Japan Demographics- A “Trend Bomb”

Japan Demographics- A “Trend Bomb”

“Business Insider says Japan has become “a demographic time bomb.” I guess it’s about time somebody realized that demographic trends are important, and that they can be effective for planning!

Japan demographic trends, National Institute of Population and Social Security Research

It was September, 2016 that I pointed out how important using demographic trends was for planning – and made it clear that Japan was facing a huge problem due to an aging population and unwillingness to allow immigrants. In January, 2017 I reiterated the importance of incorporating demographic trends into planning, demonstrating how they can be important for predicting workforce availability, cost of living, taxation and other critical business issues.

Take for example the NFL. In 2017 the league took another big ratings decline. The second consecutive year. But this was not hard to predict. In September, as the season started, I made it clear that kneeling players were not the problem for the NFL – the demographics of its primary viewers was the big problem. And I predicted that ratings would take a hit in 2017. Demographics have been clearly working against the league, and unless they find a way to bring in younger viewers – probably through rules changes – things are going to get a lot worse, affecting revenues and thus owner profits and even player salaries.

Are you incorporating demographics in your planning? If not, why not? Don’t know which demographic trends are important, or how to apply demographic trends to your business? If you’re stuck, not understanding this critical trend and how it will impact your business, why not give us a call?”

Wells Fargo CEO Stumpf Is Gone: Is This The Beginning Of Wholesale Leadership Change?

Wells Fargo CEO Stumpf Is Gone: Is This The Beginning Of Wholesale Leadership Change?

SAUL LOEB/AFP/Getty Images

Everyone knows what happened at Wells Fargo. For many years, possibly as far back as 2005, Wells Fargo leaders pushed employees to “cross-sell” products, like high profit credit cards, to customers.  Eventually the company bragged it had an industry leading 6.7 products sold to every customer household. However, we now know that some two million of these accounts were fakes – created by employees to meet aggressive sales goals. And, unfortunately, costing unsuspecting customers quite a lot of fees.

We also know that Wells Fargo leadership knew about this practice for at least five years – and agreed to a $190 million fine. And the company apparently fired 5,300

Which begs the obvious question – if management knew this was happening, why did it continue for at least five years?

Let’s face it, if you owned a restaurant and you knew waiters were adding extras onto the bill, or tip, you would not only fire those waiters, but put in place procedures to stop the practice. But in this case we know that management at Wells Fargo was receiving big bonuses based upon this employee behavior. So they allowed it to continue, perhaps with a gloss of disdain, in order for the execs to make more money.

This is the modern, high-tech financial services industry version of putting employees in known dangerous jobs, like picking coal, in order to make more profit. A lot less bloody, for sure, but no less condemnable. Management was pushing employees to skirt the law, while wearing a fig-leaf of protection.

 Ignorance is not excuse – especially for a well-paid CEO.

CEO Stumpf’s testified to Congress that he didn’t know the details of what was happening at the lower levels of his bank. He didn’t know bankers were expected to make 100 sales calls per day. When asked about how sales goals were implemented, he responded to Representative Keith Ellison “Congressman, I don’t know that level of detail.

Really? Sounds amazingly like Bernie Ebbers at Worldcom. Or Jeff Skilling and Ken Lay at Enron. Men making millions of dollars from illegal activities, but claiming they were ignorant of what their own companies were doing. And if they didn’t know, there was no way the board of directors could know, so don’t blame them either.

Does anyone remember how Congress reacted to those please of ignorance? “No more.” Quickly the Sarbanes-Oxley act was passed, making not only top executives but Boards, and in particular audit chairs, responsible for knowing what happened in their companies. And later Dodd-Frank was passed strengthening these laws – particularly for financial services companies. Ignorance would no longer be an excuse.

Where was Wells Fargo’s compliance department?

Based on these laws every Board of Directors is required to establish a compliance officer to make sure procedures are in place to insure proper behavior by management. This compliance officer is required to report to the board that procedures exist, and that there are metrics in place to make sure laws, and ethics policies, are followed.

Additionally, every company is required to implement a whistle-blower hotline so that employees can report violations of laws, regulations, or company policies. These reports are to go either to the audit chair, or the company external legal counsel. If it is a small company, possibly the company general counsel who is bound by law to keep reports confidential, and report to the board. This was implemented, as law, to make sure employees who observed illegal and unethical management behavior, as happened at Worldcom, Enron and Tyco, could report on management and inform the board so Directors could take corrective action.

Which begs the first question “where the heck was Wells Fargo’s compliance office the last five years?”  These were not one-off events. They were standard practice at Wells Fargo. Any competent Chief Compliance Officer had to know, after five-plus years of firings, that the practices violated multiple banking practice laws. He must have informed the CEO. He was, by law, supposed to inform the board. Who was the Chief Compliance Officer? What did he report? To whom? When? Why wasn’t action taken, by the board and CEO, to stop these banking practices?

Should regulators allow executives to fire whistle-blowers?

And about that whistle-blower hotline – apparently employees took advantage of it. In 2010, 2011, 2013 and more recently employees called the hotline, even wrote the Human Resources Department and the office of CEO John Stumpf to report unethical practices. Were their warnings held in anonymity? Were they rewarded for coming forward?

Quite to the contrary, one employee, eight days after logging a hotline call, was fired for tardiness. Another was fired days after sending an email to CEO Stumpf alerting him of aberrant, unethical practices. A Wells Fargo HR employee confirmed that it was common practice to find fault with employees who complained, and fire them. Employees who learned from Enron, and tried to do the right thing, were harassed and fired. Exactly 180 degrees contrary to what Congress ordered when passing recent laws.

None of this was a mystery to Wells Fargo leadership, or CEO Stumpf. CNNMoney reported the names of employees, actions they took and the decisively negative reactions taken by Wells Fargo on September 21. There is no way the Wells Fargo folks who prepared CEO Stumpf for his September 29 testimony were unaware. Yet, he replied to questions from Congress that he didn’t know, or didn’t remember, these events – or these people. In eight days these staffers could have unearthed any information – if it had been exculpatory. That Stumpf’s answer was another plea of ignorance only points to leadership’s plan of hiding behind fig leafs.

CEO Stumpf obviously knew the practices at Wells Fargo. So did all his direct reports. And likely two or three levels downs, at a minimum. Clearly, all the way to branch managers. Additionally, the compliance function was surely fully aware, as was HR, of these practices and chose not to solve the issues – but rather hide them and fire employees in an effort to eliminate credible witnesses from reporting wrongdoing by top leadership.

