EXCUSE ME LEADERS- Leadership During Times of Financial Crisis

LESSONS FOR CREATING A GOOD CORPORATE CULTURE

2010-03-30T08:00:00.002-04:00

Many of you are aware that I often write about the importance of creating and maintaining a values based and strong corporate culture. In my opinion, it goes hand in hand with the importance of strong leadership. In fact, it is one of the longest lasting, most pervasive and highest return initiatives that an outstanding leader can accomplish for their organization.

Two Harvard Business School professors wrote a book entitled The Ownership Quotient on the subject. In the book, they discuss the top 10 lessons of those that create and nurture the best cultures. Here are the 10 lessons (as adapted from an HBR article):
1) Leaders must state the organizations purpose, values and vision and set the example by living the values through their behavior, the measures the set and monitor and each of their actions.
2) The values have to have "teeth" in them so that there are consequences if you do not adhere to the values.
3) The culture is so strong that it is noticeable and commented upon by employees in expressions such as " that would not be allowed in the culture" etc. When the informal comments begin to mock the culture take warning that you are not living the values.
4) Organizations with good and strong cultures have effective succession processes as the culture enables the development of leaders and will ease the transition.
5) The values of the organization are also used to select the "right" customers as well as the "right" employees. The values are so strong that the company will not violate their values to generate revenue.
6) The result is "the best serving the best".
7) Organizations with values based and strong cultures enjoy outstanding employee and customer loyalty.
8) Organizations with good and strong cultures enjoy labor cost advantages. This advantage is due to many reasons but one major reason is that employees know what is expected of them and work well as teams for a common good.
9) One of the risks to be managed with a strong culture is creating a cult that thinks they have all the answers. A good culture is one that is not only strong but adaptive and creates an open minded atmosphere.
10) Nurturing and maintaining a good and strong culture starts at the top with leaders who remember who they are there to serve (not the other way around) and hold themselves to the same values, not above them.

I will repeat my favorite definition of corporate values and culture which is how your employees act and the decisions they make when no one is watching. How does your organization measure up on this list of the top ten lessons learned?
Till Next Time,
Gail

CIVICS LESSON AND BUSINESS LESSON

2010-03-24T08:00:00.001-04:00

Regardless of which side you are on regarding health care reform, we have all been getting a civics lesson along the way. Apparently, the Senate Parliamentarian will be on TV today! In addition to a civics lesson, there is another lesson in all of this drama. Rules and structure do not matter until something goes wrong and then they mean everything. Mike does a great session in our leadership workshops on the need to stop before approving something new and ask the question "what if it does not work"? Good risk management requires that you have thought about what you will do if it does not work out the way you had planned. Do you have the best structures and rules in place?

I am sure that both Democrats and Republicans have been reading rules that they have not thought about for years, if ever.

So in addition to the civics lesson, use this moment in history to also learn a business lesson. Structure and governance rules seem unimportant until the moment that they are crucial. Do not wait till the crisis. Check your organization's governance today. A good site for board governance is www.boardmember.com.

Until Next Time,
Gail

ICELAND - A GLIMPSE AT THE FUTURE?

2010-03-08T05:46:00.002-05:00

A few years ago we took a great trip to Iceland. We hopped around the island hiking and traveling to remote locations from black sand beaches to an inactive volcano rim to tiny towns tucked in nordic style locations on the water.

The year after, Iceland went bankrupt. The Cliffnotes version is that Iceland's three largest banks offered above market interest on deposits, borrowed in the public markets and lent the incoming funds out in a very aggressive manner to speculative borrowers.

The overleveraged borrowers who overpaid for assets all of a sudden could not service their debts. Then the great asset bubbles deflated and the borrowers could no longer pay back the banks. The three largest Iceland banks, that somehow grew to 10 times the size of Iceland's GDP, failed.

The Iceland kroner crashed as did the banks and the Icelandic economy. Google the Financial Times for a good series on Iceland. One bank was an internet bank, Icesave. Icesave had attracted over $5 billion of deposits from UK and Dutch depositors. Of course when the banks failed, the tiny Iceland deposit insurance fund was instantly bankrupt.

What did the UK and Dutch governments do? They reimbursed all their citizens deposits with Icesave? Why would they do this? They were not UK and Dutch obligations. Hey, all those "innocent" depositors were getting an above market interest rate. Did they think there was no risk?

So, the UK and Dutch governments now want Iceland to repay the $5 billion. In today's jaded financial world, $5 billion sounds like a rounding error. It is only $5 billion. Let me show you how much $5 billion is to Iceland.

Iceland only has 300,000 citizens. That's right, 300,000; about the size of Cincinnati. So $5 billion amounts to $18,000 for each citizen. Not each family, each citizen. So on Saturday, the citizens of Iceland voted on whether or not to ratify an agreement made by their government to repay the UK and Dutch governments. They voted 93% against paying them back. 93%!!!!

The UK and Dutch governments have pledged to keep Iceland out of the EU. The IMF has threatened to hold back more loans to try to stop Iceland's freefall. The threats fell on deaf ears.

I can hear the Icelanders at the polls now. 'I have a family of four. I am not voting to take on $76,000 of debt because some bankers took deposits, paid themselves big salaries and then lent the money to companies that couldn't pay them back. So they won't let us into the EU. Big deal. And so what the IMF won't lend us money. The money Iceland borrows is just to repay the money all the banks borrowed and threw away.'

This referendum appeared to be a way the Icelanders could finally show how frustrated and angry they are at all involved. The way out? That will take a much longer blog.

But here is today's thought. How many more countries will go through an Icelandic event?

Cheers

SHOULD GREECE SELL ISLANDS?

2010-03-05T06:32:00.000-05:00

There appears to be some in the German government that think that Greece should sell some of its islands to raise money to reduce debt. Once again sounds like creditors dealing with a financially troubled company. Sell your non-core assets. This will not be the last time or the last country where you will hear this.

I expect to hear suggestions such as these for the next 10 years. What do I hear for this Mediterranean island? These works of art? This slightly used military hardware?

Stay tuned.

SOVEREIGN DEBT & THE EMPEROR WITH NO CLOTHES

2010-03-04T09:51:00.004-05:00

There has been much written and spoken about the financial state of various countries, especially Greece at the moment. I received an email from a friend regarding a one page piece written by George Soros on the situation which on one hand offered a solution and on the other hand admitted the solution wouldn't work.

When I returned from the golf course, where I have successfully raised my handicap (it is easier than lowering it), I sent off this rambling reply.

As for the Soros piece, I am afraid the situation is too complicated and interrelated to address in a one pager. We appear to live in a world where the vast majority of the countries on the planet are overlevered by any measure and especially against GDP. Think of the situation as an industry where most of the players have too much debt and supply far outstrips demand (only much more complicated.)

The past two decades of globalized growth were fueled by easy and cheap credit which overstated global demand and inflated asset values as we all know now. Add to that the large recession we have been enduring (oh, that's right it is over, I forgot) and you get worldwide deleveraging of the consumer, albeit involuntarily, and unprecedented leveraging by governments to mitigate the short term effects of the recession.

The various governments had to print money (stimulus programs) to replace trillions of credit which disappeared due to the Lehman failure. (Please thank the US and UK governments for this.)

Some countries have and will blow up. See Iceland for a small but meaningful story of asset bubbles and overleverage. Following in short order, Dubai, Greece, Spain, Ireland, Portugal, Italy, Eastern European countries, Baltic countries and oh yea, Argentina which still has its leftover debt problems.

Behind the curtain is the UK. The UK has massive levels of consumer debt; much more than the US. This will restrain the consumer from spending and spurring the growth required to address the problem. The UK will have to push the pound down to import customers from other countries to be the UK's consumer. Good luck.

So, back to our troubled industry of broken countries (technical term). All these overleveraged countries need growth like troubled companies need sales. However, their infrastructures assume credit driven growth which isn't on the horizon. In fact they are all relatively shrinking as tax revenues have nose dived everywhere. As a result, they will have to cut expenses (read 'formerly essential services'). This will lead to anywhere from protests to riots (again see Iceland and Greece).

Interest rates are artificially low right now. Personally, I see this as a transfer of wealth from savers (getting nothing for their money) to borrowers (paying nothing for their money). These low interest rates have propped up asset values somewhat because 'what else can you do with your money?' if you have any. Asset values have also been propped up by convenient accounting changes to mark to market accounting which is further propping up commercial real estate and the banking industry.

Moreover, the current interest rates are not indicative of the true credit risk of these countries. The low rates are a stop gap to stop the recession (I forgot again that the recession is over). I see devaluations and hyperinflation in the future. This is the time honored way financially troubled countries deal with their debt when they can't pay back the debtholders.

Finally, the US continues to skate by as the biggest debtor nation on the planet (think the emperor with no clothes). Curiously, not only is there no plan in sight to reduce the debt, there isn't even a plan to stop the debt from growing. And this is the world's reserve currency? Only because all the other currencies are worse.

More to follow in the future.

THE NEW CONSULTANT

2010-01-28T08:00:00.004-05:00

Recently, I read three different WSJ articles that all made me think of the changes in the consulting industry. The first article, The Campus Consultant is about the growing numbers of companies that are using professors from University Executive Education programs instead of hiring consulting firms to assist them in assessing the best path forward for the company. The second article, Interim Managers Take Longer Roles is about the growing numbers of companies that are using interim managers for longer periods of time and for a wider variety of projects and purposes. The third article, SAP Sees Return To Growth covers SAP beginning to see top line growth in both software and consulting services.

Many years ago, the consulting industry learned how to work cooperatively with the major software vendors to serve clients. Although neither party particularly likes to work together, they were forced to do so by the market. Interim managers has, until now, been the province of the restructuring and bankruptcy consulting firms not a service of the large multi- service firms. Strategy work has largely been the property of the boutique strategy firms, although all the large multi-service firms have some offering. The Universities always had professors doing some strategy consulting work but they were not a major competitor to the large firms.

The large firms have learned to team and partner with the software firms, as noted earlier. The future will require them to significantly expand their teaming abilities. With the number of retired executives expected to grow dramatically over the next few years, there will be countless numbers of qualified semi-retired executives that companies can hire on a project basis. The multi-service consulting firms would be smart to begin now to expand the types of services they offer through teaming arrangements rather than only by their full time staff. The should have a stable of semi-retired executives available and a relationship with a University through its executive education programs.

What about your industry? What changes do you need to consider?
Until Next Time,
Gail

EXECUTIVE WOMEN NETWORKING

2010-01-20T09:00:00.001-05:00

Happy New Year!! Similar to Mike, I am ready to blog again. Hope you are all ready to read and comment.

Last week, I went out to dinner and to see a play with a group of 25 business women. We had a great time and I made several good contacts. This evening of fun came about as a plan one night while I was out to dinner. Anita, Cindy and I were having dinner to discuss some Shelter Our Sisters business. Anita began to recommend a play to us that she had recently seen. Cindy made the comment that it would be a fun girls night out to go see the play. We each began to ask friends if they were interested and the next thing we knew it had grown to 25 women. Thank goodness Anita was willing to do all the coordination. Since every woman was invited, there was a level of trust that does not exist when you attend a formal "networking" event. I made three very good contacts that I believe can help me in my business and two contacts that I believe I can help in their business. That is a very successful night especially when you consider I was only there to have fun and see a great show. By the way, dinner and the show were great.

For those of you that have been following the blog for some time, you know that I am a recent convert to the idea that women should network to create the "old girls club". I am not suggesting that women should exclude men from their networks or in anyway be unfair or biased. However, I have recently come to realize that women should add networking with other women to their other connections. However, I have been struggling with how to do this in a way that works for me. Personally, I find formal networking organizations too forced and artificial for my taste. The other night, I found what works for me. Small, personal, social events that assist in connecting some of the women in each of three women's networks to one another. It was great!

While I am writing about women networks, this can be applied to any group. So get a friend or two and plan a social evening doing something you enjoy. Then each of you invites a few of your friends and the group grows. The night of the event, just let everyone meet one another! Simple but effective.

Until Next Time,
Gail

CEO AS CHIEF LISTENING OFFICER

2010-01-19T09:38:00.002-05:00

Pretty good comments to ponder in this Forbes Article. A former CEO, A.G.Lafley of Proctor & Gamble, speaks briefly about how to listen to your various stakeholders. He lays out six steps.

1. Pay attention

2. Suspend judgment

3. Reflect

4. Clarify

5. Summarize

6. Share

I have a little piece on #5 in our book. It is on page 133 and entitled, "Let Me Repeat it Back to You". This is a tool that I have used for many years. I used it with co-workers, clients, company personnel all the way up to the CEO/owner level.

I would simply listen to what someone was saying and then I would say, "Let me repeat it back to you to make sure that I understand what you said." It is a surefire way to ensure that I understand what is said and to make the other person know that I was listening.

When I raise this at our MBA sessions, this gets more flack than anything else Gail and I say. People have said that it sounds condescending or trite or just plain ridiculous. I am always surprised at that reaction because I have used this tool thousands of times without any negative feedback, other than my son rolling his eyes wondering how he got into this conversation in the first place.

It is all about where you come from when you speak. If you are genuinely trying to close the loop and make sure you understand, people will get that. On the other hand, if you are being condescending, they will get that.

Every once in a while, I ran into potentially confrontational people who would say something like, "don't you understand what I just said?" I would reply, "I think I understand but I would like to confirm my understanding. You don't want me to go down the wrong road and waste time do you?"

I think from the feedback, some people are reluctant to incur the ire of the less enlightened boss and take the chance that they know exactly what their boss wants. Here is the problem though, the same person you are reluctant to repeat it back to is the same person that has done a poor job explaining what they want you to do. They go hand in hand.

Repeat it back or take the consequences of 'doing what they asked for but not what they wanted.'

Cheers, Mike

SERIOUSLY, WHERE IS THE BLOG?

2010-01-17T09:24:00.001-05:00

Recently someone asked me, what happened to the blog? I gave some lame explanation like, 'you can't believe how much time doing nothing takes'.

But this morning, I was looking at a golf blog, wegoblogger31.com to revisit pictures about a golf course in Colorado. The author recently wrote a book about a golf addict (himself and two friends) for other golf addicts. As I was looking through his blog there was a list of blogs he follows. It was a short list as these lists go.

But much to my shock, there was "Excuse Me Leaders" in the list. I thought hmmm, how did he find out about this blog that Gail and I have kept so well hidden?

So, I figure since I really am doing nothing that I should write a few more posts and see if anyone cares. You are hereby forewarned that I will start writing on a "as the spirit moves me basis". So use this time to delete the blog from Google Reader or whatever while there is still time.

Cheers, Mike

MONEY MUST START TO FLOW BEFORE THE JOBS WILL GROW

2009-12-07T09:00:00.001-05:00

Jobs, that is what this economy needs. So how do we create jobs? Well, we need to get the money flowing and businesses investing before there will be any meaningful jobs growth.

I read the first positive and thoughtful article on this subject recently. Corporate America's Huge Pile of Cash is an interesting read.

While, in my opinion, it leaves out a key risk factor which is the amount of uncertainty. Corporate executives will remain cautious with their cash if they continue to be concerned and uncertain of the outcome regarding taxes, health care costs, and inflation. However, at some point, these same executives will conclude that they can wait no longer. I am hopeful they will reach that conclusion soon. If they begin to spend the piles of cash they have accumulated, jobs will be created and we can begin a growth curve. Clearly, this will be more moderate and steady growth than in past recoveries. But growth is better than flat or decline.

To growth and job creation!
Until Next Time,
Gail

A FRAUD WITH AN EXIT STRATEGY

2009-11-27T09:11:00.003-05:00

Go figure, according to the NY Times, a key figure in the Swiss banking tax evasion matter has been sentenced to 4 years in a prison. He is also applying (suing?) for a whistleblower's award of billions of dollars based on the IRS collection of taxes based on the information he gave.

He is apparently trying to sneak through a small loophole. His attorney appears to be very pleased with himself and is looking forward to arguing the matter. Should the attorney really be proud of himself for championing this effort? Go figure.

Cheers, Mike

SOMETIMES, THE BEST ACQUISITION IS THE ONE YOU DON'T MAKE

2009-11-25T08:57:00.004-05:00

In the troubled company advisory world, failed mergers and acquisitions provide a steady stream of work. Many spreadsheets are used to support acquiring a company rather than growing organically. After all, do you know how long it takes to grow organically? Way too long in this digital age.

So it is somewhat refreshing to see a management team decide that a planned acquisition just may be more than they can handle. The Koenigsegg Group in Sweden had originally planned to acquire the struggling SAAB franchise from GM. The definition of 'struggling'? SAAB has not been profitable in any year that it has been owned by GM.

Koenigsegg is a niche high end, low volume auto manufacturer. They looked at this acquisition, with the help of the Swedish government, as a way to step up in size. Fortunately for them, the pieces were slow to fall into place and finally someone there must have said, "can we really handle this?" The answer to this question apparently was 'no'. So, Koenigsegg has backed out of the purchase.

So, now what happens to SAAB? As the WSJ article says, SAAB accounts for only 1% of the sales of GM and it requires billions to be competitive. Will they make the right decision? Let's see how their new board of directors handle this one.

