest of helping you prepare your business and yourself for tomorrow." In Part 2 of this citation of the Black Swan report posted earlier today (see below), I'll highlight a few of the report's projections for the nature of managerial leadership that we'll need to get the economy back on track.

Perhaps the release of something like this Black Swan report can be seen as a contrarian indicator — that maybe a paper like this, hitting the desks of decision makers in about the 18th month of this dank and dangerous recession, is a sign that we are near the end of it. But even if the worst is over, the report's main conclusion is sobering: "Do not expect calm waters ahead. We face a long period of turmoil."

Hence a report like this deserves a close reading. You'll find a copy on the firm's website (see link above).

Of Black Swans and Gold-Standard CEOs

It's good to be on the mailing list of Robert Dilenschneider (pictured), CEO of The Dilenschneider Group Inc. Several times a year this longtime high-level counselor to CEOs and board directors sends to his clients and colleagues a series of trend reports. These are like getting a crystal ball that gives you a peek into the future — the endgame for which business executives should be orienting themselves and their companies ... and the forces amassing that could trip them up along the way. I know Bob personally as I am in the fortunate position to have him as a valued member of the Directors & Boards editorial advisory board.

His firm's most recent report, "Preparing for 'Black Swan' Events," cited in the post above, was released in May 2009, but should still be at arm's reach, or a click away, even if we are coming to the end of the Great Recession. The world has changed. Here are a few of the report's conclusions on the leadership that will be needed in times ahead:

• "If there is one quality that is certain to be valued in the executive leader of tomorrow, it is adaptability. Inflexible leadership has not worked for quite awhile, but it has taken the current economic climate to bring that home."

• "A combination of competence, pragmatism and performance will be the new gold standard for top managers. Yesterday's flashy CEO will be seen as suspect."

• "CEOs and executives working their way up the ladder will have to be able to change direction quickly to please their boards as well as the public. The most valued CEOs will be those who are able to shift business practices, personnel and policies to adapt to the changing economic scene."

• "Look for a new dynamic between employees and top managers and for new forms of governance."

• "Executives are not as likely to shift from company to company as they have done in the past. (Headhunters already have pared down their operations.)"

• "There is a great potential for small businesses and entrepreneurs to lead the way out of the mess we are in. Government will need to recognize this and provide incentives."

• "Risk-taking, hard-working people with brilliant ideas will emerge from the wreckage of the economy, while the business careers of many who are in charge now will be over, gone, along with seven-figure compensation."

This is only a sliver from Bob's Black Swan report. Here is my own tacked-on projection: If the world moves in the direction that this report foresees, there will be plenty of work ahead for the trend-tracking contributors to the Dilenschneider Group's reports. And my recommendation: Get to know Bob, and ask to be added to his mailing list.

Harry J. Gray: Early Promise, Big Legacy

Both the Wall Street Journal and the New York Times did a good job with their obituaries of Harry J. Gray, tracing his hardscrabble beginnings to rise to the chairmanship of United Technologies Corp. "The Grand Acquisitor," as he was known for his voracious appetite for dealmaking, died last week at the age of 89. Gray was in office in my early years as a journalist, so I well remember him as he built what the Times called "one of the world's broadest and most powerful conglomerates."

Here is one story about this dynamo's leadership that didn't make it into either the WSJ or Times obit. Another Harry J. told this tale — Harry J. Bruce, former CEO of the Illinois Central Railroad and a leadership maven who wrote a cover story for Directors & Boards in 1997 that brilliantly dissected the characteristics that make up a successful CEO. Here is Harry Bruce's reflections in that article on Harry Gray as a leader in the making:

"The corporate world knows and respects this Georgia native and highly decorated World War II veteran as the retired chairman ad CEO of United Technologies Corp. How many people know, however, that Gray first emerged as a business leader in his second job, when he joined Greyvan Lines, the Chicago-based household moving and storage subsidiary of Greyhound Lines?

"On taking his new position in 1951, Gray was puzzled to note that Greyvan was assessing warehouse charges based on how many square feet of floor space a customer's goods occupied. Yet the operative figure, as he saw it, should have been cubic capacity. If Greyvan were to begin costing and charging based on three dimensions instead of two, Gray reasoned, revenues would improve dramatically.

"Pushing firmly but diplomatically for his innovation, Gray was able to overturn a historic, industry-wide practice. The results were as he had hoped: Greyvan's bottom line began improving immediately.

"Gray's approach represented a fresh rethinking — and redoing — of a conventional, unquestioned procedure that had become so endemic to an entire industry that only a confident outsider could grasp its fundamental absurdity. In trusting his viewpoint and influencing his superiors to embrace it, young Gray displayed true leadership without portfolio."

