Sunday, August 22, 2010

'The Thing That Keeps Me Up at Night'

On Aug. 16 two accounting firms, Eisner LLP and Amper, Politziner & Mattia LLP, announced that they are combining. The new firm, EisnerAmper, will create what Crain's New York called "a regional powerhouse": the 10th largest auditor of SEC-registered firms in the U.S. and the 14th largest overall in the nation.

Both firms have contributed their expertise in writing on governance and financial issues for Directors & Boards, so we certainly wish them well in their joining forces and extending their reach and capabilities to benefit present and future clients.

I am particularly grateful to a past Eisner partner, Bruce Strzelczyk (pictured). Bruce founded and co-chaired its technology/Internet/new media division. In 2002 he invited me to sit in on a workshop he organized for an audience of venture-backed company executives that was tackling how to run an effective board meeting. He assembled a marvelously talented panel to talk through the issues, and afterward he and I worked together to adapt that panel discussion into a superb article for Directors & Boards, titled "Ground Rules for Great Board Meetings."

Here is how Bruce set up the context for the gathering, which attracted an overflow crowd in a conference room at New York's Palace Hotel:

"Let me start off by telling you how this panel discussion was organized. I was at a board meeting with one of our portfolio companies. At the end of the meeting one of the VCs got up and said, 'This meeting was horrible. Let's fire the CEO.' All hands went up, and he was gone. It was an experience I will never forget. Nor will he!

"An incorrectly run board meeting can be a painful experience. It takes up more time for management, more time for the VCs, more time for everybody. For a company that is having problems, especially if it involves CEO performance, a badly run meeting is often the straw that breaks the camel's back. Or, when done well and everybody's expectations are met, it is much more efficient and much more effective."

And then we were off . . . on a discussion that ran a couple of hours, and resulted in 11 pages of solid tips and tactics in Directors & Boards.

Bruce mostly served as the panel moderator, but he did chime in with the occasional gem of wisdom of his own. I will always remember him for telling the crowd this:

""The best board meeting that I have ever attended was conducted by the CEO of one of our clients. He starts out the meeting this way: 'This is the thing that keeps me up at night . . . this is what I'm thinking about . . . and this is what I want you to help me on.' He gets a great response to that. He's now on his third company — the previous two were each sold profitably. My experience is that a board meeting's style, format, and matters covered are all reflections of what a good CEO is thinking about and concerned about."

A sad coda: Bruce died in 2005, way too early in life for someone who, again citing Crain's New York, was selected as one of the "100 leaders who will shape New York's technology industry." Thankfully he helped shape for Eisner clients and Directors & Boards readers some superb thought leadership on running an effective board meeting — one that won't cause a board to fire the CEO!

Thursday, August 19, 2010

The Lew Platt Test

The HP boardroom has been full of sturm und drang for a decade, dating back to Carly Fiorina's arrival in 1999 as an outsider CEO. It may be hard to fathom after the recent tumult, but a steadier state did actually exist at one time.

Back in 1997 Directors & Boards caught up with then chairman and CEO Lewis Platt for a cover article he authored on "Governance the H-P Way." Platt was a lifer at HP, having joined the company as an entry-level engineer in 1966 and worked his way up to being appointed CEO in 1992 and chairman in 1993.

As I am continually reminded, words from the past have a way of echoing through the ages to resonate pertinently on present circumstances. I say no more but simply share with you the concluding paragraph of Lew Platt's article:

"A good test of whether your board is functioning well is if you can answer 'yes' to the question, 'Do I feel free to discuss anything with my board . . . to talk with full candor about anything that's worrying me?' I feel fortunate in this regard. Not all CEOs can say the same. For one reason or another, something goes wrong with the relationship between the CEO and the board, or between company management and the board, which leads to secrets, to a lack of trust, to poor board performance, and ultimately to poor corporate performance. My board has been very helpful to me with its perspective and advice, and our candid dialogue takes place in an atmosphere of mutual respect, which is the key to having a good board relationship."

Upon retiring from HP in 1999, Platt went on to serve as CEO of Kendall-Jackson Wine Estates and as a corporate director. Interestingly, he was nonexecutive chairman of Boeing Co. when its board in 2005 forced the resignation of CEO Harry Stonecipher over an affair with a company employee. Platt died later that year at the age of 64.

Monday, August 16, 2010

Hit by a Buss

Any discussion of CEO succession planning has to take into account the 'hit by a bus' scenario — the sudden death or disability of the leader.

It is uncomfortable for the CEO and the board to face concerns about mortality. That's why a lot of boards don't do it. Last year the National Association of Corporate Directors reported that 44% of directors it surveyed at public companies said their boards have no succession plan in place for when the CEO leaves. To which leadership guru Marshall Goldsmith rightly reacted: "What kind of message does that send out? How about chaos, disorganization, and lack of preparedness?"