Cheers, Mike

VILLANOVA'S EXECUTIVE MBA PROGRAM

2009-11-23T08:30:00.001-05:00

On Friday and Saturday, Mike and I were the instructors for a leadership session at Villanova's Executive MBA program. Similar to the session i wrote about on October 16 that we did at the US Military Academy at West Point, we get as much or more from the session as we give to the attendees.
This was a great group in this class. I was struck by their desire to learn, to consider, to ponder, to challenge, and to grow. My favorite part of the class was when we asked a question and then facilitated debate and discussion among the attendees. Try it yourself. Instead of immediately providing your answer or solution, what if you asked more questions? What if you facilitated productive debate and discussion? What if you could then synthesize the ideas? I think you would get a better solution than your original answer. Just a thought.
It was a great two days. I was in the company of leaders striving to become even better leaders. That is invigorating! As these and other leaders continue to progress in their careers, I know our future is bright. It is easy to focus on our failed leaders since they garner the headlines. Our regular readers know that I believe we do have a leadership deficit in many organizations. But great leaders and future leaders are out there. We need their leaders to unleash their talent!
Thanks again to Villanova's EMBA program for inviting us and thanks to the class for a great weekend.
Until Next Time,
Gail

AMERICA'S BEST LEADERS 2009

2009-11-18T08:30:00.001-05:00

US News and World Report has named America's Best Leaders 2009 which is worth reading. The definition of leadership that they used was- someone who motivates people to work collectively to accomplish great things. The criteria they assessed in order to select the list were: sets direction; achieves results; and cultivates a culture of growth.
There is also a commentary written by David Gergen The National Deficit- Of Leadership in which he discusses the need for good followers as well as good leaders. I would argue that we have a global deficit of strong leaders.

Many of our readers are great leaders. The global economy is in a mess. But the opportunity in this crisis, is that you could step up and speak and act as the leader that you are inside. Others will follow. Good luck!

THE PATRIOTS & RISK AND REWARD

2009-11-16T08:28:00.006-05:00

Every leader is faced with decisions that require her/him to weigh the risks and rewards of key decisions. Usually a leader first looks at the risk. What is the level of the risk? If it is a high risk, the leader must carefully weigh the risks, the rewards and less risky options to arrive at the correct course of action.

Last night I watched incredulously as at the 2 minute mark of the New England Patriots / Indianapolis Colts game, the Patriots' leader chose the extremely high risk move of going for a first down on fourth and two at the Patriots' 28 yard line.

The risk was that if the Patriots failed to get the first down, the Colts would only have to go 28 yards for a game winning touchdown. Such a failure would leave the Colts with a very high probability to score a touchdown. The reward was probably a win for the Patriots. But the risk was probably a loss.

This is the point in time when the leader must weigh all the options. Yes, the Patriots offense is superior to its defense this year. And yes, they have made first downs on fourth and short in their own territory other times this year. But, if they punt the ball and gain a net forty yards, the Colts have to go 70 yards for a touchdown, not 28. The odds of a touchdown by the Colts, while entirely possible with their star quarterback Peyton Manning, are much lower than from the 28.

A failure at the 28 yard line would be catastrophic disaster. It was basically a bet the ranch bet that only teams losing at that point in time would make. Unprecedented for a winning team to make such a bet and unlikely for another team to try.

So was it the leader's supreme confidence in his offense? His lack of confidence in his defense? (And his lack of a vote of confidence that they couldn't prevent a touchdown at the end of the game from 70 yards.) Or was it the unbridled arrogance of the leader?

Cheers, Mike

CIT, BACK TO REAL BANKRUPTCIES

2009-11-03T08:37:00.002-05:00

It is good to see that troubled companies are back to following the rules. CIT has actually filed for bankruptcy and the matter is following the time honored rules of Chapter 11 and not the Treasury dictated rules of auto bankruptcies past.

In the absence of a government bailout, the various stakeholders are acting in their own best interests and trying to maximize the value of the company. How novel. The appropriate debtholders and third-party lenders extended more loans on commercially reasonable terms.

CIT essentially filed a pre-packaged plan of reorganization. This means that over 50% of the number of claimants representing over 67% of the dollars in each class already agreed to the plan of reorganization. These are the required levels of support for a plan to pass in bankruptcy. The bankruptcy was necessary because CIT couldn't get 100% of the debtholders to agree to the plan.

By the way, business bankruptcies increased in October from September. Look for more filings to occur in commercial real estate and retail. As banks continue to increase profits by getting funding for free, they will be less inclined to extend and pretend such loans are good.

Cheers, Mike

A WOMAN'S NATION

2009-11-02T08:30:00.000-05:00

This month a new book was released The Shriver Report: A Woman's Nation Changes Everything and the Time Magazine cover story is The State of the American Woman. The impetus for the press coverage about women is that it is expected that by the end of the year, for the first time in history, the majority of American workers will be women. Now this is being driven by advances of women in the workplace but unfortunately also largely by the economic downturn which has hit men harder than it hit women.

I have not yet read the Shriver Report so I will let you know my thoughts after I read it. But I have heard her in various interviews about the book. I have read the various articles and polls within Time Magazine. As you would expect there are several interesting statistics on the progress made over the last 40 years. In 1972, only 7% of students playing high school sports were girls; now the number is six times as high. Close to half of all law and medical degrees go to women, up from fewer than 10% in 1970. But there are also statistics on challenges that remain. Women are only about 10% of civil engineers and a third of physicians and surgeons. We have previously discussed on this blog that boardrooms and corner offices are still filled mainly by men. The detail in the magazine on the polls and the different answers based on demographics is worth reading. The overall conclusion is clear, the roles of men and women have changed dramatically in the last 40 years.

To me, the most interesting part of all of this has been that men and women agree on a major remaining challenge. They agree that government and businesses have failed to adjust enough to the changes in the family. Has your company changed enough? The statistics would suggest a dramatic shift in reality happened slowly over the last 40 years. Should we stop and re-evaluate top to bottom what needs to change in business to address the new reality? Last week's post was on Corporate Cultures, do they reflect the new reality of the American workforce?

Until Next Time,
Gail

NURTURE CORPORATE CULTURE

2009-10-28T15:48:00.010-04:00

Mike's post on October 20 Oh, The Culture, combined with the questions we get at many of our leadership session including the one we recently did at West Point, have caused me to spend a significant amount of time thinking about corporate culture. Mike ended his post with the following two sentences. "In a crisis, you reap what you sow from your culture. Address the culture now so it will serve you well in the crisis." As usual, I completely agree.

This post is about the need to nurture the culture and reinforce the values or risk an erosion of the company's culture that can eventually cause the crisis. Let me share some of my research and thoughts on this topic. We should probably start with a definition of corporate culture.

The easiest way I have found to describe corporate culture is how your employees act and the decisions they make when no one is watching. I found two articles with more in depth definitions. Corporate Culture Definition is quite good in describing the various layers within culture. Another article Definition of Corporate Culture is also good and uses an analogy of culture as the invisible energy field or electricity that runs throughout a company and either enables or restricts its ability to achieve strategic objectives. I would submit that the invisible energy source known as culture needs to be constantly reinforced and nurtured or you run the risk of erosion particularly in the area of values and ethics. Another interesting article is about corporate culture and brand entitled Corporate Culture is Brand, and Brand is Corporate Culture which highlights that how your employees act is much more the brand than any logo or advertisement. Lastly, my research uncovered some articles on measuring corporate culture, although I did not find anything that provided REAL measures. The two articles I liked were Human Resources: Measuring Corporate Culture which differentiates artifacts, espoused values, and basic underlying assumptions. This article refers to corporate culture as the Other Bottom Line. In my experience, the erosion happens within the basic underlying assumptions that can change over time. It is fine if it is an intentional change but lax risk management and not reinforcing the values will erode the culture even if not intentional. The other article Corporate Culture covers small businesses and culture definitions. The reason I included it here with measurement is that there were a few questions that are very helpful to assess what the culture is and could over time help you to measure any changes. The five questions are:

What 10 words best describe your company?
What is really important around here?
Who gets promoted here and why?
What behaviors get rewarded here?
What type of people are the "in" crowd and the "not in" crowd?

During my 30 years in the consulting industry, I learned that I needed to understand two things at each of my clients in order to be successful- what was their corporate culture and how they compensated their executive team. If I knew these two things I would know what they would and would not buy, how to handle myself in meetings, and what problems I could and could not recover from with them and how to do it. In addition to observing the cultures at each of my clients that enabled or restricted performance, I watched a strong culture at Arthur Andersen that truly was the other bottom line (it may have even been the cause of the true bottom line) erode over time and cause the crisis that destroyed the firm. Hindsight has allowed me to see now the signs that were there before the crisis. At Bearingpoint I saw a culture that destroyed value. I know first hand what can and does happen if you do not nurture the right corporate culture. BTW, does anyone know of any good measurement tools for corporate culture?

This is NOT soft stuff. Companies need strong, healthy cultures and CEO's need to focus on nurturing it or the culture will erode and so will profitability and corporate sustainability.

Until Next Time,

Gail

OH, THE CULTURE!

2009-10-20T08:24:00.002-04:00

Every company has a culture. Usually culture is a by-product of how the company is run by the current CEO or how it was run by the last CEO. It is rare in my experience for the CEO to say, "I don't like the culture and we are going to change it." Or to say, "What culture do I want at my company?" Yes, there are the rare CEO's that actually focus on the culture. But for the most part, it is about running a profitable business as if culture isn't that important.

And yet, a company's culture is an invisible force that runs throughout the company and affects everything that is done. Fortune has an article that point to the culture of Bear Stearns and that a few of its alumni may have been inflicted with the dark side of that culture.

Whether that is true or not or whether one can't paint with such a broad brush is neither here nor there. The real questions for today's leaders are the following:

What is your company's culture? Is it the culture you want? How are you going to get the culture you want?

Gail often says that she and her team at Andersen's Business Consulting Group were able to keep the group together because of the culture. In a crisis, you reap what you sow from your culture. Address the culture now so it will serve you well in a crisis.

Cheers, Mike

GALLEON, HEDGE FUND IN CRISIS?

2009-10-19T06:48:00.001-04:00

On Friday, the founder of Galleon was arrested and charged with insider trading. Put aside whether he is guilty or innocent. The remaining managers of the fund have to deal with the resultant crisis.

In a crisis such as this, the remaining managers must decide what individual or small group of individual should be in charge of the fund in the interim. They must realize that the fund is a separate and distinct entity from its founder. Each party will have their own legal issues to address.

Next the management must get the right team on board. This will include at least, special counsel, a crisis public relations firm and a financial crisis expert. One part of the management team should be dedicated to dealing with the crisis and one part of the management team needs to address the day-to-day operations of the fund.

All of the stakeholders have to be identified and addressed. The stakeholders will include, investors, employees, lenders, companies invested in by the fund, SEC, state regulatory agencies including the attorney general, and other parties.

The communications from the firm must be carefully managed and critically previewed with counsel. All the stakeholders will have questions, some of which can be answered and some of which cannot be answered at this time. All employees need to be briefed with a list of questions and answers and instructed to send parties to a central communication point. If this does not occur, misinformation will cause additional problems that will have to be addressed.

The interim fund management may also have to decide whether it must pursue its own internal investigation. This will be a very sticky wicket which will require constant legal advice every step of the way.

It is not what the innocent managers bought into. But it doesn't matter that they don't like it, they have to deal with it. Such is the challenge of dealing with a crisis.

Cheers, Mike

US Military Academy at West Point

2009-10-16T08:30:00.000-04:00

Yesterday, Mike and I were invited to be guest speakers at the US Military Academy's Eisenhower Program on Cross Cultural Leadership. It was an honor to be asked to speak by the department head and a friend of ours, Col. Tom Kolditz. This was a group of over 20 participants, mainly Army Captains that have all had some form of command responsibility and have served all over the world.

As always, Mike and I had fun and were happy to share our experiences and lessons learned. But as always, I received more than I gave at the session. It was inspiring to be there. Lately, I find myself disappointed with the lack of leadership demonstrated by many business "leaders" and by many politicians. But this visit was inspiring and a source of renewal. I was in the presence of leaders striving to be even better leaders in the future.

It reminded me that there are many great leaders doing great things every day. And, the Dow stayed above 10,000. A great day!

Until Next Time,
Gail

LEADERSHIP COURAGE

2009-10-09T08:30:00.001-04:00

There is an article in the WSJ entitled Are Most CEO's "Wusses"? The author explains that being a "wuss" has nothing to do with being willing to fire people for poor performance. Instead, it is not b eing willing to hold employees accountable for their behavior before the poor results register.

To me this is about being a leader and having the courage of your convictions. If all a person does is wait for the poor performance results to show up in the numbers before they take action on an employee (especially an executive), I would argue that by definition they did not lead but rather followed the numbers. Anyone can take action after the fact. A leader is someone who is looking at the quality of the person and the quality of the numbers. We have certainly learned from this recession that very good numbers can precede very bad numbers. This is particularly true if the individual is sacrificing long term value for short term results or taking unusually high risks without the correct risk mitigation steps. This brings us to the courage part of the discussion. It is difficult when an employee is driving strong financial performance, to fire them for bad behavior. It is human nature to not want to risk your own srong financial performance. But that is exactly what a good leader must do.

Holding people accountable for financial results AND proper behavior is a leader's job and key to long term value creation. If an individual is driving strong financial performance but has questionable business ethics the risk is too high that long term they will destroy value. Also, I am a strong believer in the concept of the shadow of the leader. If you say something but do not follow through with action, the bad behavior can spread like a virus through the organization. The opposite is also true. If the leader demonstrates by their actions that their ethics and corporate values are not just empty words, the entire employee base will follow that lead. So you get a bigger benefit than the one employee for which you took action.

If all leadership required was looking at the historical financial performance to determine action, companies could be led by computer spreadsheets. Leadership requires judgement and courage but most of all action. I have heard too many times someone say that they know someone is not exhibiting the right behavior BUT their numbers are great and so no significant action is taken.

Be the courageous leader. Don't be a "wuss".
Until Next Time,
Gail

THE MANAGEMENT BANKRUPTCY BONUSES

2009-10-05T08:39:00.002-04:00

I have always found it quite interesting that for the past 20 years, top management for larger bankrupt companies require handsome retention and success bonuses for getting a company through a bankruptcy.

Here is an article from the NY Times setting the stage for the Chicago Tribune bonuses. The Tribune is in bankruptcy as the newspaper industry fights going the way of the slide rule and the typewriter. The theory of these bonuses is that people have to work very hard and they should be rewarded. And if they don't get a bonus, the good people will leave.

While some bonus may be appropriate to retain people, the total situation should always be considered. For example, yes, the people have to work hard. I am unaware of many jobs where you don't have to work hard. And yes, they need to rewarded for their efforts. Yet many people have had their wages frozen or reduced due to the lack of profitability afflicted thousands of companies.

And, yes, the good people will leave. Although, who is hiring in the newspaper industry? My experience is that the really good people may leave anyway. For them the issue is not the golden handcuff known as a retention bonus. For them the issue is the certainty of having a job. Put aside whether anyone has employment certainty anywhere these days.

So, retention bonuses for large groups of managers who were at the helm when the ship was grounded? You could bring in an outside firm to run the company or augment the team. But then, that may or may not be the best bargain either.

Cheers, Mike

STAYING CONNECTED

2009-09-28T08:30:00.000-04:00

Today's post is about staying connected to people and to new ideas. Over the past two weeks, I have had conversations with several successful people about the challenge of maintaining their network of friends and colleagues. They all know the value of staying connected but the challenge is finding the available time.

Over the years, I have come to the conclusion that the most valuable assets we have in life is the relationships we develop with people and the experiences and knowledge we gain throughout our lives. These assets are ours for life. They are not dependant on the job we have, or more frequently in today's world, the job we do not have at the time. However, we have more and more demands made on our time so we have less and less available time. But remember, that our days still consist of 24 hours. We do not have less time, we just have less available time. So how do we make time for staying connected not only to people but to new, fresh, and different ideas?

Well, in my opinion the first step is to reevaluate your priorities. Are you spending your time on the things you value most? Mike does a great discussion in our workshops about treating your family as your number one client. That technique is really about aligning your priorities with your allocation of time. But after you have done that, it is also about find effective and efficient ways to use your time.

Let's start with staying connected to people. In the discussions I have had recently, I mentioned that just sending a quick email that states you were thinking about the person and hope they are doing well. To each person that I suggested this their response was, "I do not want to send such a trite email to anyone." My response, "So you think it is better to not contact them at all? How will they even know you are thinking of them?" A quick email or quick call is better then no contact at all. Remember, they are just as busy and pressed for time as you are, so quick is good. The second thing I would mention is that people remember the smallest kindness. Be nice and caring to everyone and it will come back to you when you least expect it.

