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.

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.”

Is your company anti-vacation?  It’s time to rethink employee time off

Is your company anti-vacation? It’s time to rethink employee time off

Have you taken a summer vacation?  It’s almost Labor Day.

Peak vacation time is Memorial Day to Labor Day. Almost since the Industrial Revolution began, removing people from farms, the family vacation – away from work and other grinds – has been a much desired, and remembered, treasure.

If you haven’t taken all your days off, you were far from alone. Americans are increasingly skipping vacations.  According to a Glassdoor survey, half of all Americans no longer use all their company agreed-to vacation time.  Heck, 15% don’t take any vacation at all.

If you did take vacation, was your mobile device, and/or laptop, used for work?  Or did you take the job with you?  20% say they talked to “the boss” while on vacation.  1 in 4 talked to a colleague.


According to a study by GfK Public Affairs and Communications, people suffer from feeling like their employer really doesn’t want them to take time off.  In order to increase their sense of employment security, employees are trying harder every year to make themselves “indispensable.” This leads us to believe we really can’t be gone, or there will be a huge mountain of work facing us (and countless unpaid overtime hours spent digging out) when we return from a break.  Or worse, the job won’t be there when we come back.

The study creators call this the “work martyr complex.”  No matter how much we love family, we are martyrs to employers in order to keep that incredibly necessary, and fleeting paycheck.  After all, we have no job assurance in America.  Almost no white collar workers, other than C-level execs, have an employment agreement.  And union membership has dropped to lows predating WWII due to a lack of unionization of white collar and service employees.

Where Europeans and other countries have multiple worker protection laws for everyone, Americans are – by and large – “employees at will.”  Meaning an employer can fire you for just about any reason drummed up.  Even anger created because something happened while you were on vacation. After 2 decades of CEOs who lead by “operational improvements,” causing round after round of cost cuts and layoffs, employees have learned that the day they take off could be the day their budget is slashed, or their job eliminated.

We cannot underestimate the role of leaders in this situation. Nobody can be productive 24x7x365.  Everyone needs time off.  And the more important the role, the more critical the decisions, the more time off is necessary.  Just look at commercial airline pilots – would you want them doubling their flying time? A 7X7 pilot may make only a handful of important decisions every year, yet we want that cockpit filled with crews that are rested, alert and ready to make good decisions.

Why isn’t this true for a plant manager?  Compliance manager? Sales manager?  Audit manager? Communications manager?  Is their role no less critical to the operation of the corporate “aircraft” and the safety of all the corporate employee “passengers?”

Yet, far too many leaders allow the combination of mobile technology and employees’ embedded fear of losing their jobs to breed an environment where vacation goes unused.  No company tracks how often a boss calls, texts, emails or phones a subordinate when on a holiday.  No company tracks how often a boss requires a subordinate to “check in” with the office while gone.  Nobody pays any attention to how many hours an employee on vacation uses their mobile device or PC for company business while, ostensibly, “vacating” their work in order to relax and recharge.  In fact, that is considered “dedication.”

All companies track how much time every employee takes off.  Take too many days and employees are docked pay.  Take even more days and that employee could well lose his job.  But even though 95% of senior leaders espouse support for employees taking their vacations, have you ever heard of a company disciplining an employee for not taking a vacation?  If half the company’s paid time off days go unused, the employer simply takes advantage of the possible cost savings and additional productivity.  Usually saying it was the employee’s responsibility to figure out how to leave the job for several days without creating any problems.

In a quintessential example of the all-too-often real senior leader view of vacations, fifteen years ago I heard the President of Computer Sciences Corporation’s Commercial Division brag to the CEO, and a group of large clients, that only about 25% of the division’s allocated days off were ever used.  He personally took credit that via his “disciplined leadership” employees showed up for work even when they could take days off.  He even bragged about people working on major holidays like Easter, Thanksgiving and Christmas.  He wanted everyone to know that he did not support a “lethargic” organization.

Chronic focus on the short term always has negative long-term implications.  That division of CSC lost 80% of its revenue, and employees, as burn-out drove people away.  Over and again we ovbserve that employees see themselves as not valued when they work in fear.  Unused vacation days is a simple metric of a company culture that values short-term benefits over long-term performance, and a culture that supports fear over results.

