Thursday, April 22, 2010

Weinberg's Words

So, Lloyd Blankfein thinks the SEC's attack on Goldman Sachs is politically motivated and is telling clients, according to today's Financial Times, that it will "hurt America."

Sidney Weinberg must be spinning in his partner's office in the great beyond.

Weinberg is a renowned past leader of Goldman Sachs & Co. He joined the firm in 1907 and became chairman in 1930, heading it until 1969. His son John joined the firm in 1950, eventually rising like his father to head the firm as co-chair with John Whitehead from 1976-1984 and as sole chair until 1990.

Weinberg pere died in 1969, but he was the author of a cover story in the Summer 2003 edition of Directors & Boards. How that happened was that we got our hands on a remarkable speech that he delivered in 1949 to the Harvard Business School Club of Cleveland. He titled his talk, "The Functions of a Corporate Director." Why this speech is remarkable was the very reason I made it the cover story — I wanted to bring to a modern-day audience a "present at the creation" document that put forward how a public company board of directors needs to conduct itself for a progressive era of governance. It was everything the most assertive activist investor would want to hear.

I think of Sidney Weinberg, nicknamed "Mr. Wall Street" by the New York Times for his vast influence in his day on the banking business, spinning madly at Blankfein's assertion that the SEC is "hurting America" because here is what the distinguished banker warned in his 1949 speech:

"One must remember that every time a national corporation takes a step which is, or appears to be, against the public interest, it reacts on all corporations and is detrimental to our whole system of private enterprise."

The message, then, from one former Goldman chairman to his present counterpart: You are right about America being hurt, but are very wrong about the reason — it's not the attack on Goldman but what Goldman may have done to draw out the attack dogs.

Friday, April 16, 2010

Wasted Real Estate

I started reading the Wall Street Journal in the 1970s, when I first got into the business world. The long-running joke was that the loneliest job in the newspaper business was photo editor of the Wall Street Journal, because the paper rarely, and I mean almost never, ran a photograph.

As the WSJ evolved its page design (still an unhappy development for us diehard business-news junkies), that joke has been long retired. But would someone please tell me why photos of highway accidents in California and crime victims in Chicago, both of which appeared in the WSJ this week, are now taking up important real estate in this bible of business news?

I don't get it. There is so much of consequence happening in the corporate and financial markets that needs continuing, detailed examination — not the least of which are complex narratives like today's lodging of fraud charges by the government against Goldman Sachs. For the paper to squander even the slightest attention on grisly car wrecks and random street crime is ludicrous.

I don't suppose under Rupert Murdoch's proprietorship we can hope the photo editor's job is going to get a little more lonely again. But maybe the job could be more businesslike in its photo selection. Give us more of what board members need to add to their understanding of what's going on on Main Street and Wall Street.

Wednesday, April 14, 2010

What Steve Wynn Reads

Speaking of Steve Wynn (see my blog post of April 13th below), Joel Kurtzman tells a good story about the casino mogul in his new book, Common Purpose [Jossey-Bass].

The culture at Wynn Resorts, Kurtzman explains, rewards heroic efforts by employees to take care of the company's customers, and then to share these experiences with fellow staffers. The company has an internal website for employees to tell their stories of what they did to make guests happy. The objective in sharing their stories is to transfer the experiential learning so that each employee more fully grasps the essence of the Wynn Resorts experience.

Stories like the one of the bellman who helped an elderly guest to her room, upon which the guest realized she left some needed medication back home. Not to worry. Here is what happened next, as Kurtzman recounts:

"The bellman wrote down the woman's address in Los Angeles, and at the end of his shift and on his own initiative, he changed his clothes, went down to the employee parking lot, and got into his car. He filled the tank with gas and proceeded to drive four and one-half hours through the desert to the Los Angeles suburb where the woman lived. He knocked on the door of the house and was let inside by the woman's son, who handed the bellman the bottle of pills.

"The bellman then climbed back into his car and drove another four and a half hours to Las Vegas. When he arrived, he put on his uniform, rode the elevator to the guest's floor, and delivered the pills to the astonished, delighted, and relieved woman.

"When he was finished, he went to the employee lounge and posted his story on the website so other people could learn from his actions on behalf of a guest."

There are hundreds of such stories on the company website. The No. 1 reader of the site is, you guessed it, Steve Wynn. Kurtzman notes: "Bellmen, clerks, waiters, and maintenance people know the company's founder is seeing and thinking about their stories of heroism at work."

I call Wynn an impresario — someone who makes things happen with an extra bit of zing and swagger — in my blog posting below. Kurtzman in his book calls Wynn "a consummate hotelier, showman, casino operator, and real estate operator." I think we both have it right. And we both know, as do most boards of directors, that Corporate America needs more leaders of this kind — CEOs who, as Kurtzman's book is subtitled, "get organizations to achieve the extraordinary."