Now let's talk about staying connected to ideas and creative thinking. There are so many ways to stay connected to world and business events today that I could not list them all. The trick though is to see out ideas and thoughts that are different than yours. Instead of selecting a news channel or newspaper columnist because you usually agree with them, choose one because you usually disagree with them. One of two things will happen. You may find that you agree with them on more than you originally thought or even if it confirms your suspicion that you will disagree, you will understand the oppositions point of view better and can better prepare yourself to successfully debate the issue. Your brain can handle an infinite amount of information. Allow yourself access to dissenting views, expand your horizons and make your own decisions. You will be wiser and a more interesting individual, which will assist with the first point of connecting with people.

Relationships are not only fun but are vital to your career success. Invest in yourself and make the effort to stay connected to people and to new ideas. Share with us your ideas on how to use your time efficiently and effectively to stay connected.

Until Next Time,
Gail

PREPARE A FLIGHT RISK PLAN

2009-09-16T09:27:00.003-04:00

Leaders are sometimes faced with a difficult situation where one of their direct reports behaves in a manner inconsistent with the culture and values of the company. For example, in a consulting firm, a key producer could might treat the employees who work for him/her poorly. The treatment may be inconsistent with the values of the company but, the key producer is important to the firm. There is a price to keep the key producer, but heretofore the price has not been considered too high.

But then the key producer starts to get arrogant about his/her behavior and the behavior causes more issues. The leader is now faced with a problem that must be addressed or will it? Remember, the key to leverage is being willing to accept any outcome. If the leader cannot accept losing the key producer, the leader will be relatively powerless to change that person's behavior. When push comes to shove, the leader can't accept losing this employee.

When we had our own firm, we used to identify our key flight risks. We would consider which of our top people might leave or might have to go away. We then put together a plan if that person had to leave immediately. This plan gave us the comfort to know that we could handle the departure of a key employee.

It also gave us the ultimate leverage in any negotiation with our people. We could handle the result of their departure. It wouldn't be our preferred result, but we could handle it. A leader must be able to handle the departure of key employees in order to effectively lead and maintain the values of the company.

Cheers, Mike

CHRYSLER IS LOOKING AT FALLING FALL SALES

2009-09-15T07:37:00.004-04:00

This is what happens when you have 30 day bankruptcy. The WSJ reports that all is not going smoothly in Chrysler land. The management often spend its time trying to get out of bankruptcy not fixing the core business issues to ensure the company's viability.

The WSJ also reports that Chrysler's issues may be more difficult than the FIAT management may have understood. They must have noticed the issues that Daimler Chrysler and Cerberus had running Chrysler previously. This movie has just started and the outcome is in doubt. Just sit back, have some popcorn and watch. It should be interesting.

Cheers, Mike

NEGOTIATING LEVERAGE

2009-09-14T08:42:00.002-04:00

One of our followers is selling his BMW convertible. This reminds me of a story about negotiating leverage. Twenty-five years ago I owned a Triumph Spitfire. For those of you who are not familiar with the Spitfire, it spent more time with the hood up then it did on the road. The time had finally come for the Spitfire to go away.

I put the car out with a 'for sale' sign. I was a reluctant seller of the car. I was asking $1800 and after a couple of days I had two parties who were interested in the car. So I scheduled them both for a fall Saturday. The car looked great and the hood was down. A college guy and his brother were scheduled first.

We took the car for a test drive and they decided they wanted the car. The older brother said, "Put our your hand." I put my hand out and he put 17 hundred dollar bills in my hand. "How does it feel?" I replied, "It feels one light." He said smugly, "It is $1700."

I replied, "I have someone coming this afternoon who wants the car." He said, "$1700 in hand is better than $1800 in the bush. And it is only $100 short." I decided to speed up the negotiations. "Actually it is $200 hundred short. I just raised the price to $1900."

The older brother looked surprised and said, "You can't do that!" "Of course I can, and I just did. If I were you, I would hurry. I am a heartbeat away from raising the price to $2,000." He pleaded, "Would you take the $1800?" "Well, I just raised it to $1900. But you seem like nice guys, I will give it to you for $1800." They gave me five twenties and I gave them the keys.

They were negotiating with no leverage. They really wanted the car. Ultimate leverage comes from being able to accept either outcome. I was truly indifferent whether I sold the car or not. They never had a chance.

Cheers, Mike

YOU LOST 30% AND THE REST IS ILLIQUID??

2009-09-11T08:35:00.003-04:00

Really stellar job done by the much touted endowment investment groups of Harvard and Yale. For years the two schools have blown their own horns as to their investment acumen. David Swenson, Yale's investment office head, even wrote an investment book that was a big hit with the endowment and foundation crowd.

But Yale's and Harvard's 30% losses over the past year is even worse. First of all the year ended June 30. Many investors have recovered somewhat in the rebound since March. But not Yale and Harvard. Both institutions have a very low percentage of their portfolios in public equities and apparently a high percentage in illiquid investments. Investments which haven't rebounded and if they are in commercial real estate, still may go down. The Brown University story is also telling.

Clearly the endowments were entirely too illiquid. This wouldn't be so bad, but these universities used their endowments to fund significant portions of their operating budgets. So perversely, these schools, which still have multi-billion dollar budgets, have to resort to cost containment actions such as wage freezes, hiring freezes, cost and service cuts and capital expenditure deferments.

The losses are understandable given what has transpired over the past year, but the lack of liquidity given how much their annual operating budgets depended on the endowments is a little perplexing.

Cheers, Mike

FOLLOW THE RULES

2009-09-10T20:11:00.004-04:00

My wife has been seriously bitten by the golf bug. The other night she came home and had a rules question. I answered the question but she said the other players thought it was the wrong answer. So I went online to the USGA.org and found the answer which backed me up. Thank you USGA, I knew I had to be right once this year.

On the way to the golf course today, I decided to pick up a copy of the rule book for my wife (I am such a big spender). I stopped by Golf Galaxy, seemed like a likely candidate to sell me a copy of the rules. I waited at the front desk to ask for a copy. While I waited, I saw that they sold lip balm, Advil (breakfast of champions), little bag watches, various faux climbing caribiners to hang stuff on a golf bag and other relatively useless items. Finally it was my turn, "Yes, I would like to buy a USGA rule book." I was met with the following reply, "We don't have any rulebooks." I chuckled to myself, you have all this crap (technical term) but you have no rulebooks. I said, "thank you, have a good day."

I live in Shopping Center USA, so I drove a par 5 away to Golfsmith. I went in and asked for a copy of the USGA rules. The salesperson said, "We may have some in the back." While I waited, I looked at the now usual lip balm, Advil, Heathcliff bars, Gatorade bars, some gizmo to put a line on golf balls and all sorts of other odd items. The salesperson came out and said, "We don't have rule books." I said, "Thank you, have a good day."

I then went to the club, hoping against hope for a rule book. I went into the pro shop and looked around. Hmmmm, no rule books hanging around. So I asked the young lady at the counter for a rule book. "Sorry, we don't have any rule books." Wow, is this for real or is this Candid Camera. But then the assistant pro cheerfully spoke up, "I have a rule book, you can have mine." I replied, "I don't want to take your rule book." He said, "I have another home, please take mine." And so I thankfully did.

It is really hard to follow the rules if you can't get a copy.

Cheers, Mike

WOMEN IN POLITICS

2009-09-08T08:00:00.001-04:00

Women now drive the global economy controlling $20 trillion in annual consumer spending is the conclusion in an article in this month's Harvard Business Review entitled The Female Economy.

That global economic power should also mean increased opportunities for women in business and politics when we begin to come out of this global recession. There is a survey being conducted by The Boston Consulting Group on what women want and early results of the survey can be viewed at http://womenspeakworldwide.com/.

Specifically, given the amount of government influence today and in the future around the world, women will need to hold a larger percentage of elected positions in order to have their voice and views influence legislation. In the USA, there is a group focused on helping women prepare for political office. Check out this website http://thewhitehouseproject.org/.

Finally, check out this Forbes article You Want To Run For Office. Now What? The article is the story of a woman with no previous interest in politics that made the decision to run and won a seat in her state assembly.

Do you agree that more women need to run for public office?

Great to be back at the blog the day after Labor Day! Until Next Time,
Gail

HOW OPEN SHOULD A LEADER BE?

2009-09-08T05:47:00.000-04:00

Rich Karlgaard has an interesting commentary in Forbes on a leader's openness. He writes about how open a leader should be or not? My style was to be generally open. There were times though where as soon as I said something to our employees, I new I was too open. People don't need to know all the details of why a leader thinks, acts or speaks in a certain manner.

It is one thing to show you are human and totally another thing to leave people doubting you because you told them all your imperfections and fears. Everyone has to find what works for them. Here is hoping you think of what you want to share before you share it.

Cheers, Mike

THE BIG THREE NOW

2009-09-07T06:29:00.003-04:00

Good to see that Ford was the lone US car manufacturer to benefit from the Cash for Clunkers Program. It is also clear that just because Chrylser and GM are out of bankruptcy, doesn't mean the companies are not still broken (technical term). According to Forbes in this article, GM and Chrysler's sales actually went down!

Yes, they have new balance sheets that make them potentially viable. But have the operations really been changed in a meaningful way to ensure their viability? Are they making cars that people actually want to buy? Well maybe GM has some cars in the oven that Americans will buy. But Chrysler? I can't see the FIAT cinquecento taking off in any meaningfull way. The Smart Car sized car will likely have limited appeal. I am a big fan of the recent styling of the Alfa Romeo, but really, how many of these will be sold?

Watch closely to see how GM and Chrysler do going forward. It should be interesting.

Cheers, Mike

MADOFF, REN TEC AND WHAT YOU READ

2009-09-05T09:33:00.004-04:00

So, little Bernie is a page one topic again. This time however, the prime suspect is the SEC. The SEC's Inspector General issued a report that casts the SEC in a very poor light. This report can be viewed in its entirety at this link.

How could he do this volume of options?While this report will be covered in detail by the financial press, I want to focus on a hedge fund, Renaissance Technologies, that decided to exit the Madoff funds several years ago because, they didn't like the answers they were getting and the answers they couldn't get. How was Bernie making such consistent returns? How could Bernie always be in cash just when he needed to be? The WSJ today has a good article on their decision. But is it the complete story on Ren Tech?

Check out this Zerohedge piece today which reads further into the SEC Inspector General's report and discovers that Ren Tech didn't take everything out of the Madoff funds and didn't disclose its suspicions to the SEC.

Many of the matters I worked on were covered by the financial press. One of our interns once said to me, "It was great working the summer on a matter that was in the business section every week. But I was very surprised how much was incomplete or wrong."

Good to bear this in mind when reading various financial pieces, including this blog!

Cheers, Mike

COMING BACK AFTER VACATION

2009-09-05T09:30:00.002-04:00

As Gail announced and I didn't, we are now back from our vacations. Why do two retired people need a vacation? Hmmm, hard to answer.

Starting today, we are back blogging on Leadership during times of financial crisis Monday thru Friday with bonus posts on the weekends.

Cheers

LOAN TO OWN? OR WHAT CHOICE DO WE HAVE?

2009-08-11T07:53:00.006-04:00

There is an A1 WSJ article this morning, Distressed Takeovers Soar. The main points of the article are that M&A deals are largely occurring in bankruptcy court these days and that many investors are buying the debt to take over financially troubled companies.

I agree that M&A bankers are now spending most of their time on bankrupt M&A deals. This is not because it is a novel way to do a transaction or because it is efficient. No one would ever accuse a bankruptcy M&A process of being efficient. Expensive yes, efficient no. It is simply because in these economic times, corporations are playing it close to the vest and not on acquisition sprees. It is sometimes easier to let a competitor go out of business than to aquire the competitor.

The other main point is that investors are using debt to acquire bankrupt companies. This is the so-called loan to own approach. There are several examples of this technique and the article implies this is now happening everywhere. Au contraire!

Most of these so-called 'loan to own' situations are really as follows. Banks, hedge funds and others make loans to less than stellar companies. The lenders believe they have priced the deal and collateralized it to protect their reasonable downside. The company then underperforms and the debt starts trading down. Some of the banks and mutual funds sell their loans to hedge funds and other distressed investors. These investments are still made with the thought of getting a large enough return to justify the purchase. The investment thesis is not generally, 'hey, let's buy more of the debt at a discount and then we can bid our debt and buy the company'.

The way it often works is that the funds now have one or two rounds of debts purchases at a discount and then the company underperforms again! Now the investors realize that a sale of the company is not imminent at a sufficient price (see Delphi). The next great thought? Hey let's own the company! We can buy it with out debt. Just great, now they are bidding in their debt to own a company which the buyers are not set up to own.

Loan to own works much better when a buyer decides to buy an underperforming company whose debt is trading at a discount. The buyer starts buying the debt at a price under which it will bid for the company. This effectively lowers the buyer's price and protects the buyer against losing the purchase in a bankruptcy. If the buyer is outbid by another buyer, then by definition it will have made a profit on its efforts.

Loan to own, not as a black and white surgical process as you might be led to believe.

Cheers, Mike

HURON CONSULTING & AN ACCOUNTING PROBLEM

2009-08-11T05:44:00.000-04:00

What happened to Huron Consulting? Zerohedge reported, amongst others, that Huron's CEO and CFO had resigned due to an accounting scandal. Another article set forth some more info.

Apparently someone at Huron, it is not clear who, became aware that the accounting for one of the companies acquired by Huron a few years ago was not correct. Basically, Huron acquired a company and the selling shareholders decided to give some of the proceeds to non-selling employees.

Huron booked the acquisition as if all of the price paid to the selling shareholders was for the equity and therefore largely set up as goodwill on Huron's balance sheet. However, if some of the sales price actually went to non-shareholder employees, then GAAP requires that the portion paid to non-shareholder employees be expensed as compensation. The proper treatment increases expenses and reduces net income. Further, upon review by an outside firm, there were three other acquisitions that were not accounted for properly.

Huron has stated that its prior three years of financial statements have to be restated for a pretty material reduction in earnings. The NY Times has an interesting Q&A on the Huron situation. What is doesn't ask or answer who knew what, when? I suspect that since three very senior management members resigned, someone may have knew something previously. Finally, The Chicago Tribune has a piece on the hometown company.

It is always unfortunate when something like this happens. It is unfortunate for the employees, especially the support staffs, who are dedicated to the firm. Hopefully Huron will be able to survive this.

Cheers, Mike

CONFRONTING REALITY

2009-08-10T08:05:00.003-04:00

Recently in Forbes Magazine, there was a series of interviews with several CEO's on leadership. One of the items was Confront Reality covered by Ingersoll Rand CEO Herbert Henkel. He says "always question whether the 'halo effect' of a business or business situation is blinding you to what lies on the horizon."

His point is that in the past year some business leaders ignored or wished away the negative signs of a slowdown in their businesses. Others quickly started to put their contingency plans into effect just in case the downturn was significant.

There are two points that Gail and I stress in our sessions. The first is "Confront the Brutal Facts" on page 67 of our book. Essentially, leaders must accept the facts no matter whether they are acceptable or desirable or not. It is what it is. Pretending the facts are not valid or wishing them away is not acceptable behavior for a leader.

The second point is to protect the downside. Many business people get themselves into trouble by focusing to heavily on the upside and spending much less time on the potential downside. It should be almost the opposite. Leaders protect the downside first and then look to the upside. Often times if one protects the downside, the upside almost takes care of itself.

Cheers, Mike

SEE YOU IN SEPTEMBER!

2009-08-03T10:08:00.002-04:00

Hello everyone. I hope you are all having a great summer. Mine has been so good that I have not been keeping up on the blog. So, I have concluded that I should quote great old song line....See you in September! When I am back in September, I plan to write a series of articles about women running for public office. Enjoy the summer!
Until Next Time,
Gail

DIP LENDERS TAKE OVER DELPHI

2009-07-28T08:17:00.004-04:00

A few weeks ago bankruptcy judge Robert Drain derailed a government sponsored plan for Platinum Equity and GM to take over Delphi and have it emerge from bankruptcy. Delphi is a former GM subsidiary that filed for bankruptcy several years ago. It had been languishing in Chapter 11 limbo unable to put together a confirmable plan of reorganization. The government sponsored plan offered to pay the DIP lenders only 20 cents on the dollar. DIP loans are generally assumed to be money good and there are very few instances over the past 20 years where DIP loans were not paid in full.

Judge Drain ordered an auction to take place for the company. The auction was won by the DIP lenders who bid in their debt. They had $3.4 billion of loans due from Delphi. For another party to win the auction, they would have had to bid more than the face value of the lenders' loans. According to the WSJ, there will be a hearing to approve the sale on Wednesday. It may be interesting to follow since this case has had many twists and turns.

Should the DIP lenders have the sale approved, the fun will only just begin. They will immediately have to work with management to make sure they have a leadership team in place that can ensure that Delphi will be viable for the foreseeable future. These turbulent automotive times require the best leadership available in management and at the board level.

Cheers (back from Scotland), Mike

HOW ABOUT A BANKRUPTCY?

2009-07-21T06:18:00.000-04:00

Ah, Chapter 11 bankruptcy, it came into existence in its present form (with some amendments) in 1979. At first it was used largely by retailers and then by the wave of the late 1980's broken LBO's (leveraged buyouts). By the early 1990's, Chapter 11 began to be used to obtain financing (Debtor-in-Possession financing) when financing was otherwise not available.

