by Charles H. Green on Wednesday, March 17, 2010 (post #667)
Peter Firestein’s extraordinary career began in Indiana. He soon left for California, taught himself Spanish in a park in Mexico, learned commodities in Latin America, and has a unique resume, having worked for Michael Milken and advised the Brazilian Government on privatization of its national phone company.
Peter ended up counseling mega-global companies on corporate reputation and Investor Relations. His book, 8, ranges both wide and deep; you can’t summarize Peter’s insight and wisdom briefly. But I do try to pick out a few themes in this interview.
CHG: Peter, Let me put the onus on you: what strikes me most about the book is perhaps the role of personal character and of relationships in dealing with mega-corporate institutional relationships. It’s tough to summarize such a broad book, but how do you see it?
PF: You’ve actually done a pretty good job with your question, Charlie. I try to suggest in the book that the job of leading a significant company these days requires involvement of the whole person, not just the part of the person trained to analyze, fix, and build businesses.
People who’ve reached the point of development where they’re considered capable of leading companies are attuned to making decisions on the basis of metrics. You don’t get there unless you understand return on investment, for example. That’s always been true, and it’s never been more important than today.
But the world requires something more of you now. Modern information technology makes enormous amounts of intelligence on businesses available to anyone who can use a search engine. For companies, there’s no longer any place to hide. In addition, having information conveys to any citizen a sense of entitlement to register opinions and organize opposition to companies whose actions seem out of line with common values.
The good news: any manager with sufficient maturity to run a company also has enough life experience to understand how people outside the company feel themselves affected by its actions. But too many otherwise competent corporate leaders don’t understand that these two sides of life are not only connected—they’re inseparable.
That’s what I mean when I say that, in the end, it’s all personal. In a post-modern world where everyone seems not only to have an opinion, but the eloquence to express it, being the boss doesn’t make you immune; it makes you vulnerable. The moment you take that to heart, you’ve made your first step toward resolving conflicts with your antagonists. Leading is, first of all, listening.
CHG: One thing that struck me was the insistence on reputation as being built inside out: the only sensible strategy is to be the company you want your stakeholders to see.
PF: One of the book’s early titles was “The Glass House,” meaning, of course, that you can’t fake things for very long any more. Just thinking about the failed obfuscations attempted by some big corporations in recent years can bring actual, physical pain.
When I say you have to “build reputation from the inside out,” I mean that managers have to create reporting and communications structures that not only disseminate values throughout the organization, but absorb the workforce’s on-the-ground experience all the way to the top. Every action the company takes, therefore, represents its core value system. And the workforce’s day-to-day reality informs senior decision-making.
I call this “vertical communication,” and I think it reduces the likelihood that a CEO will wake up some day to find that a regional manager has been found to have bribed a government official, or a sub-contracted factory is discriminating against female employees, or an accidental dump of toxic waste has disappeared from company records somewhere down the line.
There are few small failures in big business. In fact, the depth of failure often presents a mirror image of success that preceded it. True vertical communication that extends throughout the organization helps you spend your life thinking about other things.
The legal disclaimer on any financial offering warns that past performance does not indicate future results. With human beings, it generally does.
CHG: Since this blog focuses on trust, please tell TrustMatters readers how you see the relationship between trust and reputation?
PF: If there’s a difference between high trust and strong reputation, I’m blind to it. Both trust and reputation—whether high or low—are expectations of future experience based on what is known about the past. That’s how people differ from markets. The legal disclaimer on any financial offering warns that past performance does not indicate future results. With human beings, it generally does.
CHG: You provide a very real-world example of exactly how a big company should go about recovering from a reputational slip, and what impressed me about it was your recommendation of aggressive, pro-active engagement. Say more about that?
PF: Here’s how pro-active you ought to be. You start preparing for the next crisis five years before it happens. And you don’t need a crystal ball for this. If you’re a multi-national company of scale, it’s impossible to avoid reputational mishaps. Some day, somewhere, someone will—intentionally or by neglect—commit a reputation-compromising act in your name. The inevitability must be an integral part of your thinking. So, you have to have a culture in place well in advance that enables you to respond appropriately to events that never crossed your mind before they happened.