Where was the board of directors? Why didn’t the audit chair intervene?

It is the explicit job of the audit chair to know that the company is in compliance with all applicable laws. It is the audit chairs’ job to implement the Sarbanes-Oxley and Dodd-Frank regulations, and report any variations from regulations to the company auditors, general counsel, lead outside director and chairperson. Where was proper governance of Wells Fargo? Were the Directors doing their jobs, as required by law, in the post Enron, WorldCom, Tyco, Lehman, AIG world?

Should CEO Stumpf be gone? Without a doubt. He should have been gone years ago, for failing to properly implement and enforce compliance. But he is not alone. The officers who condoned these behaviors should also be gone, as should all HR and other managers who failed to implement the regulations as Congress intended.

Additionally, the board of Wells Fargo has plenty of responsibility to shoulder. The board was not effective, and did not do its job. The directors, who were well paid, did not do enough to recognize improper behavior, implement and monitor compliance or take action.

There is a lot more blame here, and if Wells Fargo is to regain the public trust there need to be many more changes in leadership, and Board composition. It is time for the SEC to dig much deeper into the situation at Wells Fargo, and the leaders complicit in failing to follow the intent of Congress.

‘Mythbusters’: Six Steps To Greater Diversity And Superior Results

‘Mythbusters’: Six Steps To Greater Diversity And Superior Results

Most of the time “diversity” is a code word for adding women or minorities to an organization.  But that is only one way to think about diversity, and it really isn’t the most important.  To excel you need diversity in thinking.  And far too often, we try to do just the opposite.

Mythbusters” was a television series that ran 14 seasons across 12 years.  The thesis was to test all kinds of things people felt were facts, from historical claims to urban legends, with sound engineering approaches to see if the beliefs were factually accurate – or if they were myths.  The show’s ability to bust, or prove, these myths made it a great success.

Workplace DiversityThe show was led by 2 engineers who worked together on the tests and props.  Interestingly, these two fellows really didn’t like each other.  Despite knowing each other for 20 years, and working side-by-side for 12, they never once ate a meal together alone, or joined in a social outing.  And very often they disagreed on many aspects of the show.  They often stepped on each others toes, and they butted heads on multiple issues.  Here’s their own words:

“We get on each other’s nerves and everything all the time, but whenever that happens, we say so and we deal with it and move on,” he explained. “There are times that we really dislike dealing with each other, but we make it work.”

The pair honestly believed it is their differences which made the show great.  They challenged each other continuously to determine how to ask the right questions, and perform the right tests, and interpret the results.  It was because they were so different that they were so successful.  Individually each was good.  But together they were great.  It was because they were of different minds that they pushed each other to the highest standards, never had an integrity problem, and achieved remarkable success.

Yet, think about how often we select people for exactly the opposite reason. Think about “knock-out” comments and questions you’ve heard that were used to keep from increasing the diversity:

  • I wouldn’t want to eat lunch with that person, so why would I want to work with them?
  • We find that people with engineering (or chemical, or fine arts, etc.) backgrounds do well here.  Others don’t.
  • We like to hire people from state (or Ivy League, etc) colleges because they fit in best
  • We always hire for industry knowledge.  We don’t want to be a training ground for the basics in how our industry works
  • Results are not as important as how they were obtained – we have to be sure this person fits our culture
  • Directors on our Board need to be able to get along or the Board cannot be effective
  • If you weren’t trained in our industry, how could you be helpful?
  • We often find that the best/top graduates are unable to fit into our culture
  • We don’t need lots of ideas, or challenges. We need people that can execute our direction
  • He gets things done, but he’s too rough around the edges to hire (or promote.)  If he leaves he’ll be someone else’s problem.

In 2011 I wrote in Forbes “Why Steve Jobs Couldn’t Find a Job Today.” The column pointed out that hiring practices are designed for the lowest common denominator, not the best person to do a job.  Personalities like Steve Jobs would be washed out of almost any hiring evaluation because he was too opinionated, and there would be concerns he would cause too much tension between workers, and be too challenging for his superiors.

Simply put, we are biased to hire people that think like us.  It makes us comfortable. Yet, it is a myth that homogeneous groups, or cultures, are the best performing.  It is the melding of diverse ways of thinking, and doing, that leads to the best solutions.  It is the disagreement, the arguing, the contention, the challenging and the uncomfortableness that leads to better performance.  It leads to working better, and smarter, to see if your assumptions, ideas and actions can perform better than your challengers.  And it leads to breakthroughs as challenges force us to think differently when solving problems, and thus developing new combinations and approaches that yield superior returns.

What should we do to hire better, and develop better talent that produces superior results?

  1. Put results and accomplishments ahead of culture or fit.  Those who succeed usually keep succeeding, and we need to build on those skills for everyone to learn how to perform better
  2. Don’t let ego into decisions or discussions.  Too many bad decisions are made because someone finds their assumptions or beliefs challenged, and thus they let “hurt feelings” keep them from listening and considering alternatives.
  3. Set goals, not process.  Tell someone what they need to accomplish, and not how they should do it. If how someone accomplishes their goals offends you, think about your own assumptions rather than attacking the other person.  There can be no creativity if the process is controlled.
  4. Set big goals, and avoid the desire to set a lot of small goals.  When you break down the big goal into sub-goals you effectively kill alternative approaches – approaches that might not apply to these sub-goals.  In other words, make sure the big objective is front and center, then “don’t sweat the small stuff.”
  5. Reward people for thinking differently – and be very careful to not punish them.  It is easy to scoff at an idea that sounds foreign, and in doing so kill new ideas.  Often it’s not what they don’t know that is material, but rather what you don’t know that is most important.
  6. Be blind to gender, skin color, historical ancestry, religion and all other elements of background.  Don’t favor any background, nor disfavor another.  This doesn’t mean white men are the only ones who need to be aware.  It is extremely easy for what we may call any minority to favor that minority.  Assumptions linked to physical attributes and history run deep, and are hard to remove from our bias.  But it is not these historical physical and educational elements that matter, it is how people think that matters – and the results they achieve.

 

 

How Traditional Planning Systems Failed Microsoft, and Its Board

Last week Bloomberg broke a story about how Microsoft’s Chairman, John Thompson, was pushing company management for a faster transition to cloud products and services.  He even recommended changes in spending might be in order.