In 2009, Chapter 11 bankruptcy has been used in ways no one could have anticipated 30 years ago. Al Lewis has an entertaining article on how Chapter 11 is being used. In the Madoff matter, it used to find and recover funds. The Government used it to ram through sales of the assets of Chrysler and General Motors (whatever happened to a plan of reorganization?). Sam Zell, aka "The Grave Dancer", may use it to sell the Chicago Cubs. In the Phoenix Coyotes filing, creditors are using Chapter 11 to get a look at Wayne Gretzky's tax returns.

It has been a crazy year for Chapter 11's. Look for it to continue with all the crazy precedents that have been set for better or worse (mostly worse).

Cheers from Scotland,

Mike

CIT SHOULD HAVE MADE CAR LOANS

2009-07-20T05:48:00.001-04:00

CIT is a large financial institution that lends to small and middle market businesses. By today's definition however, CIT's $75 billion of assets makes it not a large financial institution. And apparently way too small to be too big to fail. And finally, CIT must not have a big portfolio of car loans like GMAC. So, the Government has left it to CIT's existing creditors to assist in giving CIT more time to right the ship. Gee, this approach is so last century.

I guess the Government has made its point because the press is pointing to a multi-billion dollar loan being done with CIT's major bondholders to keep it out of bankruptcy. The next couple of days should provide more details as to how such a deal, if completed, will allow CIT to successfully restructure.

According to this article in last week's WSJ, the company has some work to do. CIT made some management changes around 2001 that resulting in Vice-Chairman Joe Pollicino and other experience credit people leaving the firm. The new management ultimately led CIT down the subprime mortgage and student loan roads. And we all know where those roads led.

We should expect that management changes amongst strategy changes to be coming down another road very soon. Maybe the bondholders will call Joe....well, maybe not.

A number of years ago I used to attend a CIT golf outing every year at Fenway Golf Club. Fenway is a great track originally designed by 1920's noted architect, A. W. Tillinghast and recently worked on by a well respected architect, Gil Hanse. But I digress. One year one of the people checking in golfers for the outing asked if I was related to Joe Pollicino the Vice-Chairman. I, of course, replied, "Yes, he is my uncle." For a few years I received the royal treatment at the outings. One year however, Joe came up to me and said I had to stop saying he was my uncle. To which I replied, "Ok unc."

NY TIMES ON DIMON

2009-07-20T01:30:00.001-04:00

The NY Times followed up my post from last week on Jamie Dimon, CEO of JP Morgan, with an article in the Sunday edition. Nice of them to pull their weight on this item.

Cheers from Scotland,

Mike

BUT, THEY SHOULD BE ABLE TO .....

2009-07-17T08:44:00.000-04:00

I was speaking with a young CEO a few weeks ago. He was complaining that an important member of his team should be able to perform certain tasks, but the member couldn't perform those tasks. He went on to complain that he didn't have the time to do the task.

I made a couple of observations. First, you can't keep acting as if the member can do what they should be able to do. They can't do it. It is like a football coach who has a quarterback who cannot roll to his left and throw an accurate pass. The coach can keep calling the rollout to the left because the quarterback should be able to throw an accurate pass or he can call rollouts to the right where the quarterback can throw an accurate pass. So, don't expect someone to be able to do what they should be able to do if they can't do it. Plan accordingly.

Second, managers get more frustrated with a team member when they are pressed for time (isn't that always?) or when they can't do the task either. The managers say "they should be able to do their job!" Leaders however, acknowledge the truth of the situation. Leaders evaluate how to support the person can't do what they should be able to do. Sometimes more training and education is required. Sometimes additional support is required. And sometimes, the task needs to be done by someone else.

When I had my own firm, we had a former Big 8 accounting firm partner working with us. He had great instincts (probably still does) and did great work. However, he could not commit his work to writing. He literally couldn't get a report out. After speaking with him a few times, it became clear to me that he was not able to put it on paper. Instead of complaining about it, I found a young staff person who was progressing rapidly. The staff person wrote great reports. So I 'velcroed' the staff person to the senior person and he became the report writer. The staff person benefitted greatly from the constant exposure to the senior person.

In closing, work with "what is" not "what should be".

Cheers, Mike

WELCH: "NO SUCH THING AS WORK-LIFE BALANCE

2009-07-17T08:30:00.000-04:00

Once again, Jack Welch proves to be an expert at the blunt sound bite. He was a speaker at the Society for Human Resource Management and told them that women climbing the corporate ladder need to choose between taking time off to raise their children and reaching the corner office.

Read the article and of course there are those who agree and disagree with him. Unfortunately, there is not a transcript of his exact words. Some people interviewed agreed with him and others said that companies need to change to accommodate a diverse workforce.

Welch is quoted in the article as saying their are work-life choices and they have consequences. This is a true statement and men and women both make these choices all day long, every day. We all deal with these challenges differently and some do a better job than others. I have worked with men that worked crazy hours but whenever they were not out of town, they went home to have dinner and tuck the kids into bed, then they worked late into the night to make up the time. I have worked with others who came in after taking the kids to school. I do not have children, so I would work till I dropped during the week but look to get the weekends off. We all do it differently and we may not do it great.

It is important though to remember why we are doing "it" at all. Whatever your career goals, which may or may not be the corner office, remember that we work to live not live to work. Therefore, we all need to find the balance that works for us. I remember reading an interview that Jack Welch gave when he first retired. In the interview, he said that he was completely unprepared to stop working and it was very hard on him. Sounds like he had not found balance.

But let's get back to women and specifically having children. For the most part, I think companies and women have figured this all out and women are very successful even after taking maternity leaves. However, time off does have a price. In my experience, I have seen women achieve great positions but slower then they would have without extended periods of time off.

But, I do think the corner office is different. I believe that what Jack Welch said is often true when boards are selecting CEO candidates. I think women should be proactively educating boards and CEO search firms that select CEO candidates and look at career timelines. Timelines are meaningless. Results are what matters.

What are your thoughts and experinces? How do you achieve work-life balance?
Until Next Time,
Gail

LEADERSHIP: GETTING THINGS DONE BY PEOPLE

2009-07-16T08:30:00.001-04:00

Leadership is about getting things done by people. Therefore, the "people issues" are a key element of leadership and why corporate cultures really matter. Mike posted on July 14 I Should Have Nurtured a Unified Culture which fits in nicely with this post.

I read an article in the WSJ How Buck Knives Decided to Move HQ. Interesting and quick read that highlights how easy it is to take the people and the culture for granted particularly if someone else built the business. Many acquisitions and reorganizations go wrong because there was not enough thought and effort put into the people issues and the culture they operate within.

But cultures also need to be maintained to stay healthy and vibrant. Hiring decisions, training programs, promotions, raises and internal processes all need to fit the culture you want to build and maintain in your organization.

Until Next Time,

Gail

JAMIE DIMON, A LEADER TO BANK ON

2009-07-15T09:16:00.000-04:00

According to the WSJ, Jamie Dimon, CEO of JPMorgan, is chomping at the bit to take the leadership position for the US banking industry. Last fall, Jamie agreed (like Paulson gave him a choice) for JPM to accept TARP funds for the good of the country. There was never any real evidence that JPM needed any support. Jamie did the right thing. He was none too happy though, when the new Administration showed up and put strings on the TARP funds that JPM already received. He was also none too pleased that JPM was being painted with the same brush as other banking institutions that really needed the TARP funds. Then, he had to fight to pay the funds back.

Well, now that JPM has paid back the TARP funds, get ready for Jamie to be a vocal leader on what is right for the banking industry! There is no other large bank that is in the position for its leader to take a leadership position. They all have to worry about a government/regulator backlash.

Real leaders do the right thing. They also have to sometimes tell the world what the right thing is! Sign up on google reader and other feeds to follow what Jamie has to say on banking and the economy. I guarantee that it will be thought provoking and educational to say the least.

There is a book on Jamie Dimon. I haven't read it but if you want to know more, pick it up.

Cheers, Mike

I SHOULD HAVE NUTURED A UNIFIED CULTURE

2009-07-14T08:01:00.005-04:00

Napoleon Barrigan, the owner of Dial-A-Matress watched his company file for chapter 11. According to this WSJ article he largely blamed bringing in a cadre of professional managers who brought with them cultures that were different than the one that existed. The existing culture was marked by a collaborative inclusive style that included everyone in making the business better. The new management additions had an exclusive, we know better style that wound up accelerating the demise of the company.

Napoleon admits that there were other errors. The company opened retail outlets when its profits were mainly derived from phone and internet sales. Some of the retail outlets were in poor locations which were selected because of low rents. Further, the company expanded too quickly and couldn't profitably manage the growth.

The importance of a company's culture is often ignored by the heads of businesses. For them, culture doesn't count. Maybe it is because it can't be put on a spread sheet. In the end, these managers feel the pain of their company's underperformance.

This reminds me of a story. I once was hired by a private equity shop owned by a former Presidential economic adivsor. He had purchased two companies in the paper industry with the plan to merge the two companies. His theory was "one plus one would equal three". He had leveraged the combined companies pretty highly since he believed the results together would be much better.

The results were not better. In fact, it turned out the "one plus one equaled one"!! We went out to visit the company and within two days found the main reason for the underperformance. The two companies had two very different cultures and there was friction everywhere. Virtually every aspect of the business was underperforming.

When I disclosed this to the private equity owner, he didn't believe me. He said it couldn't be a culture issue and things were not as bad as I said. In fact, he said I was exaggerating the situation to make more work for us. I laughed and told him, more work was the last thing we needed. We left for a week. He called me back and said, it was as bad as I said it was. It took two years to straighten things out.

Don't ever ignore the culture.

Cheers, Mike

LEADING VS. MANAGING

2009-07-13T08:56:00.002-04:00

The WSJ has a good short series on Leadership. It has articles and short videos. Today we are going to spend a couple of minutes on their short article on Leading vs Managing. All leaders must manage in addition to leading. But certainly, what differentiates a manager from a leader is that they manage, but they don't lead. Many people think managers are leaders; this is not true.

Take a look a some of the items in the article.

1. A manager's job is to plan, organize and execute. A leader's job is inspire and motivate.
2. The manager focuses on systems and structure. The leader focuses on people.
3. The manager requires control, the leader inspires trust.
4. The manager maintains, the leader develops.
5. The manager always has the eyes on the bottom line, the leader has the eyes on the horizon.

All companies needs great manager and great leaders. Look at the list and see where you fit. You may pick up on that leaders focus on people, doing the right thing and the direction of the company. How much do you focus on your people? Or are you totally focused on getting the job done? They are not mutually exclusive.

Cheers, Mike

UBS vs. THE IRS AND THE SWISS GOVT

2009-07-10T09:07:00.002-04:00

In February, UBS admitted that it had sent Swiss bankers to the US to assist high net worth individuals to set up secret Swiss accounts to evade US income taxes. UBS paid a fine of over $700 million and turned over 250 names.

Now the IRS wants UBS to disclose the other 50,000 plus names. Enter stage left, the Swiss government which has told UBS it is against Swiss secrecy laws to disclose the names. Check out this short video of how UBS is between a rock and a hard place. You can get some details and color from this Reuters article.

So, the Swiss government make prevent UBS from disclosing the names and the US government could actually prevent UBS from doing business in the US. How did UBS get into this situation? UBS put making money as a higher priority than doing the right thing. Leaders always put doing the right thing first. When you put money ahead of doing the right thing, very bad results occur and sometimes these results are devastating. See Arthur Andersen.

Cheers, Mike

BRYAN MARSAL ON LEHMAN BROTHERS, ETC.

2009-07-09T08:25:00.005-04:00

I played golf yesterday out on Long Island with one of the Alvarez & Marsal guys. A&M is one of the two leading international crisis management firms which has now expanded into other areas. My guest asked if I had seen Bryan Marsal's spot on CNBC's Squawk Box on Monday. I told him I had not seen it and he said that I should.

So, when I returned home, I immediately went online to retrieve the video clip. (OK, I didn't exactly drop everything to run to the computer.) But when I finally got to view the clip, I found that Bryan did an excellent job explaining the status of the Lehman situation and answering questions some of which addressed much broader issues.

He was asked if Lehman was the most complicated assignment he has ever worked. He immediately answered, "No, Lehman is a complex liquidation. But bringing a failing company back to life is much more difficult and complicated."

He was asked about the various government entities that he has to deal with on a frequent basis. Here he used the "leadership" word. He strongly commented that the various government agencies lack leadership. He said the various entities, the SEC, the Federal Reserve, FDIC, et al are poorly coordinated, have different rules, have different agendas, have turf issues and communicate unclearly.

He went on to say that if the government agencies were run as a business, there would be one person, a leader that would sit on top of all the agencies like the CEO of a business. We can all imagine that the lack of a leader of these agencies is like the lack of a CEO. Different parts of the business doing whatever they want to do. So imagine each agency doing what it wants to do without regard to what the other agencies are doing. Just lovely.

Listen the video, it is worth the time.

Cheers, Mike

FAIR AND UNBIASED RECRUITING AND PROMOTIONS

2009-07-08T08:30:00.000-04:00

Every organization is striving to hire, promote and retain the best talent. You need to make sure that you achieve that goal in a fair and unbiased manner. There is an article in today's Wall Street Journal about a Supreme Court ruling regarding a landmark discrimination ruling on a lawsuit originating in the fire department in New Haven, Conn.

The author asserts that the job-test ruling will inspire some companies to consider broader use of exams but that others believe there is still too much uncertainty. The issue in this lawsuit was that when you use job testing you must make sure that the test itself is not biased. In this case the test was certified as not biased yet when only white firefighters passed the test the city concluded it must be biased and wanted to administer a test. The firefighters that passed the test sued and after many years the ruling was issued this week. The ruling was that the tests can not be biased or discriminate but if the test is not biased you can not tinker with the results to favor any one group over another group.

Promotion tests are much more common in the public-sector. However, many private- sector companies use a variety of tests and are now considering using promotion tests.

I feel strongly that leaders in the private-sector need to be careful using any test or metric exclusively to make decisions. Leadership judgement is an important element. If judgement were not necessary, excel spreadsheets could run businesses. Hmmm, maybe they would do a better job. Metrics and tests can be critical tools and often help to eliminate un-intentional bias. Leaders are human and therefore fallible. When we like or dislike someone, even when we are not intending to have a bias, we can give more slack to the employee we relate with better. Tests and metrics can help balance our own biases.

Overall, this case was very interesting and thought provoking. You may also like to read another article in the Wall Street Journal that provides more of the background.

Until Next Time,
Gail

IF WE WANT FUTURE WOMEN LEADERS, LET'S TEACH OUR DAUGHTERS MATH

2009-07-07T08:30:00.000-04:00

There is an interesting article in Forbes Women How to Raise a Rich Daughter. The article covers the fact that women hold 43% of the investable wealth in America, only 10% of Asset Managers are women. There are many other statistics of how quickly females drop out of interest in math at the various education levels. Even if a woman does not become an asset manager, she will need math and some accounting knowledge to succeed in running a business.

So let's get our daughters, nieces, mentees and proteges focused on math! Maybe there is a business opportunity for someone here. The article highlights that most computer games with math as a basis are the "shoot em up" variety that appeals more to boys than girls. Maybe one of our readers will create a computer game based in math that appeals to girls.

Until Next Time,
Gail

TIME IS MONEY, BUT CASH BUYS TIME

2009-07-06T04:55:00.004-04:00

I was paging through the Financial Times at breakfast this morning in London. There is an article about all the actions that the current CEO, Fritz Henderson, is taking at GM. Some are saying how much more action-oriented Fritz is than Rick Wagonner, the former CEO. Al Koch of Alix Partners, the chief restructuring officer of GM, says the changes that GM has made in the past 100 days usually takes a year.

That may be true, but it is the lack of cash that drives quicker and deeper actions in a financially troubled companies. For years GM, and Chrysler for that matter, avoided taking the really hard actions because there was enough cash to delay the painful actions. Why the delay? Hope springs eternal at troubled companies. Top management hopes (sometimes believes) that next quarter, next season, next product introduction will provide the underpinnings of a substantial turnaround. And wouldn't it be terrible to make the hard, deep cuts now and then have the business turnaround.

I have seen this happen over and over again for the past 25 years. Unfortunately, many CEO's take the really hard actions only when the company is running out of cash. Why? Because only then does the CEO accept that time is running out. At that point, there is no choice. It is either the hard actions or death of the company.

My co-author worked at a company once that needed to take hard actions. She said 'the CEO should be doing this and that.' I told her she was right but that it would probably not happen until it was too late. I told her that the company had too much cash and financing available to it. As a result, the CEO had the luxury of time for the business to ride an industry turnaround when it showed up. I further pointed out that when the cash finally ran out, it would be too late to implement a turnaround. Three years after I told her that, the company filed for bankruptcy and had no choice but to sell itself in pieces.

So, I am glad to hear Fritz is action-oriented. But is it him? Or is it because the GM is out of cash and management has no choice?