People call it crisis communications, but it’s much more than that. Communications, by itself, never fixed anything. People also call it crisis management. But the crisis has already occurred, so the opportunity to manage it is past. You could call it management of the aftermath, and the only way to manage the aftermath effectively is to participate in it.
Which means, to some degree, participating in the emotions of those you have harmed. Referring to a person in the CEO position, the corporation becomes the person, and vice versa. If, as an individual, you have empathy toward a family who’s lost a father or a mother, you have to show that same empathy as a corporation.
Beyond this, the best piece of advice available on the subject is to resist the temptation to let your lawyers protect you. They can’t. There’s a short list of companies that have come out of disasters with stronger reputations than they’d had before. In all cases, they did so because they were able to identify with those who were angry with them. Enlightened leadership means understanding there’s no Plan B.
CHG: Let me challenge you on one small item: you assert that the most important constituency is investors, though you also advocate systematically managing a wide variety of stakeholders. Isn’t investor turnover increasing radically these days? Does that diminish your point?
PF: The building of reputation can’t be about anything but what motivates management – and that has to do with investors’ willingness to value the shares at higher levels. Turnover? If someone’s selling, someone else is buying.
There’s no altruism in business, nor should there be. But the cold fact these days is that sustainable behavior means supporting legitimate social interests. You don’t have to like it, and you don’t have to take a “nice” pill to do it. It’s just business, but business has changed. Here’s where investors’ interests enter the social sphere: A company facing a social and regulatory headwind is likely to have higher capital costs and less-than-certain chances of strategy execution.
Investors don’t like that. It’s not the job of a corporation to address social interests—except where doing so is the only avenue to making business successful. And that’s already become the normal condition in most industries. I just read a wonderful quote by a Canadian union official named Stephen Hunt who, in a speech about social responsibility in mining, could have been referring to any industry when he said: “A mining company is only as good as its opposition.”
CHG: You’ve dealt with dozens, maybe hundreds, of CEOs. What has been the most common blind spot or weakness you have seen regarding good reputation management?
PF: It may be my sunny disposition, but I can’t remember at the moment meeting a business leader who wasn’t driven by earnest good intentions. Sure, I’ve known my share of indicted folks; but I liked them, too. There’s something about giving yourself over to a goal that’s not that different from love of family. It’s personally attractive.
I had the great good fortune to grow up in the Sovereign State of Indiana, and it wasn’t until I was in my thirties and working in a New York trading company that I came to realize that high intelligence in a person does not necessarily equate to noble intentions.
Because you are using the world to build wealth, the way you treat that world will follow you.
The most common blind spot (since you asked) is a lack of balance, which I guess can be closely associated with laser focus on a goal. Perhaps a better way to describe it is to call it a lack of context. Because you are using the world to build wealth, the way you treat that world will follow you. It wouldn’t hurt us to remember once in a while that American native populations held profound respect for the game they had to kill in order to live.
I once sat down to a dinner meeting between a CEO and equity analysts in an elegant New York hotel. The CEO was among the most prominent European industrial titans of the last half century (a client). His dozen or so guests were invited there to eat and ask him questions. He opened the conversation this way: “My father taught me,” he said, “that to make a living, you have to rub other people.”
He was assuring them of his accessibility. There was no imaginable reason for him to endure their earnest self-importance had he not wished to. He didn’t need them. But hosting them reflected his idea of how the world worked. There was no amount of esteem or money that could free you from the need to engage.
CHG: You have a fine sense of the historical about you. We’ve been through this kind of business reputation downturn before, certainly in the US. What’s different this time? What should we learn from the past?
PF: The past can be a deeply misleading subject because there isn’t much that hasn’t happened in it. If we’re talking about the past experienced by those of us who have come of age since World War II, in which America emerged triumphant in an otherwise devastated world, there’s a strong argument suggesting that’s the most unrepresentative of all the pasts available for our consideration.
One thing we’ve learned from the past is that the notion that things are different this time provides an assured road to ruin—as does a sense of invincibility and the belief that we’re smarter than those who have come before.
The reputation of business—as cyclical as anything else—will continue its descent until a new ideal appears to propel it upward again. Perhaps the last ideal that floated the reputation of business involved the building of the industrial world and the opening of the West. Dust from the explosion of that ideal is still settling around us. Perhaps the next upswing will come from the ideal of restoring the environment—in other words, from respect for the same earth the last ideal wrecked.