Really?  This is news?

Let’s see, how long has the move to mobile been around?  It’s over a decade since Blackberry’s started the conversion to mobile.  It was 10 years ago Amazon launched AWS.  Heck, end of this month it will be 9 years since the iPhone was released – and CEO Steve Ballmer infamously laughed it would be a failure (due to lacking a keyboard.)  It’s now been 2 years since Microsoft closed the Nokia acquisition, and just about a year since admitting failure on that one and writing off $7.5B  And having failed to achieve even 3% market share with Windows phones, not a single analyst expects Microsoft to be a market player going forward.

So just now, after all this time, the Board is waking up to the need to change the resource allocation?  That does seem a bit like looking into barn lock acquisition long after the horses are gone, doesn’t it?

The problem is that historically Boards receive almost all their information from management.  Meetings are tightly scheduled affairs, and there isn’t a lot of time set aside for brainstorming new ideas.  Or even for arguing with management assumptions.  The work of governance has a lot of procedures related to compliance reporting, compensation, financial filings, senior executive hiring and firing – there’s a lot of rote stuff.  And in many cases, surprisingly to many non-Directors, the company’s strategy may only be a topic once a year.  And that is usually the result of a year long management controlled planning process, where results are reviewed and few challenges are expected.  Board reviews of resource allocation are at the very, very tail end of management’s process, and commitments have often already been made – making it very, very hard for the Board to change anything.

And these planning processes are backward-oriented tools, designed to defend and extend existing products and services, not predict changes in markets.  These processes originated out of financial planning, which used almost exclusively historical accounting information.  In later years these programs were expanded via ERP (Enterprise Resource Planning) systems (such as SAP and Oracle) to include other information from sales, logistics, manufacturing and procurement.  But, again, these numbers are almost wholly historical data.  Because all the data is historical, the process is fixated on projecting, and thus defending, the old core of historical products sold to historical customers.

Copyright Adam Hartung

Copyright Adam Hartung

Efforts to enhance the process by including extensions to new products or new customers are very, very difficult to implement.  The “owners” of the planning processes are inherent skeptics, inclined to base all forecasts on past performance.  They have little interest in unproven ideas.  Trying to plan for products not yet sold, or for sales to customers not yet in the fold, is considered far dicier – and therefore not worthy of planning.  Those extensions are considered speculation – unable to be forecasted with any precision – and therefore completely ignored or deeply discounted.

And the more they are discounted, the less likely they receive any resource funding.  If you can’t plan on it, you can’t forecast it, and therefore, you can’t really fund it.  And heaven help some employee has a really novel idea for a new product sold to entirely new customers.  This is so “white space” oriented that it is completely outside the system, and impossible to build into any future model for revenue, cost or – therefore – investing.

Take for example Microsoft’s recent deal to sell a bunch of patent rights to Xiaomi in order to have Xiaomi load Office and Skype on all their phones.  It is a classic example of taking known products, and extending them to very nearby customers.  Basically, a deal to sell current software to customers in new markets via a 3rd party.  Rather than develop these markets on their own, Microsoft is retrenching out of phones and limiting its investments in China in order to have Xiaomi build the markets – and keeping Microsoft in its safe zone of existing products to known customers.

The result is companies consistently over-investment in their “core” business of current products to current customers.  There is a wealth of information on those two groups, and the historical info is unassailable.  So it is considered good practice, and prudent business, to invest in defending that core.  A few small bets on extensions might be OK – but not many.  And as a result the company investment portfolio becomes entirely skewed toward defending the old business rather than reaching out for future growth opportunities.

This can be disastrous if the market shifts, collapsing the old core business as customers move to different solutions.  Such as, say, customers buying fewer PCs as they shift to mobile devices, and fewer servers as they shift to cloud services.  These planning systems have no way to integrate trend analysis, and therefore no way to forecast major market changes – especially negative ones.  And they lack any mechanism for planning on big changes to the product or customer portfolio.   All future scenarios are based on business as it has been – a continuation of the status quo primarily – rather than honest scenarios based on trends.

How can you avoid falling into this dilemma, and avoiding the Microsoft trap?  To break this cycle, reverse the inputs.  Rather than basing resource allocation on financial planning and historical performance, resource allocation should be based on trend analysis, scenario planning and forecasts built from the future backward.  If more time were spent on these plans, and engaging external experts like Board Directors in discussions about the future, then companies would be less likely to become so overly-invested in outdated products and tired customers. Less likely to “stay at the party too long” before finding another market to develop.

If your planning is future-oriented, rather than historically driven, you are far more likely to identify risks to your base business, and reduce investments earlier.  Simultaneously you will identify new opportunities worthy of more resources, thus dramatically improving the balance in your investment portfolio.  And you will be far less likely to end up like the Chairman of a huge, formerly market leading company who sounds like he slept through the last decade before recognizing that his company’s resource allocation just might need some change.

Why Cheating is Prevalent – and We Can’t Stop It

Why Cheating is Prevalent – and We Can’t Stop It

Cheating in sports is now officially prevalent.  The World Anti-Doping Agency (WADA) last week issued its report, and confirmed that across the International Association of Athletics Federation (IAAF) athletes were cheating.  And very frequently doing so under the supervision of those leading major sports operations at a national, and international level.

Quite simply, those responsible for the future of various sports were responsible for organizing and enabling the illegal doping of athletes.  This behavior is now so commonplace that corruption is embedded in the IAAF, making cheating by far the norm rather than the exception.

Wow, we all thought that after Lance Armstrong was found guilty of doping this had all passed.  Sounds like, to the contrary, Lance was just the poor guy who got caught.  Perhaps he was pilloried because he was an early doping innovator, at a time when few others lacked access.  As a result of his very visible take-down for doping, today’s competitors, their coaches and sponsors have become a lot more sophisticated about implementation and cover-ups.

Accusations of steroid use for superior performance have been around a long time.  Major league baseball held hearings, and accused several players of doping.  The long list of MLB players accused of cheating includes several thought destined for the Hall of Fame including Barry Bonds, Jose Conseco, Roger Clemens, Mark McGwire, Manny Ramirez, Alex Rodriguez, and Sammy Sosa. Even golf has had its doping accusations,  with at least one top player, Vijay Sing, locked in a multi-year legal battle due to admitting using deer antler spray to improve his performance.