Cheers, Mike

LEADERS STEER CLEAR OF THE ERRORS OF GROWTH

2009-07-03T02:34:00.003-04:00

In the troubled company world, we often speak of the errors of growth. We have seen them all around and usually they are more obvious to the casual observer than the analyst. For example, look at Starbucks. Who hadn't remarked that there was a Starbucks seemingly on every corner. While that was an overstatement, in some cities it seemed like fact. It was obvious that each new Starbucks at some point, was taking market share from an existing Starbucks.

Since I am in England today, it seems appropriate to comment on an error of growth in London. It has occurred to none other than Gordon Ramsey. By his own admission, he grew too much too quickly. He has closed restaurants, let staff go, borrowed more money (4 million pounds this year alone), put some of his own money into the company, put some of his father-in-law's money into the company, and he even had to sell his Ferrari.

Leaders grow their companies in a measured secure manner. They make sure their capital structure provides them with the ability to withstand downturns and competitive pressures. They don't stretch themselves to the max.

Leaders take care of the downside. They know the upside takes care of itself.

Cheers, Mike

THINK, SPEAK & ACT AS A LEADER

2009-07-02T08:42:00.000-04:00

In our workshops, we drive home many leadership points. One of the overall points is that people who want to be leaders should think, speak and act as a leader in everything they do. If we hold ourselves to this standard, our performance will improve and our presence in the workplace will improve.

Before we speak or act, we should put our thoughts through the Leader Filter. Is this what a leader would say? Is this how a leader would say it? Would a leader do this? Would a leader do it this way?

If we think, speak and act as a leader and use the Leader Filter, we will soon eliminate unproductive complaining about petty items at work. We will stop having certain types of conversations with co-workers that leave us unhappy. We will actually enjoy work more because we will complain less and produce more.

If you are a leader, use think, speak and act as a leader with the people you lead. Individually ask your people if they want to be a leader or to be a better leader? After they answer yes, inform them that in order to achieve their leadership goals, one of the steps they must take is to think, speak and act as a leader.

Don't get into a discussion as what a leader is or is not. Tell your people to use their own definition of a leader. After they agree to think, speak and act as a leader, ask them to commit to do this going forward. Tell them to use the Leader Filter. Finally, to help support them in their efforts, hold them to their commitment.

This is a great non-confrontational way to get your people to raise their performance and to reduce unproductive complaining when you are not around. Whenever your direct reports don't think, speak or act as a leader, ask them the following. Would a leader really say or do what you just said or did? Hold them to their own definition of a leader. Make it about them, not you. This technique will empower your people and you may be surprised how the efforts of the people around you starts to improve.

Cheers, Mike

MAKING A LIVING WITH MAGGIE

2009-07-02T08:00:00.002-04:00

Mike and I were guests on Making a Living with Maggie on Martha Stewart Living Radio Sirius 112 and XM 157, yesterday. It was a great experience! Maggie Mistal hosts the show and she made it very natural and conversational. We discussed our book, Excuse Me, Aren't You in Charge? and our views on leadership. We gave some examples from the book and highlighted a few key points such as always thinking, speaking, and acting like a leader in everything you do; leaders walk through the fear to get things done; and leadership is not about the leader but about motivating and inspiring others to achieve more then they thought possible; and much more.

We would like to thank Maggie for the opportunity to talk about the book, given that all net proceeds from the book go to our two charities.

Maggie Mistal hosts the show and is a certified career coach with the training, tools, and resources to help people find or create their ideal career. In addition to hosting Making a Living with Maggie, she also appears on Living Today and Morning Living and has appeared several times on CNN. To learn more, go to maggiemistal.com.

If any of you were able to catch the show, feel free to share your thoughts.
Until Next Time,
Gail

TODAY'S RADIO INTERVIEW CALL IN NUMBER

2009-07-01T08:53:00.003-04:00

Some of you have asked for a number to call and ask questions during our interview today at 4pm. If you would to ask a question, please call 866-675-6675. If the question is difficult, please email us the answer ahead of time.

Cheers

TUESDAY'S POTPOURRI

2009-07-01T07:38:00.003-04:00

CHRYSLER LOWERS CASH BURN

The CEO of Chrysler announced in Europe this morning that Chrysler's cash burn is lower. He said he can't disclose the amount until he speaks with the US government on what he can disclose. So much for Obama's call for transparency.

THE RECESSION IS OVER! THE RECESSION IS OVER!

Dennis Kneale of CNBC recently called "The Recession is over!" He was immediately taken to task by a number of bloggers. Dennis then chose to take the bloggers to task. There have been a number of replies. But this one is really good. Read this reply by The Market Ticker.

The Market Ticker puts recessions are put into two categories, inventory driven and credit driven. Our current recession is credit driven. It lays out in English why the recession isn't over and why you should still be worried. Further, it lays out what the current increase in consumer savings really is - the pay down of debt not the increase in savings and yes there is a difference. You can spend your savings in the future, you won't be able to borrow more to spend.

LONDON LEADERSHIP WORKSHOPS

Gail and I will be in London over the Fourth to conduct a few leadership workshops. I once visited the British War Museum and looked at the exhibit of the American Revolution. Only they called it "The American Civil War". I guess it was from their prospective. Probably won't be any fireworks.

TEN MORE TO BE INDICTED TODAY ON MADOFF SCANDAL

It should be interesting to see how many fit into the following three buckets. 1. Last name Madoff, 2. Individuals who feed investors to slaughter, 3. Firms that made millions giving investors money to Madoff.

The over/under on Madoff's is 2 according to Las Vegas bookies.

FINALLY, Google's Blogger spellcheck doesn't recognize the word 'blogger'. How do things like this happen?

Cheers, Mike

TOMORROW'S RADIO INTERVIEW of GAIL & MIKE

2009-06-30T10:58:00.002-04:00

Tomorrow, Gail and I will be interviewed at 4pm by Maggie Mistal on her radio show, "Making a Living with Maggie". It can be found on SIRIUS 112 and XM 157. For those of you who don't have SIRIUS, you can sign up for a free 3 day trial at www.maggiemistal.com/radio.htm.

Maggie interviews notables from Martha Stewart to Sally Field to Deepak Chopra. Apparently due to the holiday week, no notables are available, so Gail and I will be on the show. We only have 20 minutes. If Gail speaks first, I fear there will be no time left for me. The listeners will probably be relieved.

Cheers, Mike

PORSCHE LEADERS, COULDN'T YOU STICK TO MAKING CARS?

2009-06-30T06:49:00.000-04:00

The BBC reported today that the state-controlled bank, KfW, rejected Porsche's loan application. To follow the bouncing ball, Porsche's leaders decided last year to borrow billions to take control of VW. Why did they need to take over VW? Arrogance and greed, the usual culprits.

Last year the Porsche management was feeling pretty smug. Through an option strategy that would make a hedge fund proud, they caused a short squeeze in VW's stock. This means that investors, including a number of hedge funds, that bet that VW's stock price would fall, had to buy VW stock to stop losing money as the stock price rose 400% in one day!

Why did it go up in one day? Well Porsche management which owned 50% of VW disclosed it had effectively acquired options for 25% more of the stock. Therefore, the people who shorted the stock had to go in the open market to acquire the stock. There were numerous complaints but the management smugly said they had outsmarted the market.

Well now they are paying the price. Porsche has $9 billion of debt it borrowed to takeover VW that it can no longer service. The Porsche leaders thought once they owned the much larger VW, they could refinance the debt. In a storybook turnaround, Porsche had to borrow from VW to make its debt service payments.

Now, VW is looking to takeover Porsche by calling its loan which Porsche can't pay. Porsche asked the state-controlled bank to help. The bank refused. Porsche is hanging in the wind looking to Qatar for an immediate and large investment. A little color is added by Zerohedge.

One other thing, if you google the Porsche VW situation, you will find out that the two companies are led by cousins. I am sure that has nothing to do with the arrogance and greed. Couldn't they just stick to making cars?

Cheers, Mike

EMAILS - RE-READ TWICE, SEND ONCE

2009-06-29T06:45:00.003-04:00

In my first book which I wrote initially for my son, I had a quick blurb on emails. I essentially warned him that before he sends emails, he should re-read them and assume that the world will read the email. He should then revise the email accordingly. Or maybe not send it at all.

Former Governor Elliot Spitzer had a comment on emails when he was the NY Attorney General. In effect he said, I don't know why people use emails for sensitive items as much as they do. But as long as they do, they will make prosecuters' jobs much easier.

Three years ago the Law Blog of the WSJ had an article on a bankruptcy matter called FiberMark. An Examiner's Report was written by long-time bankruptcy heavyweight, Harvey Miller, then of Greenhill and now back at Weil, Gotshal & Manges. It is a great read. I read the entire report and it is like a novel you can't put down. The Law Blog refers to it as the DaVinci Code of chapter 11's.

Why do I raise this report here? Well, among the central items in the report are emails sent by one of the attorneys in the matter. The emails cast the attorney in a very poor light and were key evidence that Harvey relied on to the detriment of the offending parties. I highly recommend that everyone who uses email in professional or contentious situations read this report. You will enjoy it and the lessons will stay with you forever.

My Mother, who is an artist and formerly designed dresses, used to tell me, "Measure twice, cut once." So my advice for emails, "Reread twice, send once."

Cheers, Mike

EXECUTIVE COMPENSATION

2009-06-26T08:30:00.000-04:00

Clearly, changes need to be made to executive compensation. I found an interesting article in the Harvard Business Review referring to the fact that it is not necessarily a question of how much ( which really is a question for individual boards to decide) but rather a question of how (the structure). I completely agree that the larger debate should be on the how not the how much.

As it relates to the how or the process, I have a few long held beliefs on this subject. It should be tied to long term value creation or destruction; we should recognize what the person inherited which could be good or bad; and we should remember that no one is as dumb as it seems when things go wrong nor as smart as they seem when things go right since they are operating in a larger market, which is why I have always favored some factoring, but not entirely, of how the company performed relative to its peers. So while I have been clear on this my struggle has been on the how. Particularly the long term value question.

I found this article in the Harvard Business Review linked to the original one that I found thought provoking. The article is entitled How to Tie Equity Pay to Long Term Performance.
I hope you find it thought provoking and if so, let us hear from you on your reaction and your ideas.
Let's start a dialogue!
Until Next Time,
Gail

BUSINESS PROPOSALS

2009-06-25T08:30:00.002-04:00

There is a nice short article in the WSJ entitled Why Business Plans Do Not Deliver. The writer is discussing the types of plans written when you are seeking investors in a business. However, it struck me that the points are relevant for any business proposal. This could be an internal initiative you want to get funded within your company or a proposal to a client. His arguments could even be applied when presenting your annual budget for approval.

He asserts, and I agree, that there are three things needed in a successful plan. Simply state the situation or problem, give the facts and evidence, and then candidly state the risks and how you plan to mitigate the risks. I would add that you should always think first about what is in it for the reader and what will give them the most concern. Most of these plans are written from the perspective of the writer not the reader.

He also summarizes his views on the fatal flaws in many plans. It is a good and quick read. Enjoy.
Until Next Time,
Gail

NORTEL TO LIQUIDATE

2009-06-22T05:57:00.000-04:00

Nortel, the Canadian telcom company, has agreed to be liquidated. The company will be sold off piecemeal. More and more companies are filing for bankruptcy and then being liquidated. The primary reason? There is no financing available to keep these struggling companies alive.

In past downturns, there was plenty of financing available in the US in the form of Debtor-in-Possession financing. But the current credit crisis, yes it is still going on, has made such financing very scarce. Troubled companies continue breathing as long as they have access to cash. In fact, it is amazing how long a financially troubled company can last when it has cash.

On the other hand, if a financially troubled company doesn't have access to cash, it is even more amazing how quickly the company rushes toward liquidation. In 2009, retailer after retailer has been liquidated. And the smaller bankruptcies that many of us never hear of, are being liquidated at an alarming rate.

So next time you hear about green shoots, be aware that companies are being forced into liquidation every day.

Cheers, Mike

HEALTHCARE: LEADERSHIP, COMMITMENTS AND CONFLICT RESOLUTION

2009-06-19T09:22:00.003-04:00

We are about to engage in a national debate in the USA on healthcare. The lines are drawn between universal or private healthcare and now the fight will begin. While we all agree on some fundamentals such as the USA has one of the highest quality systems in the world with many of the advances in medicine developed in this country; costs are out of control; insurance companies have too much control over care; and too many people are without insurance coverage and therefore getting sub-optimal care. This is a great start on things to agree upon, instead we focus on the areas of disagreement and just keep arguing while the costs keep going higher.

I am no healthcare expert but I have recently had this argument become personal. I retired two years ago and one of my " benefits" at the company was retiree healthcare. I paid for my benefits but was able to buy them through the company plan. That company has filed for bankruptcy and is selling off the businesses. I recently learned that when the last sale is complete, they will cancel the health plan. The result is that all retirees of this company will be without health insurance. I have begun to check other available plans, including a great group Freelancers Union that offers group insurance to the growing number of independent contractors or self employed individuals (approx. 30% in the USA). The cost is substantially higher than the company plan. The more I learn about this, the more I realize how devastating this could be for lower income people with a family to support.

So why am I writing about this, other than to whine? Why is the title of this post referring to leadership, commitment and conflict resolution?

Let's start with leadership and commitment. When companies hire, promote and reward employees, we refer to the entire compensation and benefits package. Many companies work hard to get employees to evaluate and value the entire package, not just the cash compensation. If that is the case, then they should not be able to walk away from their obligations on some of the benefits. As the baby boomers hit retirement age in even greater numbers, retiree benefits including health benefits will become an even bigger issue for companies.

Now let us address conflict resolution. This issue is too big and affects too many people to fall into the black hole of never ending political grandstanding. We need real solutions. Let's focus on areas that we might be able to resolve. One is clearly expanding benefits to the poor. The other is how do we bridge the gaps of employer provided health care as more people change jobs more frequently and what to do about retiree benefits when the company is struggling financially. There are many ways to solve the problem. An example might be that companies will have to fund these plans the same way they fund retirement plans.

Let's clearly articulate the problems we are trying to resolve; the things we agree on; and the pros and cons of various resolutions to the problems. Then a real dialogue can begin. In a word, we need real leadership to solve these complex problems.

Until Next Time,
Gail

COMPENSATION DRIVES BEHAVIOR

2009-06-19T08:09:00.004-04:00

At all levels compensation drives behavior. If you want more sales of a certain product group or service line, then increase the commissions on the sales of those products. If you want more hours worked on task A versus task B, then increase the pay rate for hours worked on task A. And so on and so on.

Interestingly compensation continues to drive behavior all the way up the corporate ladder. I have to chuckle that the TARP recipients have started to pay back the TARP funds they received. If I am not wrong, the stampede to pay back the funds began as soon as the Obama Administration began chirping that compensation and bonuses of executives of TARP recipients would be subject to oversight by a pay czar.

What's that? Someone wants to oversee our compensation and cap our bonuses? I don't care what we have to do, borrow at higher rates, sell stock below the current market value, do anything we have to do to pay the Treasury back so we can get our bonuses. By the way, I don't think there should be a Pay Czar, but I am amused by the behavior.

The next group to rush to repay the TARP may be those companies whose CEO's were identified by the WSJ this morning as using corporate planes for personal travel. Getting TARP funds and using the planes for personal reasons??? Hah, the WSJ was all over it. Whatever. I didn't post the link to the article because, well, why?

So, back to the point, compensation drives behavior. And perks are part of compensation.

Cheers, Mike

IT IS THE QUESTIONS, NOT THE ANSWERS

2009-06-18T10:15:00.001-04:00

In our Leadership Workshops, I do a section titled, "It is the Questions, not the Answers". The point is that a leader can add more value asking questions than providing answers sometimes.

It is through questions that one can add real value. Take the case where you are advising a very experienced person or speaking with your CEO. It is often very hard to out-answer these people. After all, they are very experienced and they have most of the answers. The way to add value is ask focused questions that the experienced person hasn't thought of before. Such a question really catches their attention. They reflect and consider the question and the potential answers. And the beauty of having the questions is that you don't need to have the answer at the same time you ask the question.

So, how do you get these questions? It is easier than you might imagine. You see, in today's information driven world, people run from meeting to meeting checking their emails. They are in a meeting that started late and then they are running into the next meeting. They finally run from that meeting to the next meeting and, yes, they are late for that meeting and it runs over too. Like an airline, once the day's schedule goes off the track there is no way back because there is no time scheduled to catch up.

What the true leader does is stop the current meeting 15 minutes before the next meeting. Then the leader focuses on the next meeting. What are the three biggest issues to be covered? What are the likely answers to the three biggest issues? What are the most significant risks to the issues and likely answers to be covered?

This process forms the basis for asking the questions that others haven't thought of before. Not because others can't think of the questions. It is because others don't spend the time to focus on the issues.

Leaders go through this process before every meeting and soon they don't need 15 minutes. They are good to go after only 5 to 10 minutes because they have trained themselves to work the process.

This process works great with your direct reports also. One of our followers, Brian, was kind enough to send me a HarvardBusiness.org article on asking questions. It is a must read if you are any kind of leader at all. The article focuses on how to ask questions that require your direct reports to rise to the occasion in a way that gets them to learn to solve their problems. It details asking questions in an open-ended manner that encourages discussion.