Harry Bruce's concept of "leadership without portfolio" is one that he says he came up with after reviewing the careers of many successful CEOs and realizing that their rise to the top wasn't "as mysterious as might be assumed." Their records, Bruce notes, "showed that very early in their careers, well before they had acquired any substantial measure of formal power or authority, they already were taking initiative, risking their careers and involving not only their subordinates but also their superiors in innovative projects of their own devising for which they had no explicit authority."

Bruce concluded his profile of Gray and a couple of other prominent leaders and how they showed budding promise by asking, "How many of today's CEO candidates have leadership without portfolio in their backgrounds? How many corporate directors hunting for a CEO can identify the candidates who do?" Harry J. Gray certainly fit this prized mold.

'Get Me on the Cover of Business Week'

This was tough news to wake up to on this Monday morning — Bloomberg reporting that McGraw-Hill is looking to dispose of Business Week magazine. This is another gut punch for those of us in the media business.

Depending on what happens with this disposal, I may have to dispose of a reading I use in my "Fundamentals of Public Relations Writing" class at Temple University.

I teach the students, all budding PR practitioners, a concept of my own formulation that I term the "high hurdle" — which means that if they want to show leadership ability, they must find out what publication their company or client's CEO most desires to be prominently featured in and then pull out all the stops to get their CEO into it. (It needn't necessarily be a publication — it could be a TV show, like CNBC's "Squawk Box" or "The Today Show" or "Oprah," or it might be a high-profile speaking slot, perhaps to the Council on Foreign Relations or the Economics Club of New York or a trade industry keynoter.)

I share with the students a compelling example of the "high hurdle" that comes from the book, Confessions of a PR Man (New American Library, 1988), written by Robert Wood, president of Carl Byoir back in the days when it was one of the PR industry's venerable firms. Listen in on the exchange between Wood and his client Burt Sack, the PR director for Howard Johnson & Co., which took place when the two were reviewing the HoJo PR strategy in the 1960s.

Wood writes: "Burt leaned back in his chair. 'There's one objective that towers over all the others,' he said. 'It's this — Mr. Johnson wants to be on the cover of Business Week.' He was referring to Howard B. Johnson, the founder's son and now the CEO.

"I laughed. 'The cover of Business Week? That's a lot easier said than done.'

" 'Don't laugh, Bob. This is serious. He really wants it.'

"I shrugged. 'Okay, we'll do our best. It isn't impossible. We have had clients on the cover before. But it doesn't happen every week, Burt.'

" 'I know that. But I've got to warn you. No matter what else you do for us, Mr. Johnson will never be completely satisfied until he sees that cover.' "

Thus begins my class's case study of meeting the "high hurdle" and making a client happy. For the record, Bob Wood exercised highest-order media relations skills and got Howard Johnson its cover story.

For most of my three-decade career as a business writer and editor, the cover of Business Week was a plum placement. My lesson in leadership will still be taught to the incoming generation of PR execs, but I'll maybe be retiring this reading now that Business Week is falling down the rabbit hole.

There is an addendum to this case study: The HoJo PR director raises his glass in a post-cover celebratory toast and says to Bob Wood, in all seriousness, "Well, here's to the Time cover we're looking for next." Time cover? Hoo boy. I say no more.

Succession: Accept that Nightcap Invitation

The passing of Robert McNamara, which I reflect on in my previous post, offers the opportunity to share this story of how he was offered the presidency of Ford Motor Co. This is a tale McNamara told in his book, In Retrospect: The Tragedy and Lessons of Vietnam (Vintage Books, 1996).

"In the summer of 1960," McNamara writes, "Ernest Breech, second in command under Henry Ford II [pictured], was getting ready to retire from Ford. In July, Henry, John Bugas [a rival senior executive with an eye on being named president] and I went to Cologne, West Germany, to visit our German company, which was headquartered there.

"We returned to our hotel about 2 a.m. after one of Henry's nights on the town. The elevator stopped at the floor where John and I had rooms, and we started to get off. Henry, whose suite was one floor above, said, 'Bob, come on up for a nightcap.'

" 'I don't want a nightcap,' I said. 'I'm going to bed.'

" 'Henry, I'll join you,' said John.

" 'I didn't ask you,' Henry told him. 'I invited Bob.'

"I went on up, and it was then that Henry asked me to become president of the company.

"I told him I would think about it, talk to Marg [his wife], and give him an answer within a week. A week later I accepted. I was formally elected by the board in late October."

A fun moral of the story: A request to join in on a nightcap can be more than just an invitation for a late-night toddie.

Robert McNamara: A Fan's Note

My enduring visual image of Robert McNamara, who died on July 6 at the age of 93, is a disturbing one — watching this steely-eyed Washington official on television in the 1960s presenting the latest body counts from the Vietnam battlefields. That said, I was nonetheless always fascinated by this complex man who undertook vastly complex schemes — waging war in Vietnam or, as World Bank president, waging war on poverty, or later in life, waging a kind of war to rehabilitate his image as the "architect" of the Vietnam conflict. In its lengthy obit, the New York Times called him "the most influential defense secretary of the 20th century."