The reason is, of course, obvious.  The stakes are, absolutely, so incredibly high.  If you are at the top the rewards are in the hundreds of millions of dollars (or euros.)  Due to not only enormously high salaries, but also the incredible sums paid by manufacturers for product endorsements, being at the top of all sports is worth 10 to 100 times as much as being second.

For example – name any other modern golfer besides Tiger Woods. Bet you even know his primary sponsor – Nike.  Yet, he didn’t even play much in 2015.  Name any other Tour de France rider other than Lance Armstrong. And he made the U.S. Postal Service recognizable as a brand.  I travel the world and people ask me, often in their native language or broken English, where I live.  When I say “Chicago” the #1 response – by a HUGE margin is “Michael Jordan.”  And everyone knows Air Nike.

We know today that some competitors are blessed with enormous genetic gifts.  Regardless of what you may have heard about practicing, in reality it is chromosomes that separate the natural athletes from those who are merely extremely good.  Practicing does not hurt, but as the good doctor described to Lance Armstrong, if he wanted to be great he had to overcome mother nature.  And that’s where drugs come in.  Regardless of the sport in which an athlete competes, greatness simply requires very good genes.

If the payoff is so huge why wouldn’t you cheat? If mother nature didn’t give you the perfect genes, why not alter them? It is not hard to imagine anyone realizing that they are very, very, very good – after years of competing from childhood through their early 20s – but not quite as good as the other guy.  The lifetime payoff between the other guy and you could be $1Billion.  A billion dollars!  If someone told you that they could help, and it might take a few years off your life some time in the distant future, would you really hesitate?  Would the daily pain of drugs be worse than the pain of constant training?

Gold-medal-Olympian-talks-contamination-and-doping-scandals_strict_xxlThe real question is, should we call it cheating?  If lots and lots of people are doing it, as the WADA report and multiple investigations tell us, is it really cheating?

After all, isn’t this a personal decision? Where should regulators draw the line?

We allow athletes to drink sports drinks. Once there was only Gatorade, and it was only available to Florida athletes.  Because they didn’t dehydrate as quickly as other teams these athletes performed better.  But obviously sports drinks were considered OK.  How many cups of coffee should be allowed?  How about taking vitamins?

Exactly who should make these decisions?  And why?  Why “outlaw” some products, and not others?  How do you draw the line?

After watching “The Program” about Lance Armstrong’s doping routine it was clear to me I would never do it, and I would hope those I love would never do it.  But I also hope they don’t smoke cigarettes, drink too much liquor or make a porno movie.  Yet, those are all personal decisions we allow.  And the first two can certainly lead to an early grave.  As painful as doping was to biker Armstrong and his team, it was their decision to do it.  As bad as it was, why isn’t it their decision?  Why is someone put in a position to say it is cheating?

After all, we love winners.  When Lance was winning the Tour de France he was very, very popular.  Even as allegations swirled around him fans, and sponsors, pretty much ignored them.  Even the reporter who chased the story was shunned by his colleagues, and degraded by his publisher, as he systematically built the undeniable case that Armstrong was cheating.  Nobody wanted to hear that Lance was cheating – even if he was.

Fans and sponsors really don’t care how athletes win, just that they win.  If athletes do something wrong fans pretty much just hope they don’t get caught.  Just look at how fans overwhelming supported Armstrong for years.  Or how football fans have overwhelming supported Patriots quarterback Tom Brady, and ridiculed the NFL’s commissioner Roger Goodall, over the Deflategate cheating charges and investigation.  Fans support a winner, regardless how they win.

So, now we know performance enhancing drugs are endemic in professional sports.  Why do we still make them against the rules?  If they are common, should we be trying to change behavior, or change the rules?

Go back 150 years in sports and frequently the best were those born to upper middle class families.  They had the luck to receive good, healthy food.  They had time to actually practice.  So when these athletes were able to be paid for their play, we called them professionals.  As professionals we would not allow them to compete with the local amateurs.  Nor could they compete in international competitions, such as the Olympics.

Jim Thorpe won 2 Olympic gold medals in 1912, received a ticker-tape Broadway parade for his performance and was considered “the greatest athlete of all time.” He was also stripped years later of his medals because it was determined he had been paid to play in a couple of professional baseball games.  He was considered a cheater because he had the luxury of practicing, as a professional, while other Olympic athletes did not.  Today we consider this preposterous, as professional athletes compete freely in the Olympics.  But what really changed? Primarily the rules.

It is impossible to think that we will ever roll back the great rewards given to modern athletes.  Too many people love their top athletes, and relish in seeing them earn superstar incomes.  Too many people love to buy products these athletes endorse, and too many companies obtain brand advantage with those highly paid endorsements.  In other words, the huge prize will never go away.

What is next?  Genetic engineering, of course.  The good geneticists will continue to figure out how to build stronger bodies, and their results will be out there for athletes to use.  Splice a gorilla gene into a wrestler, or a gazelle gene into a long-distance runner.  It’s not pure fantasy.  This will likely be illegal.  But, over time, won’t those gene-altering programs become as common to professional athletes as steroids and human growth hormone are today?  Exactly when does anyone think performance enhancement will stop?

And if the drugs keep becoming better, and athletes have such a huge incentive to use them, how are we ever to think a line can be drawn — or ever enforced?

Thus, the effort to stop doping would appear, at best, Quixotic.

Instead, why not simply say that at the professional level, anything goes?  No more testing.  If you are a pro, you can do whatever you want to win.  “It’s your life brother and sister,” the decision is up to you.

If you are an amateur then you will be subjected to intense testing, and you will be caught.  Testing will go up dramatically, and you will be caught if you cross any line we draw.  And banned from competition for life.  If you want to go that extra mile, just go pro.

Of course, one could imagine that there could be 2 pro circuits.  One that allows all performance enhancing drugs, and one that does not.  But we all know that will fail.  Like minor league competition, nobody really cares about the second stringers.  Fans want to see real amateurs, often competing locally and reinforcing pride. And they like to see pros — the very best of the very best.  And in this latter category, the fans consistently tell us via their support and dollars, they don’t really care how those folks made it to the top.

So a difficult ethical dilemma now confronts sports fans – and those who monitor athletics:

1 – Do we pretend doping doesn’t exist and keep lying about it, but realize what we’re doing is a sham and waste of time?