The author is also quick to warn against leading questions. Leading questions seeking a specific answer pushes the questioner's agenda and exerts pressure for agreement. While this may be expedient for resolving the matter at hand. It will cost more time in the long run.

Finally, the author points out that you are only as successful as the people who report to you.

Cheers, Mike

INSIGHTS CONVERSATION CONTINUED

2009-06-17T08:30:00.001-04:00

Like many of you, I enjoy all of Mike's posts. But yesterday's post about insight really struck a cord. Mike, thank you for making me and others reflect on the subject. So here are some of my thoughts on the subject.

Openness and active listening are key tools to enable you to become more insightful.

In Mike's example of his own insight while reviewing the financial analysis of the furniture company, I would argue that his openness and lack of prejudice enabled him to see what others had not observed. There is a professor at Yale, Daylian Cain, that teaches courses based on his research on the mind games involved in decision making. He argues that often when we think we are making objective decisions based on analysis, we do not realize that the analysis we requested often skews the information so much that we get the answer we were looking for, even if subconsciously, and therefore it is not objective.

Active listening or listening to understand is also key to enable us to have insights. This is particularly important when you disagree with the person speaking. If you suspend your opinion and judgement and instead carefully listen with the goal of really understanding their point of view, you get much more from the conversation. It may or may not result in you changing your opinion but it will always add to your understanding and may even lead to an insight. The insights might change your point of view or may provide you with an insight into how to get them to understand your point of view. Either way, it is worth the effort.

Just a few more thoughts on this subject. Let's all keep thinking and sharing.
Until Next Time,
Gail

LEADERS ARE INSIGHTFUL

2009-06-16T06:08:00.000-04:00

I have always been intrigued by insights. They sound so obvious when I hear them. But where do they come from? And why are some leaders so good at producing insights?

So I have set out to find out more about insights. Of course I googled 'insights' and narrowed the search down to a few million items. Wikipedia was up near the top and gave the clinical definitions of "Insight - manifests itself in suddenly understanding how to solve a difficult problem" and "Act of or result of apprehending the inner nature of things or seeing intuitively".

Sounds just a little elusive to me. Then there is "Power of acute observation and deduction, penetration, discernment, perception." Well, that clears it up. I just have to squint and look real hard.

Maybe insights come the likes of Yogi Berra who, amongst other things, is credited with the following:

"It was hard to have a conversation with anyone, there were too many people talking." "It gets late early out there." "You can observe a lot by watching." Well, maybe these aren't insights.

Insights zero in on the core of something. Insights provide a simplifying way to look at a situation. Insights appear to be the product of an intuitive and deep understanding and they provide a new or novel way at looking at things. Insights are not a new piece of information but a new way of interpreting existing information. They produce the effect of "I never looked at it that way before."

I was reading about the financial troubles of Iceland and noticed an interesting insight. "Leverage buys you a glimpse of a prosperity you haven't really earned." Hmmm, I never looked at it that way before.

I worked on the first Seaman's Furniture bankruptcy a number of years ago. I looked at the historical financial information and noted that when Seaman's was profitable in the past, virtually all of the profits had come from selling the customer receivables to finance companies. It occurred to me that Seaman's was not a furniture company. It was a finance company that generated consumer paper and sold it. This insight, which was initially scoffed at, became accepted and drove a very different view of the company going forward.

Insightful leaders are acute observers of others and maybe more importantly of themselves. Look for insights as you lead and explore the source of such insights. And, be an acute observer of what goes on around you.

Cheers, Mike

THE CHRYSLER BANKRUPTCY PRECEDENT AND THE PHOENIX COYOTES

2009-06-15T05:44:00.000-04:00

A couple of months ago, I wrote that the treatment of the senior lenders by the Auto Task Force and the Treasury was a bad precedent that would negatively impact bank lending to financially troubled companies in the future. Then the Task Force imposed its deal on the senior lenders in the bankruptcy and the judge in the matter sped the plan through, make that the Section 363 sale, in near record time. How long would it take for another group to try to speed a plan, make that a Section 363 sale, through the court at the expense of some other group of stakeholders?

Well, welcome to the Phoenix Coyote hockey team bankruptcy and the application of the 'Chrysler Precedent'. A lawyer for the team is trying to make the case for a quick sale of the Coyotes to a buyer who wants to move the team to Ontario. The lawyer is evoking the so-called 'Chrysler Precedent' to push for a quick Section 363 sale instead of the normal reorganization process that allows for a full vetting of the alternatives and input from the various parties-in-interest.

The NHL and other parties are protesting that there is no emergency that requires the end run around the normal process. They state that the sale of the Coyotes should go through the normal process. The NHL and others are looking for a local owner.

Let's hope the judge puts a stop to the Section 363 end run around the normal plan of reorganization process in the matter. The Chrysler Precedent was a bad one the cost of which is still to come.

Cheers, Mike

DO YOU KNOW WHAT YOUR EMPLOYEES REALLY THINK?

2009-06-12T08:42:00.002-04:00

The Financial Times had an interesting article on leadership this week. It told the story of a relatively new CEO, altering his appearance slightly and taking an hourly job at his company's plant. By mingling with the workers on the plant floor, he found out what the employees really thought. He was surprised that the workers either didn't receive the messages being sent out to them or that they didn't understand the messages.

He took away several points that coincidentally, Gail and I drive home in our series of Leadership Workshops. Here are five of the points that the CEO and we cover.

1. Communication is for the audience, communicate on their terms. Gail has a couple of stories that set forth that communication is for the employees to understand, not for the leader just to speak or post.

2. It is not possible to over communicate. Leaders constantly communicate the same messages over and over in as many different ways at possible. One size of communication doesn't fit each member of the audience. Leaders use all the methods of communication available to them.

3. Keep the messages simple. Don't assume that everyone has the same level of understanding that you have or that you thought you had when you were in their position. Leaders don't speak down to others. But they speak in simple, logical and understandable terms.

4. Break down big challenges into manageable pieces. When faced with large problems that seem insurmountable, Leaders break the problems down to a series of smaller parts. Leaders then celebrate the small victories to build momentum to enable the team to solve the larger problem.

5. Show you care. Gail and I are big proponents of being empathetic up and down the organization. Leaders who can put themselves into the shoes of their employees and into the shoes of those they report to, are often the most secure, successful and non-confrontational leaders.

Put these five leadership tools into your repertoire and see your effectiveness improve overnight.

Cheers, Mike

WILL US GET ITS MONEY BACK FROM GM & CHRYSLER?

2009-06-12T05:33:00.001-04:00

According to this article, Ron Bloom of Obama's Auto Task Force says the US Treasury has a reasonable likelihood of getting its money back. Really?

The Auto Task Force should be compelled to provide the analysis that supports that the Treasury will get its money back. It is a pretty simple analysis which I assume the task force did before driving the Chrysler and GM deals.

The analysis should be based on a cash flow and earnings estimates going out for several years. It should be based on reasonable underlying assumptions which the task force has adequately vetted. The resulting analysis should demonstrate how and when the Treasury will be repaid in each matter.

Presumably the analysis shows that there is a reasonable likelihood of repayment. However, if the analysis shows too much risk to the repayment, the task force and the Treasury should be held accountable for giving the trade credit a free ride (full repayment that is never written about) and for giving the UAW too much on the backs of the taxpayers.

Just saying there is a reasonable likelihood of repayment without the analysis may not carry much weight. If there is any reasonable risk of non-repayment, the trade and UAW should have received less until the Treasury is repaid.

I don't have the information to do the analysis, but my gut says it may not be pretty.

Cheers, Mike

FOCUS ON YOUR CORE BUSINESS

2009-06-11T09:12:00.002-04:00

The business pendulum just keeps swinging back and forth year after year after year. The question remains, will we ever learn? I suspect not.

The concept that companies should focus on their core business and use vendors, that are experts, to provide goods and services that are not a company's core business/skill set is not a new concept. Yet, every few years we realize we once again strayed from that concept and headlines appear touting a company that is now going to focus on their core business. So, it is not surprising given the global economic crisis that core business headlines have started to appear in newspapers.

The Wall Street Journal has two related articles on this topic. Firms Shed India Centers to Cut Costs in Recession and India's Tech Industry Must Reinvent Itself. For many years, the outsourcing business has been growing rapidly with services provided by outsourcing firms, consulting firms and IT services firms. Large service centers have been built in India and China and more recently in several other countries. There were two economic drivers, labor arbitrage and a high volume of transactions on a relatively fixed (albeit very large) cost. While this business has been around for many years, the business model is still evolving and maturing and managing these businesses profitably while providing quality services is hard work.

Now back to the pendulum swinging. Before the ink was dry on many of these contracts which led to headlines of how big companies were going to save money and "focus on their core business", someone in that same company started coveting the profit margin that the outsourcer was making on the contract. In many conference rooms around the world, someone pointed out that if the company built its own center in India they could save even more money if they did not have to pay the outsourcer with a built in profit margin. And so began the insourcing trend. Amazing that no one in that conference room asked if this was their core business (remember that was at least in theory one of the reasons they signed the outsourcing contract initially).

But even more troubling, is that no one asked if anyone in the company knew how to run a service center in India, China or some other country. They all just looked at the spreadsheet with the savings calculations and jumped on the bandwagon. Well, now we are back in that same conference room, maybe with different people, a new spreadsheet is being passed around and this time it shows that they can save 25% if they outsource it AND they can get cash if they sell their center to the outsourcer. The pendulum swings again.

Maybe, it is the words that are being used such as core business, outsource, insource, and many others. Instead, let's go for straight talk. Instead of saying companies should focus on their core business, let's say companies should focus on what they know how to do. They should then be the best in the world at doing it.

Maybe the global financial crisis could have been avoided or at least mitigated. If over the last few years, executives in conference rooms all over the world that were looking at spreadsheets showing that if they invested in derivatives, credit default swaps and added leverage had asked a few more questions the result may have been different. A few questions that might have asked are as follows:

What is a credit default swap?
How does a credit default swap work?
What are the three biggest risks?
What is our mitigation plan?
Do we have anyone in the company that knows how to do this?
Is this our core business?
Shouldn't we be spending time in this meeting talking about how to be the best in the world in our core business?
Shouldn't we spend time in this meeting talking about new markets for our core skills/products?
If we are going into new business areas, do we have or can we hire experts to run it? When we hire them, how will we evaluate their performance if we do not understand that business?

But instead the pendulum just continues to swing. Maybe the pendulum is the real engine for the economy?

Are you focused on your core business? Are you asking these questions when you are in the conference room?

Until Next Time,

Gail

THE 5 C's of LEADERSHIP- CONCLUSION

2009-06-10T08:30:00.000-04:00

Thank you for following the series on the 5 C's of Leadership. We received a few posted comments on the blog and several emails sent directly to me. As always, your comments and questions are very helpful.
Just as a reminder the 5 C's of Leadership are as follows:

Compelling Vision

Competence and Common Sense

Communication and Collaboration

Creation of Leaders and Teams

Character and Integrity

One of the first comments I received was a reader that pointed out that these are interdependent and all 5 must be addressed by a leader. I completely agree. A compelling vision without the competence or people to execute the vision will not change the organization or achieve your goals. Similarly, great communication skills without content is hollow and again will fail. So thanks again to our blog followers.

Several others wrote to me that the 5 C's were simple, clear and right on point. Another wrote that, as always, the devil is in the detail. They pointed out that it was the detail and description within each of the 5 C's that made them useful.

Another reader pointed me to a Harvard Business Review article from January 2009 entitled Women and the Vision Thing. I read the article and recommend it to all of you. If you are an HBR online subscriber you can read the entire article. If not, you can read a recap by going to hbr.harvardbusiness.org and go to back issues under January 2009 and you will find the article. The authors address a study that showed women were judged to be less visionary than men in 360 degree feedback and although it may be a matter of perception, it stops women from getting to the top. Our blog reader asked if I had any thoughts on how women could change this perception. The authors of the article put forth three theories for this perception: 1) women are equally visionary but in a different way; 2) women hesitate to go out on a limb; and 3) women don't put much stock in vision. I would like to put forth a fourth theory. In the article they show graphs of the vision question differences between men and women. The women scored higher on vision from subordinates and slightly lower on vision from their superiors. The big difference was with peers, particularly male peers, which scored women much lower on vision. While I think all three of the theories in the article are important for women leaders to be aware of and careful to overcome and for men to be aware of so they judge on content as well as perception. But what I would like to add is that I think women do not always think of their peers as stakeholders, which is a mistake. ALL stakeholders need to be considered when introducing change. Peers are stakeholders and often enablers (such as support groups) but if not on board can also be serious roadblocks to achieving the goals. Anyone else have any ideas?

In summary, Mike and I are using the 5 C's in our workshops and are glad they were interesting and helpful to you. As always, we welcome your comments and ideas. I would like to leave you with two thoughts. First, remember that we should all be lifelong learners and none of us are perfect. So give yourself a break if you don't meet all 5 C's everyday. But never give up on improving and striving to be the best leader you can become. Second, leadership is a great responsibility. Your actions impact people's lives and livelihood. But leadership is also a great privilege. You can really make a difference. Make it a positive difference.

Until Next Time,

Gail

LEADERS WHO GIVE THEIR UNDIVIDED ATTENTION

2009-06-09T09:12:00.002-04:00

One of my friends runs a very successful hedge fun. He also runs it in such a way that virtually all of his employees clamor to spend more one on one time with him. There a number of reasons his people want to spend time with him. He is smart, direct, supportive, occasionally funny (sometimes on purpose) and he is a natural teacher.

But perhaps most important of all, he gives each of them his undivided attention when he meets with them. He accepts no phone calls during his meetings with employees. He has no blackberry sitting in front of him and he isn't reading the Bloomberg while listening to what people have to say.

At the end of each meeting, the person who met with him walks out knowing that he/she received his undivided attention and feels better for it; even if the news was bad. How do you feel when you are meeting with someone who is reviewing the latest email while you are speaking? Don't do that to your employees. Give them your undivided attention.

This reminds me of another story. Gail and I were at a meeting with some advisors for another entity. While I was speaking, two of them were furiously typing on their blackberrys. So, I stopped speaking. They noticed the silence and looked up. The senior advisor looked at me and said, "It is ok. I can type and listen at the same time." I replied, "Good for you. I, however, can't speak and watch you type at the same time. So, we will wait until your done."

Give your undivided attention to those you speak to and demand the undivided attention of those who should be listening.

Cheers, Mike

LEADING PROFESSIONAL FIRMS DURING DOWNTURNS

2009-06-08T05:41:00.000-04:00

Leadership is never more critical than when a firm hits a major downturn in its business. There was a lengthy article in Sunday's NY Times on the large global law firm, White & Case. It is a scenario that is playing out across the globe at many law firms and other professional firms.

The Leaders of these firms must now act like crisis managers. This is very difficult for the leaders to do. They generally have spent a couple of decades at the firm. They have strong views of the firm's strengths and weaknesses that may prevent them from taking the right steps. They also have strong relationships and beliefs regarding the partners and staff that may prevent them from taking the necessary steps. Furthermore, the firm's accounting systems may produce information that clouds the true profitability of each department and of each partner.

It is actually critical at this stage for these Leaders to retain the services of an outside troubled company expert to objectively and critically analyze the operations. Professional firms grow on the assumption that they will continue to grow and be profitable. Sometimes the revenue recognition and expense allocation is not a true reflection of profit and loss of a service line or an office. And sometimes there are sacred cows that insiders don't question.

Several years ago, I worked with a global professional services firm that was being sold. The London Office of the firm was entertaining offers from other firms. One week the London Office was in our deal, the next week it was out of the deal. And so it went for several weeks. Finally during one of the weeks that the London Office was out of the deal, I finally analyzed the true profitability of the London Office. It didn't make a profit. In fact, as far as I could tell, it had never made a profit.

I met with the global leader and said, "why do we want the London Office? It has never been profitable." The global leader replied, "We are a global firm, we must have a London Office!"
To which I replied, "Thank God we only have one London Office, if we had more we would be out of business!!"

The global leader finally let the London Office go to another deal. Only an objective party could make a recommendation to let the London Office of a global firm go away if it wasn't profitable.

Now when a professional firm is in a significant downturn, the Leaders should hire a professional restructuring advisor. But like the shoe cobbler whose kids have no shoes, it is almost impossible for a professional services firm to hire a professional restructuring advisor. How ironic.

Cheers, Mike

THE 5 C's OF LEADERSHIP- CHARACTER & INTEGRITY

2009-06-05T08:30:00.001-04:00

The 5th of the 5 C's of Leadership is Character & Integrity.

First and most importantly, this is a yes or no issue. You either are a person of character and act with integrity or not. Sometimes I hear people try to make this a question of degrees. Well, they usually act in an appropriate manner but not always. Stop. Can you trust them to do the right thing and can you believe what they tell you? Yes or No?

Now, let's get into more specifics. In our book we have a story, trust is like a bank account. In essence, you have to make deposits in the trust bank so there is something there when you go to make a withdrawal and say to someone "trust me" they will. You also need to have the courage to speak up when you see something you believe is wrong. A leader is not a coward.