Crafting a succession scenario is especially hard to do when the leader is relatively youthful and full of energy and vitality. When he or she is at the peak of their potential, just getting underway with an organizational revival or, having done the heavy lifting of a turnaround and repositioning, ready to roll it out for greater gains to come, taking the board and shareholders along for a profitable ride.

But preparing for the unexpected must be done. The advice is familiar but that doesn't make it any less fundamental. Or timeless, going back to the Good Book: "We know not the time nor the hour. . . ."

We're obviously thinking of Mark Hurd with these comments. His sudden, shocking removal from office following ramifications of a relationship with a marketing rep for the company gives an electrifying twist to the 'hit by a bus' scenario.

Let's call it 'hit by a buss' — to distinguish moral hazards from mortality hazards.

Both concerns — as improbable as they are to ponder — must drive a new impetus to nail down a succession plan. That's the clear and compelling lesson for all boards coming out of the trouble at HP.

Thursday, August 12, 2010

Packard Principles

On March 15, 2002, just as the contentious merger of Hewlett-Packard and Compaq Computer was heading toward a showdown vote, David W. Packard took out a full-page ad in that day's Wall Street Journal to reprint the transcript of what he described as "an informal speech my father made in 1960 to a group of HP managers."

HP co-founder Dave Packard (pictured at left with Bill Hewlett) "spoke about HP people and values and the importance of genuine technical contributions to customers. Full of sincere and timeless truths, his words provide a window into the reasons for HP's enduring greatness," wrote his son (who was opposing the merger) in an intro to the printed speech.

The following is a passage from that 1960 speech by Dave Packard to HP's managers:

"I want to touch on other aspects of your work which are important. As supervisors you will be expected to set high standards of behavior. This is obvious and shouldn't even need to be mentioned. But the example you set is important and I am going to mention specific things which should be kept in mind. Tolerance is tremendously significant. Unless you are tolerant of the people under you, you really can't do a good job of being a supervisor. You must have understanding — understanding of the little things that affect people. You must have a sense of fairness, and you must know what is reasonable to expect of your people. You must have a good set of standards for your group but you must maintain these standards with fairness and understanding."

Wednesday, August 11, 2010

Why Does Succession Planning Produce So Few Successors?

As noted in the blog posting below, that is the question that Heidrick & Struggles Vice Chairman Stephen Miles (pictured) has wrestled with. In October 2009 he issued an advisory that identified three "common roadblocks," as he called them, that "sabotage effective leadership transitions at companies."

The Hewlett-Packard board's ouster last week of CEO Mark Hurd prompts a fresh focus on these roadblocks. Here is how Miles has described them:

Favoring the 'exciting' external candidate over an internal option: "It appears boards often prefer the devil they don't know to the devil they do. They often find it difficult to imagine an internal candidate in a higher role after seeing them operate for a time in a lesser one. Internal candidates will hear time and time again that they are still 'one or two years away' from being ready, while they watch their external 'competition' being lauded for similar efforts."

Demanding a 'ready now' successor: "The concept of a 'ready now' executive effectively eliminates perfectly viable candidates from true consideration. The fact is that a company would only know that someone is 'ready now' after the fact — when they see the executive moving to another company, probably a competitor, and proving himself there. The candidate might have been ready to lead all along, but the company missed its chance. This is actually a risk management decision — and the amount of risk a board can take is dependent on the requirements of the role looking forward combined with the complementarity of the top team."

Focusing on the high-profile CEO role and not on the whole team: "The best succession planning really involves constant assembly and re-assembly of a leadership puzzle with many pieces, including not only the CEO but the CFO, COO, sales and marketing chiefs, and other C-level officers. A trend we are seeing in the best-managed companies is that boards are looking beyond the CEO and his or her direct reports. Now boards want a detailed calibration of the C+2 and C+3 executive populations to see who's 'on deck' to take the reins down the road. Again, from a risk management perspective it is important to understand the bench strength and resulting strength or risk in the 'people portfolio.' "

Miles, who oversees the Heidrick & Struggles worldwide executive assessment/succession planning activities, also made an observation in this advisory of more than nine months ago that eerily presages the precarious position that the H-P board got itself into — if indeed it must look outside the company for its new CEO:

"Boards can, and really must, direct succession planning with an honest evaluation of current talent and the development of a rich pipeline of talent that can form the future of the company. It is this kind of forward-looking, proactive leadership that can mitigate risk and maintain confidence among internal and external stakeholders."

Tuesday, August 10, 2010

Into the Abyss

There is so much that is distressing in the sudden forced resignation of Mark Hurd (pictured) from Hewlett-Packard.

The distress level is so high because there is no reasonable explanation for the personal tragedy that unfolded. A man living a life of accomplishment and acclaim falls in a flash into the abyss of disgrace. And those who are in the know about why and what really happened aren't telling.

Of all the reporting and analyzing that I have read since Friday's ouster, I suspect Business Insider's Henry Blodget gets pretty close to the truth with this review of the situation — but he even has to qualify that his truth seeking is "as best we can tell."