Tuesday, April 13, 2010


"Impresario." There are not many company CEOs who can be called that. Steve Wynn is one. The business world needs impresarios. They make things happen -- with an extra bit of zing and swagger in everything they do.

Directors & Boards almost had Wynn in our hometown. For the past few weeks he had been angling to take over a long-troubled casino project on the Philadelphia waterfront. It looked like he had a lock on the property — extensive design plans were drawn up and he had been making good headway with the licensing authorities.

Although I hate the idea of city and state municipalities resorting to gambling to close their budget gaps, I looked forward to seeing Wynn bring his brand of sizzle to a business community that has very little of it. I thought to myself that maybe when he got established here I would have the opportunity to do a sit-down with him to talk about how he runs his board at Wynn Resorts.

Then . . . poof. Away he went. Sudden abandonment of any interest in the casino development. It was a surprise when he first showed up, and it was surprise when he scooted back out of town. But that's the way with impresarios — they are full of surprises.

Say what you want about Wynn, this he has: a crisis management philosophy that belongs in every CEO and board playbook. In an interview with the Wall Street Journal during the darkest days of the financial markets meltdown, he showed no fear. "Are we all supposed to go buca buca buca and fall dead on the floor? Or are we supposed to have the ability to survive and do well? ... The hell with Wall Street. I'll be here after this is over."

That's what I like about impresarios. And that's why we need more of them in Corporate America.

Sunday, April 11, 2010

Bob Rock, at 60 . . . and at 22

Directors & Boards Publisher Robert Rock celebrated one of those seminal birthdays this past week — the big 6-0. Our congratulations to him on his achieving this milestone with his usual cheerful aplomb and hearty humor.

Bob became publisher of Directors & Boards in 1988. It was the smoothest of executive successions — from father Milton, who spearheaded the purchase of the journal in 1980 and became its publisher at that time until son Bob's transition into the publisher's seat. With this new role came a new responsibility for Bob: to pen the "Letter from the Publisher" column in each edition. This is the publisher's chance to opine on the big issues of the day that may be vexing the country and its corporate leaders, and to point the reading audience to the higher ground.

For his first "Letter," in the Summer 1988 edition, Bob took on no less ambitious a topic than the state of American competitiveness. "Declarations of the decline in U.S. competitiveness have been echoing throughout corporate boardrooms, university classrooms, and Capitol Hill hallways," he noted. But he would have none of it.

With a forthrightness that would mark his succeeding Pub Letters, as we call them around the office, he identified the immediate need ahead now that the big purge of mid-1980s restructuring (often instigated by takeover types) was behind Corporate America: "The next round requires U.S. firms to enhance their competitive position in world markets by investing in education and training."

Then came the challenge. "The board of directors," he declared, "must make certain that appropriate, even aggressive, investments are made in the corporation's human resources. What will separate the leaders from the also-rans — companies as well as nations — in the world order of the 1990s is clear: the ability to marshal the best-trained and most highly motivated people, from the factory floor to the boardroom."

That was a darn good call for his first outing as pundit. (Think of the Internet Age that was just about to dawn.) And Bob certainly followed his own advice. In the 22 subsequent years in which he has topped the masthead of Directors & Boards as our publisher, he has invested much of himself — his time, talent, enthusiasm, support, and commitment — to ensure the journal's success and to make sure that Directors & Boards continues to play a seminal role in the education of corporate directors.

On behalf of all the staff and his many colleagues in business and boardrooms that he has touched through the pages of the journal, we salute him on this milestone birthday.

The specially designed mockup cover of Directors & Boards, pictured above, was crafted by the journal's longtime art director, Bill Cooke, for this celebratory occasion.

Wednesday, April 7, 2010

Take the Experience First

It doesn't take much for me to find a reason to cite one of the grandmasters of American business — Harold Geneen, leader of International Telephone & Telegraph Co. in its heyday decades of the 1960s and '70s. Close readers of Directors & Boards, our monthly e-Briefings, and this blog come across numerous citations to the managerial wisdom of Hal Geneen — such as this, and this, and this.

My thoughts again turn to Geneen in reflecting on the hornet's nest being stirred up by the New York Times article on unpaid internships. The essence of the article is that most companies that have unpaid interns are likely violating federal law on minimum-wage and other working standards.

Here is the passage from the NYT article that is riveting attention: " 'If you're a for-profit employer or you want to pursue an internship with a for-profit employer, there aren't going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law,' said Nancy J. Leppink, the acting director of the [Labor Department's] wage and hour division."

This shot across the bow of Corporate America is not being well received. We can count on the Wall Street Journal to mount a more rational counterpunch. Its "War on Interns" editorial today takes the emminently sensible position that unpaid internships aren't "exploiting young people. It's letting young people exploit an opportunity."

The late and great Hal Geneen would agree. Here is how he once put it: "You get paid with two coins in life — money and experience. Take the experience first. The money will come later."