It is certain that we don’t get to decide these things for ourselves. In trying to come to terms with the cycles of sentiment, I have taken comfort in a phrase coined by New York Times Columnist David Brooks. The term is “epistemological modesty” and refers to the inescapable fact that, no matter how hard we try, we really don’t know very much. Everyone’s familiar George Santayana’s saying: "Those who cannot remember the past are condemned to repeat it." Not being much of a comedian, Santayana forgot his punch line: “So are those who can remember it.”
CHG: Let’s imagine this blogpost got forwarded to 50 CEOs. On the whole, on the average, what are the top 2-3 things CEOs need to hear?
PF: Sir or Madam CEO: I have nothing but good news for you. It is this: You have more control over the fate of your company, your reputation, and your career than you imagine.
Do you look at your critics—the trigger-happy media, activists with a bone to pick, investors and analysts who just don’t get it—and tell yourself that not one of these people has ever run a company for a day? So, how could any of them understand what you’re trying to accomplish?
In their lack of fairness lies your advantage. During the latter part of the 20th Century, when anti-tobacco activists tried everything they could think of to put cigarette makers out of business, their nearly constant companion was a Philip Morris public affairs executive named Steve Parrish. He spoke at their conferences and kept in close touch with the principals of organizations that opposed him.
While absorbing all their slings and arrows, he offered them a continuous flow of new information about the manufacture of smoking products, including the companies' efforts to reduce their deadliness. He discussed regulation of the industry, which eventually came to pass. The result was that—whether we like it or not—tobacco companies survive as a highly-profitable business.
Parrish's strategy was to increase his adversaries' knowledge of the tobacco industry—a counterintuitive approach if there ever was one. The byproduct of this flow of information was that he continually moved the goal posts on them, preventing closure of the argument despite an extraordinarily hostile environment and an enormous consensus against him.
CEOs have at their disposal one of the modern world's most powerful weapons: Information. Gifted corporate leaders will use it to engage adversaries, induce them to invest in dialogue to the point that it cannot reasonably be abandoned, and, by that route, achieve a workable consensus. If companies whose products kill you can do this, why can't anyone?
CHG: How much difference can individuals make?
PF: Excluding natural disasters, change comes from nowhere but individuals. Historical forces, wars, financial trends, market bubbles and collapses, the discovery of penicillin, and the invention of cheap global digital communication as well as post-modernist art can all be summed up in single word: Behavior. Even mass behavior has to start with an individual—a notion that may lead us to one definition of leadership.
CHG: In your book, you carry on an extended discussion about how very good companies, at least for a period of time, seem to lose direction. Merck during its Vioxx episode is one example you explore. You also suggest a concept called “Structural Corruption.” What’s this about, and what insight can you offer about the mechanism by which some companies seem inexplicably to turn south?
PF: I use Merck as an example because it was a fantastic company for over a century and is a truly admirable one today. But Merck’s Vioxx interlude, during which it seemed to want to overturn the last 400 years of the scientific method by subordinating disclosure of pharmacological research to the desires of its marketing department, shows how even great companies can become confused when they allow commercial factors to cloud their judgment.
The scientific method says you base conclusions on observed fact. Merck hid harmful side effects of its drug in order to sell more of it. I maintain that the people inside the company would never have behaved this way in their private lives. Their judgment suffered from an insularity within the company that distorted their frame of reference. There was a kind of “echo effect” at work in which people gradually talked each other into highly inadvisable actions—and many inside and outside the company suffered.
I came up with the term “structural corruption” to describe an impossible situation in which managers sometimes find themselves when their industry’s fundamental business model goes illegal. This describes parts of the insurance industry a few years ago when Marsh & McLennan enrolled its competitors in a scheme to rig bids for big institutional contracts and pay out illegal commissions. You couldn’t compete unless you played the game.
So, imagine a manager who’s invested his or her life in building a career in that sector, and has done so by behaving ethically, and then has to contemplate giving it all up in order to maintain a hard-won reputation. Imagine a similar manager trying to win a contract in a foreign country in which he or she is competing against a company domiciled in a place where the government winks that the payment of bribes to win business.