If you didn’t use all your vacation, it’s really not your fault.  It is the culture of your organization, the messages sent by leaders, and the metrics used by Human Resources.  When employees matter, and the company wants long-term performance, then people know they are valued and they are comfortable taking days off.  If you’re not taking all your vacation days it may well be a sign of problems in your company, and perhaps it is a good thing to use some of those days to find a different place to work.  If you lead a company where employees don’t take allotted time off, perhaps you should re-assess your leadership and procedures, before it’s too late.


The Race to Communicate – Was Malaysia Airlines Right to Text The Lost Plane?

The Race to Communicate – Was Malaysia Airlines Right to Text The Lost Plane?

5:00pm, September 20, 2009 was when I got the call.

Someone’s telling me to call the Wisconsin Highway Patrol, my oldest son was in a terrible accident.  Then I call the police, who tell me my son has been airlifted to a hospital.  I’m in the car, madly driving 500 miles toward the hospital, talking to the doctor – hearing my son is in bad shape. It looks terminal.  Continuing the drive, deep into the blackest night, in the pouring rain.

Then the call from the hospital.  My son was dead.

I kept up the drive, made it to the hospital at daybreak.  Yes, that is my son.  Yes, he is dead.

I guess I had to see it to believe it.

Suddenly a new realization hit me.  My son has two brothers.  Both in college.  Both 500 miles away.  They had no idea what my last 14 hours were like.  They knew nothing about their brother.  How would they learn about this horrific news?

This accident was not a secret.  It was newsworthy, even if far from a major city.  My dead son had dozens of friends.  And they all use Facebook.  While as young men my sons don’t pay much attention to news radio or TV, they do pay attention to Facebook.  And texting.  How long would it take before someone went on-line and started telling the world that their brother was dead?

Do you call your sons on the phone and tell them their brother died?

Not wasting any time, I jumped in the car and started straight for my middle son’s college.  He was the closest with his brother.  They exchanged texts every day.  He would be checking his phone and his Facebook account.  I made the decision that this – this one thing – this had to be done in person.  I would not call, I would not text, I was going to tell him in person.

But could I beat Facebook and texting?

I loaded up with coffee and went back onto the highway.  And started another 10 hour drive.  I just kept wondering “how long do I have?  How long before these boys find the out – the hard way?”

I called my neighbor and told her the news.  I gave her my Facebook access and told her to monitor my account, and to pay attention to any traffic from people in my son’s network.  Look for anything that even hinted of bad news.  I had to focus on driving and couldn’t distract myself with mobile.

Eight hours later I drove into Chicago.  I was between 30 and 90 minutes to my son.  Depending on Chicago traffic!  But things seemed light; lighter than normal.  Maybe, just maybe, I had time.

As I pulled across town I knew I was only 20 minutes from my middle son.  Then my phone rang.  It was my neighbor. “It’s there Adam.  It’s there on Facebook.  Somebody found out, and the kids are starting to spread the news.  You better hurry.”

As safely, yet quickly, as possible I navigated in front of his 3 flat apartment on the south side.  Luckily, a parking spot on the street.  I pulled in, jumped out of the car and saw a window open in his apartment.  I started calling up “hey, you up there?  I need you to come unlock the door.  Hey, come to the door.”

Laconically my son came to the door.  I could tell by his eyes he didn’t know anything, and was curious why I was there.  I went inside, put my arms around him, and told him his brother was dead.

He accused me of a bad joke.  I quickly told him an accident happened, where, and that his brother didn’t make it.

Of course, he did not believe me.  So he picked up his phone.  He started looking for texts.  He saw there were none from his brother.  Then he jumped to his PC.  He pulled up Facebook.  He looked for his brother’s page – and then he started seeing the messages.  Messages of disbelief, grief, anger and fear as expressed by so many people who are 21 or 22 and suddenly come face to face with mortality.

My son was in shock, as could be expected.  But he was with me.  Then it hit him “have you told my little brother?”  I told him no.  “We have to go tell him.  Now.  Before he finds out some other way.”

We then jumped back in the car and beat it to his younger brother’s college.  My youngest son was far less of a social media fan.  Also, college soccer kept him very busy.  We knew he had been in class and soccer practice most of the day and evening, and he would not check anything until late at night.  We had a very good chance that he had not heard anything.

Luckily, when we arrived at his college and found him, he confirmed he had not seen his phone or PC for several hours while at class, practice, eating and finishing homework.  We told him the very, very bad news.

I’m glad my sons did not hear of their brother’s death via a text.  Or via Facebook.  It was a very, very, very difficult day for us.  And the next several.  Every minute etched forever in our memories.