As the shock wave of the ouster subsides, here is the next reason to be distressed about this whole affair: the early line seems to indicate that the H-P board will be going outside for a new CEO. For a company with such a history of turmoil at the top (even predating Carly Fiorina's reign), the H-P board should be one of the least likely to have yet again bungled an orderly CEO succession by not ensuring there was one or more eminently qualified internal candidates.

Why does CEO succession planning produce so few successors? That is a question that Stephen Miles, vice chairman of executive search firm Heidrick & Struggles, raised last year when he looked around at Corporate America's C-suites. Then crunching 2008 data, this expert in leadership succession issues noted that of the 80 new CEOs who were appointed among Fortune 1000 companies that year, only 44 of them — 55% — were promoted from within.

"While almost all companies technically have a succession plan in place," Miles stated, "the fact that 45% of them had to go outside to hire a CEO means that many of these plans failed to hit the mark."

He has pinpointed several ways that boards trip themselves up, which I review in the follow-on posting of August 11th. Will we see clues to how H-P "failed to hit the mark"? (No wordplay intended.) Almost surely.

Now that we have witnessed a CEO falling into an almost unimaginable personal abyss, we are about to witness a board falling into the abyss of a succession nightmare — one that, maddeningly, is all too imaginable.

Thursday, August 5, 2010

Sidney Harman on 'The Most Overlooked Skill'

Here is an insight into Sidney Harman, new owner of Newsweek, that you won't find in the coverage of his purchase of the magazine this week. I think it explains a lot about why he is making this huge investment.

Harman has been aces in my book since I read his 2003 memoir "Mind Your Own Business" (Currency Books). It was just what its subtitle promised: "A Maverick's Guide to Business, Leadership and Life." I published an excerpt in Directors & Boards. Not only that, I then took that excerpt and made it a reading assignment in a course I have been teaching for several years at Temple University.

I wanted my Directors & Boards readers as well as my students to appreciate how much an impressive corporate leader such as Sidney Harman regarded the ability to write as crucial to success in life. Here are a few of his observations:

• "Sadly, writing is lightly regarded in business and often dismissed as unnecessary. Executives frequently declaim, 'I do not write. I'm a people person. I like to look the other fellow in the eye.' That's a clever rationalization. There is a time to look the other fellow in the eye, of course, but writing is a unique and powerful instrument."

• "The person who invests in writing, who exercises the discipline to do it well, and who uses it frequently, will possess a matchless instrument for discovery, clarity, and persuasion."

• "My own experience persuades me that it is the most overlooked skill in the business arena, and one that rewards the executive in many ways. It helps clarify one's thinking. It improves all other means of communication by enhancing vocabulary and promoting the ability to formulate thoughts in coherent and creative ways. It is first cousin to public speaking, because it helps frame the material in a fashion that makes it explicable and communicable. That is essential in public speaking."

• "Writing, like public speaking, does not come easily. You must invest in it. You must tolerate frustration and disappointment. You must persevere. But hanging in and learning from one effort to the next pays dividends."

• "It will come as no surprise that I have promoted writing at Harman [International Industries, the maker of audio equipment that he founded in 1953]. Today in our company virtually every executive of any consequence writes. I would wager that virtually all of them agree that it is one of the most productive tools they have acquired at the company."

If you have 13 minutes, spend it watching Harman address the Newsweek staff. You will see up close a leader of great grace, charm, wit, intelligence and, yes, courage. Dire predictions are still being leveled for Newsweek's prospects, but it seems to me that the publication is in sound ownership hands for writing its next chapter.

Tuesday, August 3, 2010

What You Say

Be mindful of what you say — inside or outside of a board meeting.

It is a learning point from Walter Green, former chairman and CEO of Harrison Conference Services, a leading conference center management company. He has written a book, "This Is the Moment" (Hay House), that will be coming out this fall in which he describes a fascinating personal undertaking. Over the course of a year he went on the road to reconnect with 44 people who played an important role in his life — at which time he expressed to them his gratitude for how they shaped the person he became.

It was striking to him to realize that, often unaware at the moment, he did his own fair share of shaping.

Green writes: "We all do some things in life automatically, and that doesn't diminish the value of them. As my friend Stephen Kaufman, a senior lecturer at Harvard Business School (and one of my 44), told me, 'Many times we fail to realize that simple, off-the-cuff comments or reactions that don't really register with us can touch important nerves or strike chords in others. My students and former colleagues often drop me notes referring to something I did or said five or ten years ago as having had a deep impact on them, yet at the time they just seemed to me like ordinary conversations with no particular import.' "

Green's important conclusion: "To be reminded of the variety of ways in which we impact people — no matter what our condition or position or locale — left an indelible impression on me. Being made aware of the value to others of what we do or say made me vividly conscious of how I might be more helpful in the future as well."

A sound piece of advice for modulating your formal interactions — and perhaps even more consequentially, those casual tossed-off comments — with your management team and fellow board members.