November 5, 2007 12:00 pm : Comments 001
Bear Stearns CEO James Cayne has become yet another textbook example of why executives at the top of their game should never regard journalists as their friends. Just 18 months ago, The Wall Street Journal characterized Mr. Cayne as being “renowned at Bear for his hands-on approach.” Bear’s fortunes have changed since then, and so has the Journal’s reporting of Mr. Cayne’s leadership.
It turns out Mr. Cayne might not have been quite as “hands-on” as the Journal’s readers were initially led to believe. The paper reported last week that Mr. Cayne was hitting the links or playing bridge during much of the summer while two of the firm’s hedge funds were badly imploding. Regardless, Bear president Alan Schwartz insists that Mr. Cayne remains fully engaged.
There are some top business strategists who would argue that good leadership is all about delegating authority, even at times of crisis. Indeed, one of the savviest PR executives I know once chose to remain on vacation when his company became embroiled in a crisis. When I later asked him why he didn’t feel compelled to return to the office, he matter-of-factly replied, “I surround myself with good people and I knew they could handle it.”
For me, the Journal’s most startling disclosure in that story about Jimmy Cayne was not that he is a master at delegating or that he allegedly likes to smoke a little marijuana from time to time. Rather, it’s that talk-show host Maury Povich is one of Mr. Cayne’s golf partners. For those who are not particularly familiar with the underbelly of American culture, Mr. Povich is host of the daytime chat show called “Maury.” The show isn’t quite as exploitive as “The Jerry Springer Show,” but it’s pretty close. One of their favorite shticks is to have women drag current or former husbands, boyfriends, and one-night-stands on to the show to take paternity tests. In manners as dignified and sympathetic as the show itself, more than a few guys have pranced around the stage to hear Mr. Povich deliver his signature lines: “The results of the paternity test are in. With 99.7% accuracy, you are …NOT the father!”
That said, Mr. Cayne could teach Mr. Povich a thing or two about exploiting – err, I mean leveraging – a situation. According to “King of the Club“, a book by Charlie Gasparino about former NYSE head Dick Grasso, Mr. Cayne spotted an opportunity in the immediate aftermath of 9/11 that would be to his company’s competitive advantage and took it. Mr. Gasparino reports that when the operations of the NYSE and several brokerage firms were impaired after the collapse of the Twin Towers, Mr. Grasso wanted to hold a meeting of Wall Street’s top executives at the Exchange. Mr. Cayne, however, convinced Mr. Grasso to hold the meeting at Bear’s midtown headquarters.
As reported on page 157 of Mr. Gasparino’s book:
“It wasn’t long before it became clear why Cayne was being so accommodating. Bear Stearns’s competitors, all representatives of the top securities firms, began filing into the large conference room, many with stern looks on their faces as they realized they would have to hold a meeting not on neutral ground at the NYSE but on Cayne’s turf. They knew that Bear would get publicity as being one of the few Wall Street firms open for business following the attacks.”
Mr. Gasparino said that Mr. Cayne wanted to hold a follow-up meeting at Bear’s headquarters, but then SEC chairman Harvey Pitt nixed the idea.
“The official reason given for the change in venue was a series of bomb scares near Bear’s offices. But the real reason was much different. Pitt was blown away by all the Bear Stearns signs that appeared in the media room where the press conference was televised.”
They say things happen in threes. With two prominent Wall Street CEOs already shown the door in recent days, I can’t help but wonder if Bear’s board is pondering a similar fate for Mr. Cayne. If that turns out to be the case, maybe they should do it live on “Maury.” I can hear it now… “Mr. Cayne, the results of the Board are in. With 100% accuracy, you are … NOT the CEO!”
In the interest of full disclosure: S&A represented Mr. Grasso and I’m mentioned in the body of Mr. Gasparino’s book and in his acknowledgments.
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November 1, 2007 8:59 am : Comments 003
I recently attended a private business briefing where a management consultant from one of the major firms gave an extremely impressive and insightful presentation on global business trends. During the cocktail reception that followed, the speaker was asked by the co-head of a buyout firm if he did a lot of work with private equity firms. “I try not to,” the consultant said. “With due respect, most of the people in your business are real @#$holes.”