The concept of “structural corruption” is useful in distinguishing the dynamic in which even managers with the highest standards of conduct can become victimized by secular ethical trends. The questions people face in such circumstances can be life-changing. One secular ethical trend lies behind the Great Recession that began in 2008 and whose end is not yet convincingly in sight. But that’s another story.
+++++
CHG: It’s been a real pleasure meeting and talking with you; anyone interested in buying Peter’s book, which I recommend can find it here: Crisis of Character: Building Corporate Reputation in the Age of Skepticism
Over 12,000 people have taken our Trust Quotient quiz. Check out the NEW VERSION and learn your Trust Temperament.
Charles H. Green is founder and CEO of Trusted Advisor Associates LLC; read more about Charlie at http://trustedadvisor.com/cgreen/
You can follow him on twitter @CharlesHGreen
by Charles H. Green on Monday, March 15, 2010 (post #668)
This will be my fourth week on the road; more on that later in the week. At least all that plane time (and waiting in lines time) makes for good reading time—thanks to the iPhone Kindle Reader app. (and no they don’t pay me for saying it).
I’m re-reading Francis Fukuyama’s 1995 classic Trust: the Social Virtues and the Creation of Prosperity.
It’s the perfect companion for Andrew Ross Sorkin’s Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves.
Here’s why they belong together.
Fukuyama’s View of Trust
Fukuyama makes a compelling case that economic development is strongly affected by the cultural norms of a society—in particular, the propensity to trust. In this, he is up against both neo-classical economists (who argue people are rational utility-maximizers), Marxians (who argue it’s all about the money), and a ton of management theorists (who pretty much believe both).
As Fukuyama puts it:
The Chinese, Korean and Italian preference for family, Japanese attitudes toward adoption of non-kin, the French reluctance to enter into face-to-face relationships, the German emphasis on training, the sectarian temper of American social life: all come about as the result not of rational calculation but from inherited ethical habit.
Who we trust, it turns out, radically determines the nature of business we engage in. He explains why large French companies are state-owned, and why Chinese companies find it hard to hire professional management (think Wang Laboratories).
Fukuyama describes several cultures in the world--southern Italy, chunks of Russia, some Chinese regions—which contain high-trust pockets of communities within a broader society of low-trust intermediate institutions.
Those high trust pockets? Think the Mafia, Chinese tongs, and street gangs.
Their values? Fierce loyalty toward each other, coupled with a level of competitiveness bordering on paranoia regarding other competing pockets and the world at large.
See where this is going?
Too Big to Fail?
Andrew Ross Sorkin’s book is riveting reading, a blow-by-blow account of who said and did just what to whom during the extraordinary market meltdown that brought down Lehman Brothers, resulted in the TARP legislation, and nearly brought the world financial system to a full stop.
Part of the charm is sorting out the black hats and the white hats; maybe I should say black and shades of gray.
Paulson and Geithner emerge as the flawed heroes. Jamie Dimon plays to the crowd, but is also the only really good manager of the lot, and the only one to show flashes of true industry leadership and something resembling responsible social behavior.
The rest, frankly, resemble refugees from a failed Sopranos casting call. Jimmy Cayne, John Mack, and Dick Fuld in particular come off as mob leaders, with Goldmans’ Lloyd Blankfein coming off better only because of a better sense of a world beyond New York.
Wall Street as Low Trust Culture
The majority of suggestions to reform Wall Street focus on four solutions:
1.structural cures (e.g. separate investment and commercial banking functions),
2.regulatory cures (e.g. prescriptions for capital ratios),
3.enforcement (e.g. tougher sanctions, more investigative staff for the SEC),
4.compliance (more procedures).
None of those critiques draw the conclusion that feels obvious if you’ve just read Fukuyama: that the dominant model of leadership on Wall Street has been pretty much like the Mafia—or the Sopranos, anyway. Wall Street has been run by a cabal of low-trust, tribal, familistic gang leaders.