2 – Do we spend millions of dollars in an upgraded “war on drugs” that is surely going to fail (and who will pay for this increased vigilance, by the way?)

3 – Do we realize that with the incentives that exist today, we need to change the rules on doping?  Allow it, educate about its use, but give up trying to stop it.  Just like pros now compete in the Olympics, enhancement drugs would no longer be banned.

This one’s above my pay grade.  What do you readers think?

A Christmas Carole 2015 – The Ebenezer 1% and Cratchit Middle Class

A Christmas Carole 2015 – The Ebenezer 1% and Cratchit Middle Class

America’s middle class has been decimated. Ever since Ronald Reagan rewrote the tax code, dramatically lowering marginal rates on wealthy people and slashing capital gains taxes, America’s wealthy have been amassing even greater wealth, while the middle class has gone backward and the poor have remained poor. Losing 30% of their wealth, and for many most of their home equity, has left what were once middle class families actually closer to definitions of working poor than a 1950s-1960s middle class.

When Charles Dickens wrote “A Christmas Carole” he brought to life for readers the striking difference between those who “have” from those who “have not” in early England. If you had money England was a great place to be. If you relied on your labors then you were struggling to make ends meet, and regularly disappointing yourself and your family.

For a great many American’s that is the situation in 2015 USA.

At the book’s outset, Mr. Ebenezer Scrooge felt that his wealth was all due to his own great skill. He gave himself 100% of the credit for amassing a fortune, and he felt that it was wrong of laborers, such as his bookkeeper Mr. Cratchit, to expect to pay when seeking a day off for Christmas.

Unfortunately, this sounds far too often like the wealthy and 1%ers. They feel as if their wealth is 100% due to their great intelligence, skill, hard work or conniving. And they don’t think they owe anyone anything as they work to keep unions at bay as they campaign to derail all employee bargaining. Nor do they think they should pay taxes on their wealth as many actively seek to destroy the role of government.

Meanwhile, there are employers today who have taken a page right out of Mr. Scrooge’s book of worklife desolation. Ever since President Reagan fired the Air Traffic Controllers Union employee rights have been on the downhill.  Employers increasingly do not allow employees to have any say in their work hours or workplace conditions – such as Marissa Mayer eliminating work from home at Yahoo, yet expecting 3 year commitments from all managers.

Scrooge and CratchitJust as Mr. Scrooge refused to put more coal in the office stove as Mr. Cratchit’s fingers froze, employers like WalMart rigidly control the workplace environment – right down to the temperature in every single building and office – in order to save cost regardless of employee satisfaction. Workplace comfort has little voice when implementing the CEOs latest cost-saving regimen.

Just as Mr. Scrooge objected to giving the 25th December as a paid holiday (picking his pocket once a year was his viewpoint,) many employers keep cutting sick leave and holidays – or, worse, they allow days off but expect employees to respond to texts, voice mails, emails and social media 24x7x365.  “Take all the holiday you want, just respond within minutes to the company’s every need, regardless of day or time.”

Increasingly, those who “go to work” have less and less voice about their work. How many of you readers will check your work voice mail and/or email on Christmas Day? Is this not the modern equivalent of your employer, like Scrooge, treating you like a filcher if you don’t work on the 25th December? But, do you dare leave the smartphone, tablet or laptop alone on this day? Do you risk falling behind on your job, or angering your boss on the 26th if something happened and you failed to respond?

Like many with struggling economic uncertainty, Bob Cratchit had a very ill son. But Mr. Scrooge could not be bothered by such concerns. Mr. Scrooge had a business to run, and if an employee’s family was suffering then it was up to social services to take care of such things. If those social services weren’t up to standards, well it simply was not his problem. He wasn’t the government – although he did object to any and all taxes. And he had no value for the government offering decent prisons, or medical care to everyone.

Today, employers right and left have dropped employee health insurance, recommending employees go on the exchanges; even though these same employers do not offer any incremental income to cover the cost of exchange-based employee insurance. And many employers are cutting employee hours to make sure they are not able to demand health care coverage. And the majority of employers, and employer associations such as the Chamber of Commerce, want to eliminate the Affordable Care Act entirely, leaving their employees with no health care at all – as was the case for many prior to ACA passage.

Even worse, there are employers (especially in retail, fast food and other minimum wage environments) with employees earning so little pay that as employers they recommend their employees file for government based Medicaid in order to receive the bottom basics of healthcare.  Employees are a necessity, but not if they are sick or if the employer has to help their families maintain good health.

But things changed for Mr. Scrooge, and we can hope they do for a lot more of America’s employers and wealthy elite.

Mr. Scrooge’s former partner, Mr. Jakob Marley, visits Mr. Scrooge in a dream and reminds him that, in fact, there was a lot more to his life, and wealth creation, than just Ebenezer’s toils. Those around him helped him become successful, and others in his life were actually very important to his happiness. He reminds Mr Scrooge that as he isolated himself in the search for ever greater wealth he gained money, but lost a lot of happiness.

Today we have some business leaders taking the cue from Mr. Marley, and speaking out to the Scrooges. In particular, we can be thankful for folks like Warren Buffet who consistently points out the great luck he had to be born with certain skills at this specific point in time. Mr. Buffett regularly credits his wealth creation with the luck to receive a good education, learning from academics such as Ben Graham, and having a great network of colleagues to help him invest.

Further, amplifying his role as a modern day Jacob Marley, Mr. Buffett recognizes the vast difference between his situation and those around him. He has pointed out that his secretary pays a higher percent of her income in taxes than himself, and he points out this is a remarkably unfair situation. Additionally, he makes it clear that for many wealth is a gift of birth – and “winning the ovarian lottery” does not make that wealthy person smarter, harder working or more valuable to society. Rather, just lucky.

What we need is for more wealthy Americans to have a vision of Christmas future – as it appeared to Mr. Scrooge. He saw how wealth inequality would worsen young Tiny Tim’s health, leaving him crippled and dying. He saw his employee Mr. Cratchet struggle and become ill. These visions scared him. Scared him so much, he offered a bounty upon his community, sharing his wealth.

Mr. Scrooge realized that great wealth, preserved just for him, was without merit. He was doomed to a future of being rich, but without friends, without a great world of colleagues and without the sharing of riches among everyone in order that all in society could be healthy and grow. Many would suffer, and die, if society overall did not take actions to share success.