While it may be unfair to tar and feather the individuals of an entire industry in one broad stroke – trust me, I know about that first-hand being in the PR business – there’s more than a little truth to the old adage “nice guys finish last” when it comes to the leadership of companies owned by some private equity firms. Fortunately, there are exceptions. Indeed, the executive who questioned the management consultant is a former very senior executive at a Fortune 100 company whose résumé boasts an impressive litany of career accomplishments. He also happens to be one of the fairest and most decent business leaders I’ve ever met.
The cover story in last week’s issue of BusinessWeek touches on this topic. Emily Thornton’s compelling “Perform or Perish” article reports on the increased pressure LBO firms are placing on the executive management of acquired companies to generate better returns on faster timetables. To quote Ms. Thornton, “The toughest CEO jobs in America just got tougher.”
She cites work done by Steven Kaplan, a professor of finance and entrepreneurship at the University of Chicago’s Graduate School of Business, and Geoffrey H. Smart, head of a management assessment/recruiting firm, on common proficiencies and character traits found among 150 private equity CEOs:
Only the most tenacious executives can survive private equity’s rigors… Kaplan found that CEOs who bring “hard” qualities such as aggressiveness, persistence, insistence on high standards, and the ability to hold people accountable are significantly more likely to succeed. Those who offer primarily “soft” skills that are often effective at public companies – like listening, developing talent, being open to criticism, and treating people with respect – are unlikely to work out. Says Smart: “Successful private equity CEOs are cheetahs.”
Ms. Thornton laces her story with examples of the seeming callousness and unmitigated ruthlessness it takes to be a CEO these days of a portfolio company of some buyout firms. Jeff Clarke, CEO of Travelport, a travel services company owned by Blackstone Group and Technology Crossover Ventures, is one of them.
Let’s just say Mr. Clarke clearly isn’t vying to make anyone’s list of “Best Bosses to Work For.” In response to rumors that Travelport was thinking of taking its Orbitz unit public, Mr. Clarke told his staff that “private equity ownership generally is not a long-term proposition. The day will come when our [owners] will decide to take Travelport public, sell off individual businesses, spin off groups of businesses, or pursue some other exit strategy.”
Yes, there are some advantages to providing such a blunt assessment of the company’s future from a “communicating organizational change” perspective. But there is also something to be said for not destroying employee morale in the process. And what about Travelport’s customers? I’d welcome hearing the inside story as to why WestJet Airlines opted to take a $30 million writedown rather than continue developing a computer reservation system in partnership with Travelport.
Ms. Thornton also shares tales of Gerald Storch, who runs Toys ‘R’ Us for Kohlberg Kravis Roberts, Bain Capital, and Vornado Realty Trust. Seeking “to administer shock treatment” and eradicate “victim thinking” among employees who seemed to have lost their drive, Mr. Storch fired virtually all the senior managers he inherited, intentionally replacing them with outsiders. Whether out of fear or forced corporate rah-rahism, rank-and-file employees are said to now walk around with badges pledging that they’re “Playing to Win”.
While there’s no debating Mr. Storch’s quoted comment that poor performers will become store managers’ biggest problems if they don’t cut them loose, the badge-wearing idea brings to mind that “Seinfeld” episode where Kramer was hunted down for not wearing an AIDS ribbon while participating in an AIDS awareness walk. Will otherwise enthusiastic, productive employees get demerits if they refuse to wear the badge? Scott Adams, please take note!
Another CEO cited is Mary Petrovich of AxleTech, who demonstrates that gender plays no part when it comes to a list of America’s most demanding and punishing CEO taskmasters. Once in office, her first move was to slash union wages and benefits by 33% in their new contract. Managers in a quarterly review of projects in the works were expected to report that they are exceeding expectations, not just meeting them. Those who reported less than 100% success were given one minute to explain their challenge and one additional minute to say how they would overcome it. Ms. Petrovich later told Ms. Thornton they would be given just one quarter to get the project back on track.
To be fair, Messrs. Clarke and Storch and Ms. Petrovich are fighting for their own survival. An Ernst & Young study cited by BusinessWeek found that buyout firms replaced CEOs or CFOs at 17 of the 23 companies they sold or took public last year. The danger, however, is not learning from the misguided “profit-at-any-price” philosophy of executives that came before them. Remember “Chainsaw Al” Dunlap? Enron’s Jeffrey Skilling? They had similar damn-the-torpedoes approaches that came back to sink their own battleships in the end. The ever-escalating pressure to do things faster, cheaper, and with better returns all too often becomes unbearable and corners start getting cut. It’s little wonder that many CEOs are secretly grappling with suicidal depression, as Philip Burguieres has warned.