The inability to work as a group when the industry was threatened; the tendency to circle like cannibalistic sharks when there’s blood in the water; the pathological obsession with ‘enemies’ (the most hated being the short-sellers, who as near as I can tell were never shown by anyone to have done any significant harm and who in fact did a lot of good, but were nonetheless the villain of choice); the celebration of loyalty coupled with the ability to flip allegiances on a dime. All these are traits of low-trust cultures.
A trader once told me how he was recruited.
“The guy from [Big Wall Street Firm] walked into a room of 25 expectant recruits, and said, ‘Who here is motivated by fear and greed?’ Me and another guy raised our hands timidly. ‘The rest of you can go home,’ he said, ‘I’m only interested in these two.”
So how do these clowns get so much power? Amid all the defeatist models that posit human beings as innately susceptible to money, that assume selfish motives are immutable and can only be beaten by more rules and rewards, I still think there is a valid role to be played by culture and character.
There are more than a few moments of perspective, responsibility and decency shown in Sorkin’s book by Geithner, Paulson and Dimon. Why aren’t there more players like them?
In Sorkin’s final pages, he warns that we’re already letting the opportunity for genuine reform slip by—and not just regulatory and structural reform either. But, he says:
Perhaps most disturbing of all, ego is still very much a central part of the Wall Street machine. While the financial crisis destroyed careers and reputations, and left many more bruised and battered, it also left he survivors with a genuine sense of invulnerability at having made it back from the brink. Still missing in the current environment is a genuine sense of humility.
Whether an institution—or the entire system—is too big to fail has as much to do with the people that run these firms and those that regulate them as it does any policy or written rules.
Amen to that, Mr. Sorkin. We cannot afford these low-trust types wandering around with their hands on the financial world’s throat.
Over 12,000 people have taken our Trust Quotient quiz. Check out the NEW VERSION and learn your Trust Temperament.
Charles H. Green is founder and CEO of Trusted Advisor Associates LLC; read more about Charlie at http://trustedadvisor.com/cgreen/
You can follow him on twitter @CharlesHGreen
by Charles H. Green on Thursday, March 11, 2010 (post #666)
This is week three for me of a four-week road trip. I’m getting a little loopy, but am collecting some wonderful client experiences, lessons and stories. Here’s one from a British account executive.
“I was going to see a potential client for what could have been an important piece of business for us. Unfortunately for me, I missed the scheduled plane by minutes, and thus was delayed by an hour. I called, and they agreed to reschedule the meeting to accommodate me.
“When I arrived, a bit flustered, the team of a half-dozen clients execs had gathered downstairs, and we all then went to the lift to go upstairs to the designated conference room.
“Unfortunately the lift was made for about four people. We all crammed into the lift, and it slowly began to climb. At that point someone—how shall I put this—well, as we English say—passed gas. The lift continued its crawling pace upward. No one, of course, said a word, nor even altered their expression. There was dead silence.
“As the doors finally opened, we all rushed to get out—all at once. And all 7 of us thereby tumbled onto each other on the floor. We all picked ourselves up, even more embarrassed, and again without saying a word to each other, made our way into the conference room.
“As I set up at the head of the room, I could feel the weight of this triple discomfort: I was late, the tumbling all over each other—and of course the ‘gas’ incident in the middle. It was all contrived to create a mutual sense of misery.
“What to do? I stood in the front of the room and said, ‘Gentlemen, little did I know this morning what a fine level of intimate relationship we should all achieve in so little time here this afternoon. I am honored indeed.”
“Well fortunately, everyone fell all over each other laughing; I had somehow managed to prick the balloon of the unspoken that hung over us like a cloud, and the rest of the day went marvelously. And oh yes, we got the sale.”
What this gentleman had done, in our nomenclature, was to Name It and Claim It; that is, to speak aloud the one thing that no one could figure out how to talk about. He did it with humor—an excellent tool—and was rewarded for the relief he caused by an appreciative relationship, and even a sale.
How many of us waste moments like that, buried in our own fear of speaking the truth? And how many sales do we leave on the table because of it?
Over 12,000 people have taken our Trust Quotient quiz. Check out the NEW VERSION and learn your Trust Temperament.
Charles H. Green is founder and CEO of Trusted Advisor Associates LLC; read more about Charlie at http://trustedadvisor.com/cgreen/
You can follow him on twitter @CharlesHGreen
March 2010
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