These days we do have a few of these visionary 1%ers, such as Bill Gates, Warren Buffett and recently Mark Zuckerberg, who are either currently, or in the future, planning to disseminate their vast wealth for the good of mankind.

Yet, middle class Americans have been watching their dreams evaporate. Over the last 50 years America has changed, and they have been left behind. Hard work, well…….. it just doesn’t give people what it once did. Policy changes that favored the wealthy with Ayn Rand style tax programs have made the rich ever richer, supported the legal rights of big corporations and left the middle class with a lot less money and power. Incomes that did not come close to matching inflation, and home values that too often are more anchors than balloons have beset 2015’s strivers.

It will take more than philanthropic foundations and a few standout generous donors to rebuild America’s middle class. It will take policies that provide more (more safety nets, more health care, more education, more pension protection, more job protections and more political power) for those in the middle, and give them economic advantages today offered only wealthier Americans.

Let us hope that in 2016 we see a re-awakening of the need to undertake such rebuilding by policymakers, corporate leaders and the 1%. Let us hope this Christmas for a stronger, more robust, healthier and disparate, shared economy “for each and every one.”

Three Leadership Lessons From Tree Climbing Goats

Three Leadership Lessons From Tree Climbing Goats

Tree climbing goatsNo. You’re not seeing things. These are goats in trees.

These goats love the fruit growing on argon trees west of Marrakesh, Morocco. They don’t care so much for the nut inside, so they spit it out.  People gather those nuts and make them into argon oil highly valued for food and in beauty products.

I was startled by these goats.  It was, at the very least, mentally disruptive.   As I thought about the experience, I realized there were leadership lessons to be learned from these tree climbing goats:

  1.  These goats don’t chase low hanging fruit. What they want is up in the trees, and the challenge did not stop them. It takes extraordinary measures to accomplish what they want, but they invested in the effort to be extraordinary.  Once they learned to climb trees, something they easily could say was “not their core strength,” they left behind what was on the ground for the riches of success.  These goats prove that if what you want is in the trees, you have to go for it.  One should not settle for less.  No leader should stay so focused on the past that they can’t figure out new ways to compete, and succeed.
  2. Once they became known for doing extraordinary things, people flocked to be next to these goats.  People want to be near goats that are unusual, and in some way better than other goats.  By seeking the extraordinary, and accomplishing the extraordinary, these goats merely need to “do their thing” and people are attracted to them.  People will feed these goats, and even pay their shepherds to be next to them and take photos.  Being extraordinary creates a winning situation that feeds on itself, creating additional wins – including attracting people to you.
  3. Because of their willingness to do something extraordinary, these goats have control over their shepherds.  In a real way, the shepherds need the goats much more than the goats need the shepherds.  The power wielded by tree climbing goats is not from being brutal, or micromanaging, or being “charismatic.”  They simply developed their power via their willingness to do something extraordinary — something their shepherds will not do.  Something most people will not do.  Simultaneously, the goats share their wealth with the shepherds.  While they receive lots of their favorite foods, the shepherds receive payments.  The goats have a symbiotic, sharing relationship with their handlers, and the people who visit and feed them, where everyone wins.

Here’s the bottom line:

No matter what you are doing, strive for the extraordinary.  You are not limited by “core strengths,” nor your past.  If you can visualize a goal you can seek that goal and you can work to accomplish that goal.  You can be extraordinary if you are willing to break out of your old self-definition and try.  These goats didn’t become successful tree climbers in one day, but by accomplishing their goal over time they became quite extraordinary.

It is good to be extraordinary.  Don’t just go for the low-hanging fruit, or what is easy.  Innovate.  Be disruptive.  The path may not be easy, or obvious, but the payoff can be as extraordinary as the accomplishment.

So what’s stopping you from being extraordinary?  What locks you in to your definition of your old “self?”  What goal can you set, and work to accomplish, that will set you apart and demonstrate you are extraordinary, and a leader someone should admire?

Congratulations Rangers Griest and Haver, You Aren’t Diverse – You’re Good

Congratulations Rangers Griest and Haver, You Aren’t Diverse – You’re Good

How clearly I remember.  I was in the finals of my third grade arithmetic competition.  Two of us at the chalkboard, we both scribbled the numbers read to us as fast as we could, did the sum and whirled to look at the judges.  Only my competitor was a hair quicker than me, so I was not the winner.

As we walked to the car my mother was quite agitated.  “You lost to a GIRL” she said; stringing out that last word like it was some filthy moniker not fit for decent company to here.  Born in 1916, to her it was a disgrace that her only son lost a competition to a female.

But it hit me like a tsunami wall.  I had underestimated my competitor.  And that was stupid of me.  I swore I would never again make the mistake of thinking I was better than someone because of my male gender, white skin color, protestant christian upbringing or USA nationality.  If I wanted to succeed I had to realize that everyone who competes gets to the end by winning, and they can/will beat me if I don’t do my best.

Army Officers and Rangers Griest and HaverThis week 1st Lt. Shaye Haver, 25, and Capt. Kristen Griest, 26, graduated Army Ranger training.  Maybe the toughest military training in the world.  And they were awarded their tabs because they were good – not because they were women.

In retrospect, it is somewhat incredible that it took this long for our country to begin training all people at this level.  If someone is good, why not let them compete?  In what way is it smart to hold back someone from competing based on something as silly as their skin color, gender, religious beliefs or sexual orientation?

Our country, in fact much of mankind, has had a long history of holding people back from competing. Those in power like to stay in power, and will use about any tool they can to maintain the status quo – and keep themselves in charge.  They will use private clubs, secret organizations, high investment rates, difficult admission programs, laws and social mores to “keep each to his own kind” as I heard far too often throughout my youth.

As I went to college I never forgot my 3rd grade experience, and I battled like crazy to be at the top of every class.  It was clear to me there were a lot of people as smart as I was.  If I wanted to move forward, it would be foolish to expect I would rise just because the status quo of the time protected healthy white males.  There were plenty of women, people of color, and folks with different religions who wanted the spot I wanted – and they would win that spot.  Maybe not that day, but soon enough.

In the 1980s I did a project for The Boston Consulting Group in South Africa.  As I moved around that segregated apartheid country it was clear to me that those supporting the status quo did so out of fear.  They weren’t superior to the native South Africans.  But the only way they could maintain their lifestyle was to prohibit these other people from competing.