As the next few days passed we all gained huge comfort from those who reached out to us via text, Facebook and Tweets.  Hundreds of messages and postings came in.  Social media was a tremendous way for all of us to connect and share stories about my now lost son.  Young people told me things I would never have known had they been limited to telling me face-to-face, but which they were willing to share via Facebook.  It was incredibly helpful.

We live in a very, very connected world.

Information, even things which may seem obscure in this large global environment, find their way to light quickly.  We all want information now – not later.  We want to know what, where and when – and we want to know it now.  We sign up for email newsletters, Facebook pages, linked-in networks and listen to our colleagues on Twitter so we know things as soon as possible.

This is tough for those who have to communicate bad news.  What’s the trade-off?  Do you wait and do it personally?  Or do you opt for moving quickly?  Is it better someone know the information now – even if it is painful – or do you seek to inform them in a personal way to address their needs, emotions and questions?  Do you broadcast the news, or keep it small?  Do you send it impersonally, or personally?  What is important?

Every organization is, to some extent, in the trust business

When you have to deliver bad news, how will you do it?  Whether you have to announce a layoff, plant closing, industrial accident, data breach, product recall, product failure, program failure – or even a fatality – you are communicating information that is personal, and emotional. It is information that requires a sense of the person, not just the news.  How will the information be received – and what does that mean for how it should be communicated?

It takes continuous effort to build trust, but it can be lost in a single, poorly constructed communication.

Malaysia Airlines had years to plan its communications for a downed plane.  How would it tell the world such news?  What tools would it use?  A preparedness plan should contain not only the action plan, but the communications plan as well.  And not only the message, but how it will be delivered. And how all touch points between the organization and the audience will be addressed.

Once flight 370 went missing Malaysia Airlines had days to plan its communications with families.  There were several possible scenarios, yet all had a common theme of communicating passenger status.  Passengers that are family members.  The airline had significant time to plan what it would say, and how.  To settle on texting families that their loved ones were forever gone was either incredibly bad planning, or indicates a significant lack of planning communications altogether.

When it was time for my sons to learn their brother was dead someone needed to be there to support them.  Someone who cared.  It was not news to be internalized without more discussion about what, how and why.  All bad news shares this requirement, to address the human need to ask questions.  Relying on email, texting, social media, newsletters or broadcast to share bad news ignores the very personal impact bad news has on the recipients.

Nobody wants to deliver bad news, but sometimes it is unavoidable.  Being prepared is incredibly important if you want to maintain trust.  Otherwise you can look as heartless, and untrustworthy, as Malaysia Airlines.

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$700 billion for what?

By now, everyone knows the story.  After all the cost to take over Freddie Mac and Fannie Mae, plus the guarantees given to J.P. Morgan Chase for their acquisition of Bear Sterns, and the cost to keep AIG alive – in the range of $300million to $600million – the Treasury secretary now says the U.S. taxpayers need to spend at least (it could be more – even more than 2x this amount) $700billion to purchase the bad loans sitting on the books of banks, investment firms, insurance companies and hedge funds

So what does the taxpayer get for this?  So far, all the taxpayer is told is "it’ll stave off an even worse crisis."  I’m reminded of the words attributed to Illinois Senator Everett Dirkson "a billion here and a billion there and pretty soon it adds up to real money."  This is a lollapalooza of a bunch of money – and yet no one seems interested in saying what the taxpayer gets.  The proposal is pinned on "things will be worse if you don’t", without much talk about how things will ever get better.  There’s no talk about how this will create more jobs, create rising incomes, or improve asset values.  Just "it can get a lot worse." 

So, put yourself in the role of CEO.  If someone came into your office saying "I think we made a whopper of a mistake, and you need to agree to pony up something like $1 to $1.3trillion dollars to bail us out."  After you get back up, what would you ask?  How about, "what’s this for?"  To which you hear "Well, it seems we simply made a bunch of bad investments, and now we have to buy them all back."  Nothing about how your business will be better for having done it.

Now, it might occur to ask, "if I do this, how do I know it won’t happen again?"  And that’s the question you really should be asking today.  Have you heard before about this problem, and told your previous actions would stop the problem?  If yes, wouldn’t you say "hey, I’m a bit tired of running around this tree and getting these recurrent bad news meetings.  Seems like every Monday is something of a ‘here’s the newest crisis’ environment.  What’s your plan to adjust to the market requirement?"  And if the plan is to do more of the same, but now with more resources, done harder, and working smarter you’d be pretty smart to say "if the previous actions didn’t work, why should these work?" 