Mike wrote a post about a leader being able to say three simple words. The three words are "I was wrong". If the leader is someone with character they will be able to say those three words. My father would use the expression that someone was a "stand up kind of guy". This was the highest compliment he could give anyone. By the way, in this context, the word guy is gender neutral, or so I choose to believe.

Given that there is truth to the concept of the shadow of the leader, I believe that the leader's character will eventually shape the culture of the organization. The culture within an organization is critical and must be maintained. It will erode over time if proper care is not taken and if leaders with different values are brought into the organization.

Finally, we have previously posted about laughter being serious business. We have also posted on authenticity and the need to be yourself. Leadership development is not about becoming someone else. It is about becoming the best version of you that you can become. Be yourself. Be honest. Be a person of integrity and strong character. Be someone others want to be around. Lighten up and enjoy it. Leadership is fun! You can make a difference. Make it a positive difference.

Until Next Time,
Gail

CHRYSLER APPEAL HEARING TODAY

2009-06-05T08:25:00.002-04:00

Zerohedge is covering the Indiana pension appeals of the Chrysler sale today at 2pm. If you are interested, read this Zerohedge piece and follow the Zerohedge blog for updates.

I agree with Zerohedge that questioning the use of TARP funds to help the auto industry is a non-starter in the current environment. ZH states that the pensions should have presented their own objective liquidation analysis. I think a competing liquidation analysis should have been presented before the Bankruptcy Court ruled on the sale.

But I wonder, what will the Court of Appeals say about the objection based on the assertion that the FIAT sale is in effect a plan of reorganization without going through the plan process? This objection make carry more weight than one might think. It is also perhaps a better issue to bring in front of an appeals court than a competing liquidation analysis. We shall see.

Cheers, Mike

THE 5 C's OF LEADERSHIP- CREATION OF LEADERS & TEAMS

2009-06-04T08:30:00.003-04:00

The Creation of Leaders & Teams is the 4th of the 5 C's of Leadership.

Let's start with the creation of leaders and then move to the creation of teams. In my opinion, one of the key roles of a leader is the development of their people. A great leader creates other leaders. So now let's identify some of the ways in which you can develop leaders:

Recognize the responsibility and make sure you allocate time and resources to development
Provide practice opportunities for people in internal meetings and on task forces, etc
Share your thought process so your team knows how you make decisions and get to the answer. Talking out loud as you think was helpful to me in this area
Delegate, don't abdicate- you not only have the responsibility for getting the work done, but you have a responsibility to check-in and see if they need help
Give feedback often and honestly - someone can not change or fix something if they are not aware of it. I know we are all busy but this can be in the elevator as you are leaving a meeting- assuming no one else is there.(I did a few posts specifically on feedback)
Set the bar high, tell people what the bar is, and be fair in evaluating people against the bar
Spend time with your stars and good soldiers. Often, we spend so much time dealing with poor performers that we short change the stars (most often) and the good soldiers of time that could be spent on their development. Check your calendar from time to time to make sure you are spending time with the stars and the good soldiers. Don't be someone that only tells a star, "you are doing a great job, keep it up"
As a matter of fact, fire now or pay later, one of the stories in our book is about dealing with the problem performers sooner rather than later, which frees up your time for the better performers

Now, let's talk about developing teams. In most companies, the term leadership team is an oxymoron. It really is just a group of people that happen to report to the same person. There is no effort to create an environment or invest in really creating a team. A team should be given a clear team goal and time frame to achieve the goal. Then tell them the position or role that each member of the team is playing and what are the individual team member goals. They also need to be given opportunities to work as a team so they build trust and confidence in one another. A high performing team can accomplish great things, while a really bad team undermines and attacks one another. In most cases, they are polite and cordial in a group meeting but do not feel any responsibility or loyalty for or to one another and never work as a team but as individuals.

When people know you really care about their development and are willing to invest your own time as well as company resources to them, they will perform better and have increased loyalty to you and the organization. Seeing someone succeed beyond what even they thought possible is not only good business but is very personally rewarding.

Think of the Return on Investment if you are a great leader and you create other great leaders. Very high!!

Until Next Time,

Gail

APPEALS COURT TO HEAR CHRYSLER SALE OBJECTION

2009-06-03T08:59:00.003-04:00

As a non-lawyer, I am interested to see the outcome of the Indiana pensions appeal regarding the Bankruptcy Court's approval of the Chrysler/FIAT sale. (See WSJ artictle). The Bankruptcy judge was able to overrule the objections to the sale because it was in the best interest of the estate for the sale to go through. Remember, a bankruptcy court is a court of equity, not a court of law. This gives the Bankruptcy Court a fair amount of leeway. The Appeals Court of the Second District however, is a court of law. I wonder if this will be a meaningful distinction when the Appeals Court hears the oral arguments on Friday.

If the Court temporarily stays the sale to FIAT, FIAT may have the opportunity to walk away. Of course, given the deal that FIAT has received from the US Treasury, why would it ever walk away? As Yogi said, 'It isn't over til it is over.'

Cheers, Mike

IS THE TREASURY DEMANDING ENOUGH CUTS FROM GM?

2009-06-02T08:49:00.005-04:00

I read a short piece from Zerohedge that shows a summary cash flow projection for GM that projects it will lose $20 billion of cash over the next nine weeks. There is no detail and no way to test the projection as presented. So for our purposes let's assume it is directionally correct. Here are a few observations and questions. (Thanks to bankruptcylitigationblog for the picture)

You can only lose $20 billion in nine weeks if you have $20 billion to lose. As simple as this sounds, read it again. If the Treasury only gives GM $10 billion for the next nine weeks, it would only lose $10 billion. GM is clearly not cutting enough.

Look in all the press for the treatment the unsecured creditors are getting. You know, all those vendors, suppliers and other unsecured creditors. You don't see it, do you? The silence on the topic can only mean that all these creditors are being paid in full in the ordinary course of business. Can you say, 'thank you U.S. taxpayers?'

Are expenses being cut deep enough and quick enough? Obviously not. The Treasury has already put in $20 billion before the filing. The projection shows another $20 billion in the next nine weeks. That leaves only $10 billion in a rumored $50 billion of Treasury support. I have no other facts, but if the $20 billion in nine weeks is true, another $10 billion is unlikey to provide enough time for GM to turn cash flow positive.

Various stakeholders are getting too much on the backs of the taxpayers. This will become more clear as time passes. Unfortunately, the cash will already be out the door.

Cheers, Mike

THE 5 C's OF LEADERSHIP- COMMUNICATION & COLLABORATION

2009-06-01T08:00:00.000-04:00

Communication & collaboration is the 3rd of the 5 C's of Leadership.

Communication is a key element of strong leadership and must be:

Candid
Authentic
Empathetic
Two way
Always about the listener/receiver, not about the speaker

Communication is the way in which a leader shares their ideas in order to align the team and motivate followers. But it is also the way in which the leader learns what is going on in the organization which is why it must be a two way communication process. Many leaders do not realize that people do not feel free to challenge them or bring up bold new ideas. It is the leader's responsibility to create an atmosphere in which people know they can and should speak up and share their thoughts. This can only happen if the leader is genuinely interested in their ideas. If the leader is a person that is interested in learning and in other people, this will come naturally. The leader also needs to strive to get diverse points of view so the issues can be fully vetted before decisions are made. Good leaders talk straight and honest with people. Mike and I spend time in our workshops discussing authenticity. We all need to be ourselves. Leadership development is not about becoming someone else but rather about becoming the best version of you that you can become.

But most importantly, communication is about the audience. It is easy to fall in the trap of communicating what you want to say in a manner that means something to you as the leader. More importantly, the leader needs to stand back and ask themselves, what is the current mindset of this audience? What do they care about? What are they worried about? Once you honestly assess the current mindset of the audience, you then need to ask yourself where do you want them to be when you are finished with this communication. At this point, and only, this point, can you address what needs to be communicated and how to get them there. Always remember, it is not about you, it is about them.

Collaboration is another key element. This can be collaboration with the audience, your clients, other stakeholders, other groups in your organization. No group or individual is an island. We get things done well only with and through others.

Leaders need to persuade people to change, to see the possibilities, to work hard to achieve a goal and to achieve what they may have thought was not possible. Therefore communication and collaboration skills are one of the critical 5 C's of Leadership.

Until Next Time,
Gail

THE 5 C's OF LEADERSHIP- COMPETENCE AND COMMON SENSE

2009-05-29T10:25:00.002-04:00

Competence and Common Sense is the 2nd of the 5 C's of Leadership. The key points within Competence and Common Sense are as follows:

Leadership is not related to a position or title
Always think, speak and act as a leader
Technical and leadership skills are important
Identifying, mitigating and monitoring risks as well as opportunities is the leader's job
Leverage the strengths of your team- you are not perfect
Common sense- it will not fail you

Leadership is not about your position of title. Anyone can be a leader (or not). Next time you pass a school yard with young kids playing outside, stop for a few minutes and watch. You will see that some of the children have emerged as leaders among their peers. They have no position, title or golden parachute but they are leading. The way to tell is that other kids are following. Leaders have followers. If you want to know if you are a leader, turn around once in awhile and see if anyone is volunteering to be your follower. Leaders emerge during a situation. They take action; they make suggestions; they stand up for what they believe; and they are convincing and persuasive.

Always think, speak and act as a leader. You can not turn it on and off. When you are a team or committee member but not the team leader, you should still think, speak and act as a leader. This does not mean taking control. Good leaders are good team members because they are also good followers. A good follower does not mean blind faith and obedience. Bring all your skills to the table. Make suggestions, challenge ideas, remember the greater good. If your official team leader is a good leader they want you to bring everything you have to the table. It will work if you are respectful of others, which is a leadership skill, and support the decision once it is made. So the ALWAYS in this point is critical. It really means always think, speak and act as a leader. Mike frequently reminds me that people speak as they think. Pay attention to the way someone speaks. Do they speak in a clear and concise manner? If so, their thinking is probably also orderly. In a casual conversation, not when they are "on" do they speak like a leader? If not, they are probably a faux leader that happens to have the title and position.

Technical and leadership skills are important. We all spend countless hours making sure we have the technical skills to do our jobs. It applies to all jobs- law, accounting, engineering, human resources, marketing, fire fighting, police work, sales, secretarial or technology. It is also true for our industry knowledge. But most do not spend an equal amount of time and effort developing and enhancing our leadership skills. You need competence in both technical and leadership skills yet most companies spend time and money developing an employee's technical skills throughout their career but spend much less time and money on their leadership skills. Most companies refer to these as soft skills. I would submit that we are learning during this global economic crisis just how hard it is when you do not have real and top quality leadership skills. It also seems to me that most companies wait too late in a person's career to begin developing their leadership skills.

Identifying, mitigating and monitor risks and opportunities is a leader's responsibility. We have covered in other posts the need to identify your three biggest risks and then develop a mitigation plan and a monitoring system. You can do this at any place within your organization. It can be for the company overall or for a small team. The ideal is where it is done at the top and then cascaded down throughout the organization but leaders do what they can instead of waiting for someone else. You can start with any group. Mitigate does not eliminate which is why you need to be diligent in monitoring. Now what about opportunities? Do you have a means of systemically searching for opportunities? Most of us do not. We may be great at seizing it when it presents itself but that may be too late to capitalize on it. To identify, capitalize and monitor opportunities, you have to be looking outside the company. If your organization is too insular you will miss many opportunities. Your clients and customers are the best source of data. But also watch general market trends and ask yourself what could this mean for us in the future.

Leverage the strengths of your team. None of us is perfect. Are you honest with yourself on your strengths and weaknesses? Have you surrounded yourself with people that compliment your skills and shore up your weaknesses? Have you made sure that your team has the permission to challenge and question you? Have you unleashed their talent and creativity? One time in particular I remember being totally buried at work. The result was that I was not getting out as often to meet with the people in my group or our clients. I was usually very diligent in traveling to see everyone. My team was on a conference call with me and raised the issue. My answer was that I just did not have the time. One of them asked what was eating up all my time. I explained and he and another team member offered to take over some additional administrative responsibilities from me. They did point out that it was not my greatest strength and that they were better than me at those tasks. It worked out great and I was back on the road the next week.

Common sense should always be applied and it will never fail you. There are not guidelines for every situation and sometimes there are guidelines but they are dumb. When all else fails, use common sense. When you can not reach your boss and need to make a decision, ask yourself what makes sense and then do it. Do not fall into the trap of doing something that makes no sense but your conclusion is that "it" says to do it. If common sense was used more often, we would all be better off. Now, this is another reason you need to be careful who you hire and retain. Hire and retain people with good common sense so you will be comfortable with them using their judgement on what makes sense.

While the 5 C's are interdependent, I hope you have enjoyed reading today about Competence and Common Sense. Stay tuned as we continue the 5 C's next week. As always, feel free to comment, make additions or disagree. Discussion and debate is a good thing.

Until Next Time,
Gail

ALLAN MULALLY - A CHEERLEADING LEADER

2009-05-29T06:05:00.001-04:00

Nice piece on Alan Mulally, the CEO of Ford. Mulally came from Boeing to Ford a few years ago and took the helm of a struggling company. He immediately started making material moves to ensure the viability of Ford. At the time, some of those moves were questioned. They are not being questioned now.

He sold brands such as Jaguar, he borrowed billions when they were available and pledged collateral, he reduced the number of dealers in the network and he moved aggressively to build hybrid vehicles.

Furthermore, Mulally is a relentless cheerleading CEO. By all reports, he is very enthusiastic and positive. He is constantly smiling and exhorting all Ford's stakeholders to work together toward success. People are infused with his attitude when they spend time with him. Such an attitude is priceless in a turnaround situation. People need to be given credible hope that their efforts will bear fruit in the end. No one wants to follow a downbeat "woe is me" leader.

Courtesy of my friend Dave, Churchill said, "A relentless leader is the greatest weapon in war." So when things get tough, put together a bold plan to turn things around and be relentlessly positive. In the beginning, a positive attitude may be all you have.

Cheers, Mike

THE 5 C's OF LEADERSHIP- COMPELLING VISION

2009-05-28T10:53:00.001-04:00

The first of the 5 C's of Leadership is Compelling Vision. The best leaders create a bold vision that excites and inspires people. Then, they provide the tools to support the team's needs. Finally, and most importantly, they let go and unleash the talent and creativity in the organization!

Before the leader can inspire others, they need to be passionate about the vision and direction of the organization. Your passion and drive will be contagious and once you inspire people, their energy will be amazing. It takes courage to unleash the talent but great things can happen when you do let go. Now this brings up another issue which is that the 5 C's are interrelated. You need to make sure you have the talent and have invested in their development.

In order to create a compelling vision, you need to state where you are going and why would people want to go there. People crave clarity of direction and want purpose to their work. Give them something worth working for and comfort that they will be rewarded for their efforts and people will achieve great results.

Let's use planning a group vacation as an example. If you are planning a group vacation the first two things you need to decide is where are we going and when. After that, there is much to be done in planning your itinerary, where you will stay, what you will do, where you will visit, how you will get there, what is your budget, etc. But none of that can take place until the where and when questions are answered. Using the vacation example, the leader must tell the team where they are going and when. State the vision and when you expect to get there. This gives some parameters so everyone is on the same page. Now, you might create the vision as part of a team exercise but the leader needs to make the final decision and state it clearly. This also avoids wasting efforts on things that are not consistent with the vision. If the trip is to go to Paris in the springtime, you do not want a team working on how to get to the Alps in the winter.

But the other part of this is making it compelling. Why Paris? Why in May? What will I get to do when we get there? This all needs to be stated from the view of the team, not the leader. Put yourself in their shoes. Answer the what's in it for them question. The leader needs to state the vision in ways that create mental images that arouse their expectations and mobilize the team.

After the vision is clearly stated in a compelling fashion, the team needs to be given lots of freedom on how to achieve the goals. This will continue to fuel the energy to achieve the goal. The environment needs to be one that not only permits creativity and imagination but fosters it and helps it flourish.

Although the leader does need to step back and unleash the talent of the organization, they can not abdicate the role of leader. They still need to continue to provide the resources needed to achieve the goal; reallocate resources as time goes on; and monitor the direction of the plan to make sure that the team is not starting to go off course. It is also the leader's job to reassess at key points in case a course correction is needed. The leader should remove roadblocks for the team to achieve its goals. The team also need refueling from the leader. Over time, the challenges in achieving the vision will drain the team's energy. The leader is the refueling post. You need to sense when they need a boost of energy and how to give it to the team. But they will need refueling. Celebrating milestones along the way is key and also reminds the team of the road map and final destination. The leader also needs to be thinking about the next step in the vision after the team achieves the goal. This ensures that you are always striving for a better future. Finally, the leader will need to make many decisions along the way. A team's energy can be drained very quickly by a leader that delays decisions and does not take action.

In summary,

Vision- what and when
Compelling- why should I want to work hard to get there
Unleash the talent and get out of their way
Leader's passion and commitment
Provide resources/remove roadblocks
Create and sustain energy
Take action

Until Next Time,
Gail

GMAC, WHAT IS THE TREASURY DOING HERE?