And that proved to be untenable.  The status quo fell, and when it did many of European extraction quickly fled – unable to compete with those they long kept from competing.

In the last 30 years we’ve coined the term “diversity” for allowing people to compete.  I guess that is a nice, politically favorable way to say we must overcome the status quo tools used to hold people back.  But the drawback is that those in power can use the term to imply someone is allowed to compete, or even possibly wins, only because they were given “special permission” which implies “special terms.”

That is unfortunate, because most of the time the only break these folks got was being allowed to, finally, compete.  Once in the competition they frequently have to deal with lots of attacks – even from their own teammates. Jim Thorpe was a Native American who mesmerized Americans by winning multiple Gold Medals at the 1912 Olympics, and embarrassing the Germans then preaching national/racial superiority as they planned the launch of WW1.  But, once back on American soil it didn’t take long for his own countrymen to strip Mr. Thorpe of his medals, unhappy that he was an “Indian” rather than a white man.  He tragically died a homeless alcoholic.

And never forget all the grief Jackie Robinson bore as the first African-American professional athlete.   Branch Rickey overcame the status quo police by giving Mr. Robinson a chance to play in the all-white professional major league baseball.  But Mr. Robinson endured years of verbal and physical abuse in order to continue competing, well over and beyond anything suffered by any of his white peers. (For a taste of the difficulties catch the HBO docudrama “42.”)

In 2014, 4057 highly trained, fit soldiers entered Ranger training. 1,609 (40%) graduated.  In this latest class 364 soldiers started; 136 graduated (37%.)  Officers Griest and Haver are among the very best, toughest, well trained, well prepared, well armed and smartest soldiers in the entire world.  (If you have any doubts about this I encourage you to watch the HBO docudrama “Lone Survivor” about Army Rangers trapped behind enemy lines in Afghanistan.)

Officers Griest and Haver are like every other Ranger.  They are not “diverse.”  They are good.  Every American soldier who recognizes the strength of character and tenacity it took for them to become Rangers will gladly follow their orders into battle.  They aren’t women Rangers, they are Rangers.

When all Americans learn the importance of this lesson, and begin to see the world this way, we will allow our best to rise to the top.  And our history of finding and creating great leadership will continue.

Regulations Work – Applaud SOX and Dodd- Frank

Regulations Work – Applaud SOX and Dodd- Frank

Last week the National Association of Corporate Directors (NACD) pre-released some results of its 2015–2016 Public Company Governance Survey.  One major finding is that the makeup of Boards is changing, for the betterment of investors – and most likely everyone else in business.

Boards once had members that almost never changed.  Little was required of Directors, and accountability for Board members was low.  Since passage of the Securities Act of 1933, little had been required of Board members other than to applaud management and sign-off on the annual audit.  And there was nothing investors could do if a Board “checked out,” even in the face of poorly performing management.

But this has changed.  According to NACD, 72% of public boards reported they either added or changed a director in the last year.  That is up from 64% in the previous year.  Board members, and especially committee chairs, are spending a lot more time governing corporations. As a result “retiring in job” has become nearly impossible, and Board diversity is increasingly quite quickly.  And increased Board diversity is considered good for business.

Remember Enron, Arthur Anderson, Worldcom and Tyco?  At the century’s turn executives in large companies were working closely with their auditors to undertake risky business propositions yet keep these transactions and practices “off the books.”  As these companies increasingly hired their audit firm to also provide  business consulting, the auditors found it easier to agree with aggressive accounting interpretations that made company financials look better.  Some companies went so far as to lie to investors and regulators about their business, until their companies failed from the risks and unlawful activities.

Sarbanes-OxleyAs a result Congress passed the Sarbanes Oxley act in 2002 (SOX,) which greatly increased the duties of Board Directors – as well as penalties if they failed to meet their duties.  This law required Boards to implement procedures to unearth off-balance sheet items, and potential illegal activities such as bribing foreign officials or failing to meet industry reporting requirements for health and safety.  Boards were required to know what internal controls were in place, and were held accountable for procedures to implement those controls effectively.  And they were also required to make sure the auditors were independent, and not influenced by management when undertaking accounting and disclosure reviews.  These requirements were backed up by criminal penalties for CEOs and CFOs that fiddled with financial statements or retaliated on whistle blowers – and Boards were expected to put in place systems to discover possibly illegal executive behavior.

In short, Sarbanes Oxley increased transparency for investors into the corporation.  And it made Boards responsible for compliance.  The demands on Board Directors suddenly skyrocketed.

In reaction to the failure of Lehman Brothers and the almost total bank collapse of 2008, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010.  Most of this complex legislation dealt with regulating the financial services industry, and providing more protections for consumers and American taxpayers from risky banking practices.  But also included in Dodd-Frank were greater transparency requirements, such as details of executive compensation and how compensation was linked to company performance.  Companies had to report such things as the pay ratio of CEO pay to average employee compensation (final rules issued last week,) and had to provide for investors to actually vote on executive compensation (called “say on pay.”)  And responsibility for implementing these provisions, across all industries, fell again on the Board of Directors.

Thus, after 13 years of regulatory implementation, we are seeing change in corporate governance.  What many laypeople thought was the Board’s job from 1940-2000 is finally, actually becoming their job.  Real responsibility is now on the Directors’ shoulders.  They are accountable.  And they can be held responsible by regulators.

The result is a sea change in how Boards behave, and the beginnings of big change in Board composition.  Board members are leaving in record numbers.  Unable to simply hang around and collect a check for doing little, more are retiring.  The average age is lowering.  And diversity is increasing as more women, and people of color as well as non-European family histories are being asked onto Boards.  Recognizing the need for stronger Boards to make sure companies comply with regulations they are less inclined to idly stand by and watch management.  Instead, Boards are seeking talented people with diverse backgrounds to ask better questions and govern more carefully.

Most business people wax eloquently about the negative effect of regulations.  It is easy to find academic studies, and case examples, of the added cost incurred due to higher regulation.  But what many people fail to recognize are the benefits.  Thanks to SOX and Dodd-Frank companies are far more transparent than ever in history, and transparency is increasing – much to the benefit of investors, suppliers, customers and communities.  And corporate governance of everything from accounting to compensation to industry compliance is far more extensive, and better.  Because Boards are responsible, they are stronger, more capable and improving at a rate previously unseen – with dramatic improvement in diversity.  And we can thank Congress for the legislation which demanded better Board performance – to the betterment of all business.