In the end, this $700billion to $1.6trillion isn’t changing anything.  It’s just putting the proverbial "finger in the dyke."  Only what started out as a few hundred million dollars (the finger in the first hole) has exploded into over $1trillion and the dyke hole isn’t the size of a finger – it’s the Holland Tunnel!  Clearly, what was tried hasn’t worked.  Yet, this is asking more of the same.  So, in the legislation the person who’s been watching and saying "things will be fine" and spending the hundreds of millions has now said "just to make sure this works, I want not only all this money but no oversight on what I might need to spend additionally – and no controls over what actions I might need to take – in order to finally stop the flooding problem."  Uh, right.  Since everything you’ve done before didn’t work the obvious right answer is to give you more money than I ever imagined, and on top of that give you unbridled permission to do anything else you want to keep trying more of the same to stop the problem.

When do you say "no"?  Confronted week after week with crisis after crisis, when do you say "I don’t think this is working?"  It’s so easy to go along.  It’s so easy to say "this has been the way we’ve always done it.  Things haven’t worked so far, so clearly all we need to do is do more of it.  Possibly more than any of us ever dreamed imaginable – but surely if we do enough, do more, eventually it will work." 

Now, more than ever, we need White Space.  The financial markets have shifted.  Competition has shifted.  The balance of competitiveness has shifted to those who have access to lower cost resources of everything from oil to labor.  Those who focus on industrial production can now see that it is dominated by those who have more people, who are equally trained and who work for less.  Whether that is the production of shirts, or software code.  Trying to prop up a global financial system based on the "full faith and credit of the U.S. government" is difficult when that government is significantly in debt, has lost its position as #1 in manufacturing output, and no longer controls the financing of everything from dams to auto purchases.  Trying to "fix" this situation with solutions designed to work in another era, under a different set of circumstances, will not produce better results.

At the very least, when confronted with this kind of situation it is the time for leaders to say "where is the White Space to develop a new solution?  If I have $1.3trillion to buy the problem – either by giving up the money or by printing more – and I forego all other expenditures (like health care, or defense against competitors) to put the money here – I deserve to see some money spent on developing a new solution.  One that is built upon the new market characteristics."  This is not the S&L crisis again, nor is it the failure of a single big bank.  We are seeing the results of a market shift which the industry was not prepared for.  And the only way to come out successful is to have White Space to develop a new solution.

So far, no one has asked for permission to develop a new solution – nor has anyone even proposed it.  No one has even asked for resources to develop a new financial system.  All the money is going to attempt propping up the old system – and the more we dig, the deeper we get. 

At the very least, for $700billion, we need White Space.  We don’t need hedge fund managers who are salivating to buy up beaten down assets.  We don’t need regulators trying to roll back the clock.  Nor do we need "do nothing" recommendations with "have faith this will all work out in a capitalistic system."  We are in the information age – not the industrial age.  We are in a global economy – not a U.S.-led international economy.  We are facing new competitors, with different advantages, doing very different things.  And we need new solutions.  Without those, each Monday will continue to feel like the movie "Groundhog Day" as we relive over and again the problems we don’t address by simply throwing money at it.  We have to find a way to move beyond "more of the same."

Mr. Paulson is willing to bet the U.S. Treasury on doing more of the same.  He’s ready to spend money Americans don’t have (since there is a negative U.S. government budget and huge deficit.)  This means either higher taxes, or turning on the printing press and creating inflation.  That’s a bet he’s willing to take.  Are you?  Or would you like to see some options?  Some new solutions?  Or even some teams that are working on new solutions? If he’s your V.P., your CFO, do you approve his recommendation, or do you ask for something more – some White Space to develop a solution that does more than stave off future crisis.  Do you look to the future, and how to win, or do you try to preserve the past and put all your money on the bet that old solutions will work?

Fearing Cannibalization versus White Space

Sometimes management behavior can cause outsiders to think the industry and company leaders fear growth.  Take for example a new book about innovation in the movie business Inventing the Movies by Scott Kirsner (see at Amazon here or read a review in Forbes here.)  As the author points out, after Edison invented the first Kinetiscope movies – which were small viewer-based single person devices – he saw no reason to move forward with a projection system.  Why advance the innovation when multiple audience members appeared to risk the revenue?  To Edison, he could assure each and every viewing created a payment with his single-viewer technology, but the audience viewership meant he would lose control and possibly see revenue cannibalized.  Fear of cannibalization caused him to avoid new innovations which would grow total demand, and considerably grow the revenues of his fledgling movie business.