2009-05-28T06:05:00.001-04:00

According to this report by Reuters, it could take a long time for the Treasury to recoup its advances to GMAC, maybe more than 15 years. The Treasury has already advance $12 billion to GMAC and according to the stress tests, GMAC needs several billion more.

Now that the initial TARP funds have provided a base to the steady the financial system, I would like to see future TARP advances to done in light of an acceptable repayment plan. Most lenders evaluate how their loans will be repaid before the loans are made. It is probably at a point in the cycle where future advances should be based on the likelihood of repayment. I know GMAC is the preferred lender to GM and Chrysler dealers and buyers, but couldn't JP Morgan, Bank of America and Wells Fargo have stepped into this role?

Stayed tuned, the financial press will likely start to pay attention to this issue.

Cheers, Mike

THE 5 C's OF LEADERSHIP

2009-05-27T09:44:00.003-04:00

Hello everyone and sorry I missed you last week. I received a few emails (not many) from people asking when I was going to do my next post. Nice to know some of you missed me.

Today, I am going to start a series on the 5 C's of Leadership. Each day, I will discuss one of the C's. Please comment on the series. Let me know if something is missing or you disagree on something or want to add an emphasis. Your comments are not only welcome, they are needed.

As you know, Mike and I write, speak and teach on Leadership. Until now, we have not utilized an overall organizing framework. We have now created the 5 C's as our overall framework within which we can and will include all our thoughts on leadership. Since the framework is new we welcome all your insights.

Today, I will list the 5 C's and then each day discuss one of the C's. The 5 C's of Leadership are as follows:

1) Compelling Vision- why people would want to follow you
2) Competence and Common Sense- the actions and processes
3) Communication and Collaboration- the message, the medium and the timing
4) Creating Leaders and Teams- the responsibility to develop people
5) Character and Integrity- why people should believe and trust you

Until Next Time.
Gail

LEADERS MUST LEAD BY EXAMPLE

2009-05-27T06:05:00.001-04:00

True leaders lead by example. This is critical to establishing a culture that people will happily follow. Leaders are well-advised to follow the same rules and policies as everyone else. This will go a long way on enforcing compliance by everyone else.

The proper way for a leader to do this is to be authentic. The leader must demonstrate integrity and embody the values of the company. A leader must be supportive of the people following and must take responsibility for his/her actions. If a leader is faking it, soon everyone will know and the culture will erode.

Many of us have worked for a 'leader' who believes that the rules are actually for everyone else. When that happens, we feel like second class citizens and we are less inclined to follow the rules and more inclined to feel some bitterness to the 'leader'. If the leader is above the rules, the rules will cease to have meaning after time. The employees will soon be there for the sole reason of making money and that is never a particularly positive experience.

Cheers, Mike

SO, HOW DOES THE TREASURY GET REPAID BY GM?

2009-05-26T05:30:00.000-04:00

The press has covered the UAW agreement with GM. The press has covered the GM bondholders non-agreement with GM. The press has covered the billions that the Treasury has advanced to GM. But where has the press covered how the Treasury will recover its billions from GM?

CNBC reports that Treasury advanced another $4 billion to GM last week to bring the total to $19.4 billion. Further it reports that GM projects the total will be up to $27 billion before year-end. So now, how does the Treasury get the money back?

First a couple of table setting items. Usually the lenders of last resort receive sufficient collateral and interest and fees to extend loans prior to a bankruptcy filing. I haven't seen a word on the terms and conditions of the Treasury's advances. Further, it is unusual for a company contemplating a bankruptcy filing to borrow large amounts to pay unsecured trade creditors a couple of weeks before the possible filing in absence of a like deal with its various stakeholders. Finally, post-filing advances from the Treasury should be treated as DIP lender advances and should be repaid upon exit from bankruptcy.

So the bondholders are complaining that the UAW with $20 billion of unsecured claims is receiving $10 billion of debt and 35% of the equity for the remaining $10 billion claim while they receive only 10% of the equity for their $27 billion unsecured claim. Obviously that makes no sense on its face. (See Ben Stein's article). Further, reading between the lines, unsecured trade creditors are being paid in full in the ordinary course of business. The Treasury may be receiving 55% of the equity for its total claim of $20 to $27 billion so far. It remains to seen if the Treasury will receive debt for any of its claim. And remember, the Treasury claim should really be senior to all unsecured creditors as lender of last resort.

In summary, the Treasury, which should be senior to the UAW in part or in whole may receive 1% of equity for every $375 - $500 million of its claim (55% for $20-27 billion). The bondholders may receive 1% of equity for every $2.7 billion of its claim (10% for $27 billion). The UAW has agreed to receive 1% of equity for every $285 million (35% for $10 billion) and a 100% recovery in debt for its remaining $10 billion claim. The UAW is receiving a multiple of what the Treasury is receiving and the UAW should be junior to the Treasury is some material respect. And, of course the UAW is receiving a recovery much greater than the bondholders who are pari passu.

So, why is the Treasury receiving much less than the UAW when it should be receiving more? And are all the unsecured trade creditors being treated better than the Treasury? And what is the value of the equity the Treasury is receiving? It seems the Treasury should be receiving 50% of its claim in debt and not the UAW. Perhaps we will hear soon how the Treasury recovers its advances.

Cheers, Mike

THE BOOK SIGNING

2009-05-21T22:08:00.004-04:00

A special thanks to all the people who attended our book signing at Barnes & Noble last night. There was much laughter and general hilarity. The B & N manager had to move us slightly since the crowds were getting out of control. Fortunately there was a solid police presence to handle the crowds waiting to get into the store.

We also set a record at the store for "Meet & Greet" sales. We doubled the previous record! Gail's arm was starting to fade from all the signings but she was able to rise to the challenge when the second wave arrived.

The crowd for the 8:30 talk was borderline unruly. Next time we will be sure to have a Breathalyzer test handy. Finally, Joanne has not been reading our blog because she is not in it. So Joanne, now you are in it.

Cheers, Mike

XEROX'S ANNE MULCAHY RETIRING

2009-05-21T10:06:00.004-04:00

Anne Mulcahy exhibited excellent leadership during her tenure as the CEO of Xerox. She took over the helm as Xerox was reeling from an accounting scandal and the departures of the former CEO and CFO. Furthermore, Xerox was shut out of the commercial paper market which required the company to draw down on its $7 billion loan facility. Anne found herself in charge of a company with lagging products, $14 billion of debt, an unsettled management team and fierce competition.

Anne did a fabulous job of refocusing the company to promote color copying and document preparation and to build a value-add service operation. While keeping people focused on transforming the company to compete effectively in the market, she dealt with the financial restructuring in a way to ensure Xerox's financial viability for the foreseeable future.

A key takeaway from her efforts for leaders everywhere is, get your people entirely focused on producing operating results and transforming the business so that there is no time to worry about problems that are outside of their control. This takes the leadership ability to get people fired up on the direction of the company is taking and motivated to produce results for which they will be rewarded.

Cheers, Mike

WELCH DISAGREES WITH OBAMA'S HANDLING OF CHRYSLER

2009-05-20T20:11:00.002-04:00

Jack Welch apparently doesn't approve of the Obama administration's handling of the Chrysler matter according to Bloomberg. Jack Welch wants to know why the unions were favored over the lenders. Good luck Jack. The unions voted for Obama and the lenders borrowed TARP funds from the Treasury. Anything else said would be redundant.

But, in case that doesn't do it for you Jack, check this out. The State of Indiana pension funds objected to the Treasury sponsored plan to sell Chrysler in a quick Section 363 sale. Not to be outdone in speed, the Chrysler bankruptcy judge ruled against the pensions funds in less than 24 hours according to Zerohedge. Really? This is going through no matter what anyone says about anything. But thanks for stopping by.

Cheers, Mike

LEHMAN SAYS BARCLAYS GOT WINDFALL, WILL THIS IMPACT CHRYSLER??

2009-05-19T06:05:00.002-04:00

According to the WSJ, Lehman now says that Barclay's got a windfall when it purchased Lehman's investment banking operations five days after Lehman filed for bankruptcy. At the time, Judge James Peck approved the quick sale of the investment banking operations because of concern of the group holding together. Now, the creditors are questioning the price that was paid because Barclay's has commented on how much the Lehman investment banking operations have added to its earnings.

This raises the question of how this may impact Chrysler's rapid fire sales process. Some have referred to Judge Peck's quick Lehman sales process as precedent for Judge Gonzales quick Chrysler sales process. Well, now if the Lehman sale is being questioned for being too quick, will this embolden those creditors who believe the Chrysler sales process is too quick?

We shall see. We shall see.

Cheers, Mike

TRUMP ON THE ART OF VALUATION PER WSJ

2009-05-18T08:50:00.003-04:00

There is a very entertaining article in the WSJ this morning. Trump is suing an author and his publisher for defamation due to a 2005 book which said he was only worth $250 million. There are excerpts from Trump's deposition regarding how he values his empire. It is really a good read.

The opposing counsel tries to get Trump to admit contradictions between his testimony and actual contracts. Trump however, has an answer for every question. While it is entertaining, I suspect that Trump will do very well when it comes time to testify. The fact is that valuation is much more art than science notwithstanding a well-accepted body of knowledge on the topic. And Trump is really good at the art side.

Furthermore, Trump, a graduate of Wharton, is more technically smart than some may think. I am looking forward to the reporting on this case. I can envision The Donald weaving valuations concepts and his subjective views to easily prove that he was worth more than $250 million at the time even if he can't prove he was worth 20 times that.

It reminds of the time that I was questioned on a distressed company valuation by a Harvard Business School student. I looked up at him in a class of 100 and said, "you must have worked at an investment bank for the past few years." He indicated that he had. So, I replied, "So, you must think that using methodologies like discounted cash flows, comparable sales, public and company multiples produce the actual value of something. Well, they don't. Something is only worth what someone will pay for it, especially in distressed situations." In this case, I am siding with Trump to demonstrate he was worth well more than $250 million. Should be a fun ride.

Cheers, Mike

GOVERNMENT TO WEIGH IN ON HARTMAX BANKRUPTCY?

2009-05-15T11:45:00.003-04:00

Where will it stop? Hartmax, maker and retailer of men's suits, filed for bankruptcy in January. Wells Fargo had already lent $114 million to Hartmax at the time of the filing. It has lent $2o million more since the bankruptcy filing. Wells is now refusing to lend more to Hartmax since there is no tangible prospect for repayment. They believe they are throwing good money after bad.

Well, now members of Congress are considering pressuring Wells to continue to support Hartmax, according to Bloomberg, since Wells was a recipient of TARP funds. This is a dangerous road to go down. One has to presume that Wells is behaving as a rational lender in this case. Wells is likely evaluating how to maximize values of Hartmax because it will be paid first from any value that can be realized. If Wells has decided that it should no longer support Hartmax with more loans it is because Wells has determined risks attendant to more loans is not supported by the likely reward.

It is totally inappropriate for members of Congress to weigh in based on the fact that Wells received TARP funds. This is especially true with this week's revelations that Paulson forced TARP funds on the banks.

Cheers, Mike

THE YELLOWSTONE CLUB

2009-05-15T05:49:00.000-04:00

A couple of months ago, I wrote about the craziness in the Yellowstone Club bankruptcy. I suggested that readers follow it because it promised to be entertaining. Well the bankruptcy is coming to a head. Today began the hearing to sell the club to either an entity of one of the members or to Tim Blixseth and Credit Suisse which loaned $375 million to the former owners Tim Blixseth and his wife, (they are now divorced, she got the club, the club filed for bankruptcy, she filed for divorce and he is now trying to buy the club back).

Greg LeMond sued the club two years ago for $38 million. He won the suit and was paid around $25 million. He has sued for the remaining $13 million. Now the club has sued to get the $25 million back as a fraudulent conveyance. I hope he didn't lose the money in the market, he may have to give it back.

Then with all this in the backdrop, the bankruptcy judge, citing "naked greed", effectively invalidated Credit Suisse's first liens on the club. The judge was so incensed over how Credit Suisse went about making the loan, he equitable subordinated Credit Suisse. This means that Credit Suisse no longer has the recovery rights of a secured lender. Instead it has the recovery rights of an equity holder. This is a very drastic remedy and extremely rare in my experience. It is even rarer in this case because usually equitable subordination is reserved for lenders that exert undue influence on running the operations of the company. I am not sure the logic hold. But there you have it.

Perhaps the judge sensed this. He indicated he reviewed the case law and decided it acted appropriately. Furthermore, he gave Credit Suisse back certain rights so that he effectively just put the unsecured creditors (mostly locals) ahead of Credit Suisse. This enables Credit Suisse to still "credit bid" its secured debt to buy the club with Blixseth. I know, 'what is credit bid?' This is where a bank or banks with a first lien go to the auction and instead of bidding cash, they bid the value of their loans which must be repaid first.

Once again, this is a fun matter to follow. Perhaps the strategy is to have all the craziness so that the movie rights will be able to boost the ultimate recoveries. At this rate, it is moving towards a Will Ferrell movie.

Cheers, Mike

IS CHRYSLER CUTTING ENOUGH DEALERS?

2009-05-14T12:04:00.002-04:00

Chrysler notified 789 dealers today that the company will ask the bankruptcy court to allow it to reject the dealers' franchise agreements. Unfortunately for those dealers, they will have no recourse to argue otherwise with the bankruptcy court. The only real argument will be about the terms and conditions of the closures. Dealers who have been loyal to Chrysler for years really have no where to look. We should expect the majority of these dealers to file for bankruptcy themselves in the near future.

The question I have is did Chrysler cut enough dealers? The 789 dealers represents approximately 25% of Chrysler's dealers. Interestingly, 50% of Chrysler's dealers are responsible for 90% of its sales. Given the fixed and variable costs attendant to supporting a dealer and the need for radical change, I wonder why Chrysler didn't cut 40-50% of its dealers to implement radical change. In my experience, bankrupt companies with retail locations never enough locations on the first round. Hope springs eternal that the revenues of the open locations will rebound.

Cheers, Mike

ARE THERE ANY LEADERS IN CONGRESS?

2009-05-14T08:00:00.001-04:00

It is amazing how many fake leaders show up during any crisis. The economic crisis is no different. The problem is that during a crisis is just when you most need great leaders not fake leaders. There is an article in the WSJ Lawmakers Press AIG's Liddy. After reading the article I was struck by the lack of real leadership in Congress. It seems instead of leadership, we are getting TV drama. This could have been an episode of Celebrity Apprentice instead of a congressional hearing.

Now don't get me wrong, I am no AIG fan either but some things are absurd. The lawmakers asked to see the AIG business plan referred to as Project Destiny. As lenders and owners of 80% of the company that seems like a fair and reasonable request. But not if the plan will be splashed in the newspapers and on TV, which is what these lawmakers would do with it.

AIG's Liddy needs to show leadership and respond to a small committee that he reports to on an on going basis. But the committee also needs to show leadership. I do not need to see or hear everything they do. What congress should do is tell the American people how they are overseeing AIG and then be held accountable for how well they do that job. Instead they want to play out every action in front of the press as a way to pretend that they are leading but not have any real accountability.

Hey, did I say lawmakers? Maybe that is the problem, we have lawmakers pretending to be business people. Let us hope that real leaders emerge some day soon.

US TO SET BANK COMPENSATION POLICIES???

2009-05-13T09:38:00.005-04:00

According to a report in the WSJ, the Obama Administration is considering getting involved in setting bank compensation policies. For example, loan officers should be paid based not only on the quantity of the loans made but also on the quality of the loans. Seriously, is this any different than the issues with most commission salespeople in most industries? Are they selling high margin products? Are they selling to customers with good credit? Are they giving away too much to get the sale? Is this the role of government? Of course not.

I have written it before, the issue is not the compensation policies. The issue is the leadership of the companies. The leadership must set compensation policies that drive the behavior and performance that they desire. The leadership must then identify the risks associated with its compensation policy and evaluate and monitor those risks. This is the responsibility of leadership not the government.

The government is quick to try to fix corporate issues based on the current financial crisis. Maybe it should fix its own house first. Artificially low interest rates for the five years leading into this crisis served to reduce the price of risk. Risky investments saw falling and low interest rates. These rates inflated the investment bubble across all asset classes. Compensation policies were part of the issue but not the largest part.

Cheers, Mike

HOW TO LEAD IN A CRISIS

2009-05-12T08:00:00.000-04:00

There is an article in the WSJ archives How To Lead In a Crisis that is worth reading. Mike and I teach a two day class at Villanova's Executive MBA program on this subject that is much more in depth but this article is well done.

There are a few key things I would add to the seven lessons listed. Communications. There is no such thing as over communicating during a crisis. Get the right team. You not only need expertise you do not have but you need people that are not as emotionally involved. There is also Mike's all time favorite comment, "work the process". There is so much you do not control in a crisis and you can not guarantee the outcome. What you can control is the process that you follow.

But the most important is for you as the leader is not to over react. Yes, you have to walk through the fear but do so after you have taken a deep breath. Walking through the fear is very different that acting on fear. Leaders stay focused on the better future ahead.
Until Next Time,
Gail