There is an extension of this unpaid intern controversy to board life. Many executives believe that serving on nonprofit boards will eventually yield an offer to join a corporate board. Others pooh-pooh the notion that nonprofit board service is a stepping stone to a public-company boardroom. Where I come down on this, not surprisingly, is in the Geneen camp — take the board experience first.

First of all, accept the nonprofit board invitation if you believe in the mission of the organization and, second, if you believe that you can help support and advance the organization through your board involvement. A distant motivation is if you think it will get you higher up on the opportunity scale for a corporate directorship. That may happen — just as an internship may open up employment options — but "take the experience first" and have a spirit of openness for whatever might come later. If Geneen is right — and one didn't do well betting against him when he was in his prime empire-building years with ITT — you will be rewarded later.

I will be monitoring how the unpaid internship debate plays out, but I will continue to share Geneen's sound advice with the students I teach at Temple University.

Monday, April 5, 2010

Donald Frey: He Saw the Ugly

I never knew Donald Frey was the designer of the Ford Mustang, which he did earlier in his career as an engineer with the Ford Motor Co. and which the New York Times highlighted in its obituary of him. When I published him in 1995 I knew him as the former chairman and CEO of Bell and Howell Co. and a veteran director who had served on many corporate boards. Mr. Frey died a month ago, on March 5, at the age of 86.

I also knew him as that rare corporate leader who let it all hang out — the good, the bad, and the ugly (primarily the latter two categories) — in recording his experiences in the boardroom. His article for Directors & Boards, "Reminiscences on Succession Planning," was an unvarnished set of reflections on how CEOs and boards mishandle their responsibilities for ensuring a smooth and effective succession.

Just how ugly does it get? Here are a few of his "reminiscences":

• "I have observed cases of CEOs trying to stay on (perhaps better said, 'hang on') after normal retirement. Various reasons are offered, one being that his or her successor is not yet ready and needs more mentoring by the CEO. In one case, a hidden reason was that the retiring CEO did not make any money on his stock options. In another case, no logical successor could be identified because the CEO in earlier years systematically destroyed potential successors, so that no one is perceived by the CEO as threatening or perceived by the board to be ready at his normal retirement. (Boards almost never hear both sides of a dismissal or demotion). Lack of self confidence or paranoia are surprisingly not unknown, even with successful CEOs. For whatever reason, the sitting CEO is kept on year to year by a supine board, sometimes until the roof totally caves in."

• "Another scenario has the CEO appointing, with no board involvement, one of his internal buddies as successor. The chief characteristic of this heir apparent may be loyal service—to the retiring CEO. Loyal service does not automatically mean leadership. The ultimate result is frequently disaster, with yet another new chief executive to soon follow. This can give birth to the oft-noted strong-weak-strong-weak CEO sequence."

• "I have observed on a number of occasions how long it takes to get a consensus for needed change. The reluctance to move on an underperforming CEO is palpable at first, and changing minds takes time. Seemingly competent, intelligent men and women can sit at board meeting after board meeting watching the company go nowhere, or slowly sink—"slow leakers" I call them—and do or say nothing. Nobody seems to want to speak up. Nobody says those magical and historic words,'The King has no clothes.' "

Don was 71 when he penned these reflections, and even though he was comfortably ensconced in academia at the time as a revered professor of industrial engineering and management science at Northwestern University, it still took courage to be so candid in revealing how often "the board has no clothes" when it comes to its preeminent accountability for CEO succession.

Thursday, April 1, 2010

Cary Grant on Executive Pay

The month of April kicks off in earnest the executive pay reporting season. The Wall Street Journal is headlining today that "CEO compensation edged lower in 2009, the first time in two decades that pay declined for two consecutive years." This finding is based on a survey done for the WSJ by the Hay Group.

My first reaction to the finding was, "How could they tell?"

I am only half-jesting. I had just a week before sat in on a day-long meeting of directors hosted by Drexel University's Center for Corporate Governance. CEO pay was a big topic of discussion. The debate veered in many directions — a major one being the extreme complexity of proxy disclosures of executive compensation. The verdict seemed to be that pay data in proxies are virtually undecipherable, and what is readable borders on pure boilerplate — yielding little to no insight on the actual comp results or any sign of the governance footprint on pay policy.

I am sure the Hay numbers crunchers did their best to defog the data to come up with their findings. This is a useful survey to lead us into the fevered pitch of the proxy disclosure season.

How to avoid all this agida over CEO pay? How about if everyone followed Cary Grant's advice. As told to David Mahoney, former chairman and CEO of Norton Simon Inc. and cited in his memoir Confessions of a Street-Smart Manager, here is what the legendary actor had to say on the subject:

"Do your job and demand your compensation — but in that order."

Cary Grant had the right idea. That is proper counsel for anyone — from the CEO (and board directors) to the shop floor. If CEOs are doing their job — creating value for the shareowner — then there should be nothing to be defensive about. If you are worth it, and you know you are worth it, and your board knows you are worth it, then be steadfast under siege.