But we all know this didn’t happen.  Projection systems only caused more people to want to go to the movies.  Then when talking movies came about again the industry feared that investing in sound equipment would be a cost not recovered and they delayed and delayed.  But talking films again increased the audience.  And this cycle played out again with color movies.  And lest we not forget the wars that were fought over video tapes of movies, which all industry leaders feared would kill the business.  Yet, videos (and now CDs) have only increased the audience, and demand more. 

All businesses develop a Success Formula early in their life cycle.  That Success Formula ties the Identity of the business to its strategy and tactics.  So a tactic as simple as having a single-viewer kinetiscope becomes almost impossible to change because it gets linked to the identity of the business (and often its founder – in this case Edison).   Thus it takes a new entrant, often from outside the industry, to parlay the new technology into the market.  This new entrant, not afraid of controlling the business through administration of an old Success Formula, is able to bring forward the new technology/solution and build the new audience/demand.  And often we see the old industry leader far too late to change – stumbling, fumbling and failing.

Businesses need not follow this course, however.  If they are willing to invest in White Space they can test new solutions.  They can figure out new Success Formulas.  They can evolve, and they can grow.  Doing so isn’t really hard, it just takes a willingness to accept the requirement for White Space to take advantage of market shifts.  White Space allows you to migrate forward, rather than constantly fall back into Defending & Extending what you’ve always done. 

As we all know, each innovation in the movies has grown the industry, not been its doom.  And that’s true in all industries.  Yet, the largest players are rarely the ones who lead these shifts.  Look at how it took Apple to bring about the revolution in digital music, rather than Sony.  Lock-in gets in their way.  If we want to avoid being pummeled by market shifts that create great growth opportunities for the new competitor we have to be vigilant about implementing and maintaining White Space that can provide our beacon for growth.

Where’s your organization’s White Space?

Metric motivation

Do you ever wonder how people get so locked in to doing something that they end up doing the wrong thing?  Do you think they are all bad people?  My experience has shown me that rarely do people do things because they have no internal moral compass.  Rather, it’s the systems we use to Lock-In behavior which causes behavior to end up creating negative "unintended consequences."

Take for example compensation for attorneys.  As everyone knows, attorneys charge by the hour.  As do plumbers, electricians, retail store clerks and a raft of other occupations.  On the face of it, this makes complete sense.  But, as the Chicago Tribune recently reported (see article here), when you couple this simple billing process directly to compensation, you can get some pretty bad outcomes.  By "promoting" what is seen by top management as a key success factor, your Lock-in can lead well-meaning people to do things which are less than…… shall we say….. positively correlated with customer success?

As the Tibune reported, by Locking-in on the metric, billable hours, what starts to happen in law firms is people "fudge" their billing.  What appears to be a good thing, tieing compensation to a key firm growth metric,  leads everyone up and down the firm to do unnecessary work, take longer time to do work than is necessary, utilize resources on projects that are hard to justify, and even outright exagerate the time spent on client efforts.  As a result, some clients are finding they need to challenge their attorney’s bills – not an activity you want to spend time doing with someone who is supposedly your advocate, hopefully looking out for your best interest.  And some judges have been considering attorney’s bills too high, and refusing to force the payment of those bills.

I don’t mean just to pick on attorneys here.  More than a dozen years ago I took a leading position with the consulting firm of Coopers & Lybrand (later merged with Price Waterhouse and then later acquired by IBM.)  I had worked at the firm only 6 months when I was in a meeting with the top officers of the firm to discuss "firm direction."  As the meeting droned on, talking about nothing but billable hours per type of project, I finally said "you know, I’m getting the sense that no one here cares what kind of work we do.  I could have armies of MBAs operating jack hammers and no one would care as long as it generated thousands of billable hours at market  hourly rates."  One of the top 5 firm officers turned to me and said "you know Adam, now you’re starting to get it."

What we all have to be careful about is Locking-in on metrics which can lead to behavior that does not serve our customers well.  This Lock-in, often a key sign of good implementation of strategy or quality (locking-in metrics is a cornerstone of Six Sigma), can become deadly when disassociated from market conditions and customer needs.  Yes, billable hours are good – but only when those hours are serving the client’s best interest. 