How HR “best practices” Kill Innovation

How HR “best practices” Kill Innovation

Did you ever notice that Human Resource (HR) practices are designed to lock-in the past rather than grow?  A quick tour of what HR does and you quickly see they like to lock-in processes and procedures, insuring consistency but offering no hope of doing something new.  And when it comes to hiring, HR is all about finding people that are like existing employees – same school, same degrees, same industry, same background.  And HR tries its very hardest to insure conformity amongst employees to historical standard – especially regarding culture.

Several years ago I was leading an innovation workshop for leaders in a company that made nail guns, screw guns, nails and screws.  Once a market leader, sales were struggling and profits were nearly nonexistent due to the emergence of competitors from Asia.  Some of their biggest distributors were threatening to drop this company’s line altogether unless there were more concessions – which would insure losses.

They liked to call themselves a “fastener company,” which has long been the trend with companies that like to make it sound as if they do more than they actually do.

I asked the simple question “where is the growth in fasteners?”  The leaders jumped right in with sales numbers on all their major lines.  They were sure that growth was in auto-loading screwguns, and they were hard at work extending this product line.  To a person, these folks were sure they new where growth existed.

But I had prepared prior to the meeting.  There actually was much higher growth in adhesives.  Chemical attachment was more than twice the growth rate of anything in the old nail and screw business.  Even loop-and-hook fasteners [popularly referred to by the tradename Velcro(c)] was seeing much greater growth than the old-line mechanical products.

They looked at me blank-faced.  “What does that have to do with us?” the head of sales finally asked.  The CEO and everyone else nodded in agreement.

I pointed out to them they said they were in the fastener business.  Not the nail and screw business.  The nail and screw business had become a bloody fight, and it was not going to get any better.  Why not move into faster growing, less competitive products?

Competitors were making lots of battery powered and air powered tools beyond nail guns and screw guns, and their much deeper product lines gave them much higher favorability with retail merchandisers and professional tool distributors.  Plus, competitor R&D into batteries was already showing they could produce more powerful and longer-lasting tools than my client.  In a few major retailers competitors already had earned the position of “category leader” recommending the shelf space and layout for ALL competitors, giving them a distinct advantage.

This company had become myopic, and did not even realize it.  The people were so much alike that they could finish each others sentences.  They liked working together, and had built a tightly knit culture.  The HR head was very proud of his ability to keep the company so harmonious.

Only, it was about to go bankrupt.  Lacking diversity in background, they were unable to see beyond their locked-in business model.  And there sure wasn’t anyone who would “rock the boat” by admitting competitors were outflanking them, or bringing up “wild ideas”  for new markets or products.

According to the New York Times 80% of hiring is done based on “cultural fit.”  Which means we hire people we want to hang out with. Which almost always means people that are a lot like ourselves.  Regardless of what we really need in our company.  Thus companies end up looking, thinking and acting very homogenously.

It is common amongst management authors and keynote speakers to talk about creating “high-performance teams.” The vaunted Jim Collins in “Good to Great” uses the metaphor of a company as a bus.  Every company should have a “core” and every employee should be single-mindedly driving that “core.” He says that it is the role of good leaders to get everyone on the bus to “core.”  Anyone who isn’t 100% aligned – well, throw them off the bus (literally, fire them.)

We see this phenomenon in nepotism.  Where a founder, CEO or Chairperson who succeeds uses their leadership position to promote relatives into high positions.

Wal-Mart’s Board of Directors, for example, recently elected the former Chairman’s son-in-law to the position of Chairman.  He appears accomplished, but today Wal-Mart’s problem is Amazon and other on-line retail. Wal-Mart desperately needs outside thinking so it can move beyond its traditional brick-and-mortar business model, not someone who’s indoctrinated in the past.

The Reputation Institute just completed its survey of the most reputable retailers in the USA.  Top of the list was Amazon, for the third straight year.  Wal-Mart wasn’t even in the top 10, despite being the largest U.S. retailer by a considerable margin.  Wal-Mart needs someone at the top much more like Jeff Bezos than someone who comes from the family.

malcolm-forbes-publisher-diversity-the-art-of-thinking-independentlyDespite what HR often says, it is incredibly important to have high levels of diversity.  It’s the only way to avoid becoming myopic, and finding yourself with “best practices” that don’t matter as competitors overwhelm your market.

Ever wonder why so many CEOs turn to layoffs when competitors cause sales and/or profits to stall?  They are trying to preserve the business model, and everyone reporting to them is doing the same thing.  Instead of looking for creative ways to grow the business – often requiring a very different business model – everyone is stuck in roles, processes and culture tied to the old model.  As everyone talks to each other there is no “outsider” able to point out obvious problems and the need for change.

In 2011, while he was still CEO, I wrote a column titled “Why Steve Jobs Couldn’t Find a Job Today.” The premise was pretty simple. Steve Jobs was not obsessed with “cultural fit,” nor was he a person who shied away from conflict.  He obsessed about results.  But no HR person would consider a young Steve Jobs as a manager in their company.  He would be considered too much trouble.

Yet, Steve Jobs was able to take a nearly dead Macintosh company and turn it into a leader in mobile products.  Clearly, a person very talented in market sensing and identifying new solutions that fit trends.  And a person willing to move toward the trend, rather than obsess about defending and extending the past.

Quotation-W-Somerset-Maugham-trouble-men-charm-ideas-Meetville-Quotes-97641Does your organization’s HR insure you would seek out, recruit and hire Steve Jobs, or Jeff Bezos?  Or are you looking for good “cultural fit” and someone who knows “how to operate within that role.”  Do you look for those who spot and respond to trends, or those with a history related to how your industry or business has always operated?  Do you seek people who ask uncomfortable questions, and propose uncomfortable solutions – or seek people who won’t make waves?

Too many organizations suffer failure simply because they lack diversity.  They lack diversity in geographic sales, markets, products and services – and when competition shifts sales stall and they fall into a slow death spiral.

And this all starts with insufficient diversity amongst the people.  Too much “cultural fit” and not enough focus on what’s really needed to keep the organization aligned with customers in a fast-changing world. If you don’t have the right people around you, in the discussion, then you’re highly unlikely to develop the right solution for any problem.  In fact, you’re highly unlikely to even ask the right question.