He never seems to have waged war in the boardroom, however. He was a big-time corporate director who apparently served with distinction ... but exceedingly under the radar. There is virtually nothing in the coverage of his passing that details these public-company affiliations. And there is nothing in the public record by or about him that I am aware of that sheds any illumination on his corporate board service.

I know of McNamara's board affiliations because he and I had an exchange of correspondence in 1980s. Until I checked my archives, my memory was certain that I had invited him to write an article for Directors & Boards. But that wasn't it. At the time I was helping out as program chair for the Philadelphia Chapter of the National Association of Corporate Directors. What I did was invite McNamara to come speak to our group.

In unearthing my note to him, dated Jan. 27, 1986, I see that I wrote this:

"I had the very good fortune to be in the audience for your appearance before the World Affairs Council of Philadelphia's Conference on Strategic Defense and American Security. You gave us a terrific understanding of the 'Star Wars' concept and workings — or nonworkings, as I think you indicated for good reasons.

"My thought in inviting you to speak to our organization is that as a director of the Washington Post Co., Trans World Corp., Corning Glass Works, Bank America Corp., Royal Dutch Petroleum Co., and the Ford Foundation, we could look to you for a stimulating briefing on how you view the role of the board today and what you see as the major issues facing directors and managements now and in the years ahead. This is only a start in suggesting possible subject matter of mutual interest to you and our group."

In a polite and not unsurprising response, considering what his life must have been like with the above board affiliations, he wrote back:

"Thank you for your letter of January 27 and its invitation to speak before your Association. I wish I could accept. However, my schedule is so overcommitted, I cannot take on additional assignments. I am sorry and hope that you will understand."

Rather than the TV image of the cold, calculating, accused warmonger, I much prefer to hold this image of McNamara — as a distinguished and accomplished board director who undoubtedly dispensed great wisdom on organizational management and global affairs to his fellow directors and management teams. What a story he might have shared if we at Directors & Boards or the NACD could have gotten him to talk about being not an architect of war but of public company governance.

Lifetime Achiever — In and Out of Committee

It's been a rough and tumble six months in the business trenches and corporate boardrooms. Directors have taken a lot of hard knocks. So let's end this month, quarter, and half year on a upbeat — with the pleasing news that our close colleague here at Directors & Boards has just been chosen by the National Association of Corporate Directors for one of its most prestigious awards.

Norman Augustine, retired chairman and CEO of Lockheed Martin Corp., is the 2009 B. Kenneth West Lifetime Achievement Award honoree. This award was created in the name of a former NACD chairman who was instrumental in bringing management, boards, and investors together to find common ground on issues of transparency, director independence, and corporate responsibility. Norm will be honored at the NACD's annual conference in October.

Norm is no stranger to awards, as you might imagine. He's pictured above, second from the left, when he was presented two years ago with the Bower Award for Business Leadership, a great honor bestowed by the Franklin Institute Science Museum in Philadelphia, for his leadership of Lockheed Martin and his extensive public service devoted to advancing U.S. science and technology leadership. (Photo by Joyce E. Santora, Main Line Life.)

Norm serves on the Directors & Boards editorial advisory board and has written several articles for the journal, all first-rate in their thinking and often laced with humor. The first article of Norm's that I published was back in 1987. It was a critique of committees, drawn from his book, Augustine's Laws (Viking Penguin, 1986). Here is a sample of Norm's wit and wisdom, elegantly combined:

• Committees have many phenomena associated with them. For example, the amount of time devoted to the debate of a subject is inversely proportional to the importance of the outcome. This is partly because the items with major consequence often have obvious answers ("Should we attempt a hostile takeover of Company X which is 50 times our size?"); whereas issues offering little basis for choosing between them naturally provoke disagreement ("Should the new cafeteria be carpeted or not?"). Furthermore, everyone is an expert on carpets — very few on hostile takeovers of industrial behemoths.

• Another mystery commonly observed by committee pathologists is that the time consumed in debate is dominated by those with the least to offer (and to do). How often, whether at a board of directors meeting or a neighborhood association meeting, has one been subjected to interminable discussion only to have the resolution under consideration pass unanimously?

• Committees have thus been dismissed, in the words of Harry Chapman, with the following epitaph, in the form of a series of rules: "Never arrive on time; this stamps you as a beginner. Don't say anything until the meeting is half over; this stamps you as wise. Be as vague as possible; this avoids irritating the others. When in doubt, suggest a subcommittee be appointed. Be the first to move for adjournment; this will make you popular — it's what everyone is waiting for."

Congrats to Norm on this upcoming award. The committee that chose him for this Lifetime Achievement honor must have flouted some of Augustine's Laws because it obviously knew what it was about and it accomplished a worthy result.