That’s the problem with Lock-in, at first it seems like a really good idea.  You use a metric to help drive repetition of behavior which has proven to lead to success.  Locking in on the metric improves results.  It clearly is beneficial, and a good thing.  But these same locked-in metrics can prove problematic, even disastrous, if we don’t regularly Challenge them in the face of market requirements.  We need to alter our metrics in order to keep ourselves aligned with customer needs.  Metrics must be seen as guideposts, not ends into themselves.  And all of them need to be viewed as flexible and alterable – before they lock us in to a tour of the Swamp and eventually failure.

Retirement in the age of Creative Destruction

Those of you familiar with The Phoenix Principle are familiar with our statistical review demonstrating the high failure rates of companies.  Company longevity is far shorter than most of us realize.  One significant impact of this phenomenon affects all of our company retirement accounts.

America largely depends upon private retirement.  Social Security is considered substistence funding, and we are expected to make up the difference with either private funds or a retirement plan.  For our parents, who expected near lifetime employment, these private retirement plans were their safety net.  They depended on "the company" to fund their retirement and health care.

But let’s consider someone today who wants to retire at 65.  They need to work, and pay into, a corporate retirement plan for at least 10 years, so they have to start at age 55.  And they would expect to live until 80 (the current average).  So, they want that company retirement plan to be around for at least 25 years.  Yet, when we look at performance of the S&P 500 we know that only about 1 in 3 companies (yes, only 1/3) of the S&P 500 can expect to survive for 25 years.  So where does that leave your retirement plan? 

It’s even worse if you start your retirement planning at 45.  Now you need your employer to stick around for you for 35 years.  The odds of that are no better than about 1 in 4 (25%).  So, where comes the funding for the retirement plan?

Now look at the problem from a large employer’s viewpoint.  US Steel and GM are just 2 recent examples (out of several dozen) where the company has said they can’t afford to maintain the retirement program.  Not surprising.  Their lock in to their old Success Formula has pushed them way out into the swamp.  So what happens to those retirees?  Or those near retiring that had planned on that pension?  They have gone along for 10, 20, 30 or more years believing in the Myth of the Flats, thinking that their employer would always be there for their retirement.  But that myth is about to implode on them with painful consequences.

In an age of Creative Destruction, corporate retirement programs are little more than a wish.  If the companies don’t succeed long enough to support the programs they are of little use to retirees.

Perhaps this should be part of the current debate regarding the future role, and funding, of Social Security.  For sure  it should be part of your plans for retirement.

Belo’s Embarrassing Misstatement

A colleague described his new employer, LRN, to me over lunch last week. LRN is one of a growing number of companies devoted to helping companies strengthen their ethical standards and compliance. In light of Sarbanes-Oxley and the post-Enron climate, businesses such as LRN are booming.

It is clear that setting standards, training people, and increasing attention on and visibility of ethics is making a difference in companies. However, I asked my colleague if there might be more to ethical breaches than just these factors. Could it be that performance pressures might lead even ethically aware people to bend or even break the rules?

We believe that the dramatic rise of ethical violations like that at Enron and others was in large part due to desperate people trying to meet their performance goals. Because the business isn’t giving customers what they want, the customers aren’t buying. As a result, desperate employees are resorting to desperate measures. This seems to be what happened at Belo Broadcasting.

According to articles published last week in Dallas Morning News, Belo Corporation, (publisher of the Dallas Morning News) has admitted to the inflation of circulation numbers that misled advertisers. Belo attributes this to “aggressive pursuit of goals set by former managers and inadequate monitoring of distribution and return practices.” Belo goes on to report that circulation for the six-month period ending today is down about 5.1 percent and 11.9 percent on Sundays compared with figures reported a year ago. A companion article reports that Belo is cutting 250 jobs due to a lag in the DFW market.

Instead of just thinking about this situation as a couple of bad apples who broke the rules, we would invite Belo to take a hard look at their business. It’s clear that their customers are going to other sources for their news. There are so many substitute providers for obtaining more timely daily news than just a newspaper. For a newspaper to compete, it has to offer something else, something different and better.

What can Belo do? Belo should turn this event into a disruption that would have them seriously rethink their business. How could they reimagine their business model to reinvigorate the business and jumpstart growth and restore profitability?

Unless Belo makes significant changes to its Success Formula, we predict that the company will continue to struggle. Perhaps they won’t have any other ethical breaches, but their problems will show up in other ways, like being forced to lay off employees due to slowing sales …