One of the major benefits of taking once-public companies private was supposedly to free top managers to focus on long-term performance rather than quarterly earnings. There are private equity firms that are adhering to that principle and creating value for their shareholders and their workers as well. But these firms typically are smaller than the Blackstones of the world and generally prefer to keep a lower profile. Instead, the public perception of private equity is driven by those who embody the values and ideals of Gordon Gecko and delight in flaunting their stratospheric wealth.
Sadly, I suspect Messrs. Clarke and Storch and Ms. Petrovich are quite proud of their BusinessWeek portrayals. I know what at least one management consultant will think of them if he reads the story.
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October 23, 2007 12:20 pm : Comments 000
I was saddened to read this morning that Vincent DeDomenico died. He was the man behind Rice-A-Roni, the well-known pasta-meets-rice comfort food with the catchy and enduring advertising jingle that I paid tribute to just last week.
Rice-A-Roni is etched in the minds of an entire generation as being “The San Francisco Treat” thanks to an addictively catchy jingle that was paired with an equally unforgettable advertising campaign highlighting the city’s beloved cable cars and the jangle of their bells.
“One thing my dad insisted upon was a jingle,” his daughter Marla Bleecher told The New York Times. “He said if there is a jingle, people will say it over and over in their heads.”
Mr. DeDomenico certainly got that right.
Given that the city and its famous cable cars are so much a part of the Rice-A-Roni story, it seems only fitting that San Francisco acknowledge the passing of a man who no doubt did wonders to boost the city’s tourism over the years. Rather than a minute of silence, however, I suggest a minute of loud cable car bell ringing to commemorate his memory.
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September 5, 2007 1:17 pm : Comments 000
I have a love/hate relationship with human resources people at big corporations. While their advisory role can be – and should be – as critical to a company’s well-being as, say, that of its attorneys and accountants, my personal experience has not been so… productive. How can I put this? HR people frustrate me. A lot.
I know, I know… when human resources people pushed back, it probably meant they were saving me from myself. And, to be fair, I know that there are lots of exceptional, appreciated human resources professionals out there who are making significant impacts on the cultures and bottom lines of their organizations. Unfortunately for me, I’ve only had the pleasure of crossing paths with one of them in my entire career (and he was a client so I pretty much had to like him).
HR-speak is akin to PR spin. It’s filled with empty catchphrases, trendy buzzwords, and legal counsel-approved language that mollifies executive leadership and mortifies the rank-and-file who see right through it. I’m still aghast at the response an internal Human resources executive once gave me when I complained about the unimpressive job candidates she was sending me: “You know, Eric, your standards are just a little too high.”
Needless to say, I perked up when I read that Microsoft CEO Steve Ballmer shares my critical view of HR folks. According to a fascinating article in the current issue of BusinessWeek by Michelle Conlin and Jay Greene, Microsoft was suffering a serious brain drain two years ago. But instead of hiring a traditional HR executive to turn things around, Ballmer gave the HR reins to Lisa Brummel, a popular and experienced product manager that he moved over from the Home & Retail Division. Ms. Brummel has achieved considerable success in the two years she’s held the top spot, no doubt because she refused to follow “the usual HR script.”
Some examples:
- Brummel refused to benchmark “best practices” at other companies, much less impose them on Microsoft employees. “Before you go running off campus, you should know what’s going on on campus.”
- She quickly established a reputation as a “no-B.S., jargon-allergic, truth-teller” when she admitted to reading a popular and highly critical Microsoft blog written by an anonymous employee.
- She eliminated the bell curve in annual employee performance evaluations.
The BusinessWeek article is a great read for anyone desperate to have their faith restored in the potential of the human resources function. On the flip side, anonymous Microsoft employee blogger “Mini-Microsoft” suggests that BusinessWeek is a tad too generous in its praise of Brummel and her efforts. [Tough crowd – HR really is a thankless function!]
Still, Conlin and Greene deserve kudos for reporting on the untraditional approach and its impact to date. The bottom line is that Brummel seems to be staunching the company’s employee hemorrhage… at least for now (all bets are off if she takes the towels away again).
Now if only Brummel could do something about Microsoft’s ghastly “Your potential. Our passion.” tagline.
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