Archive for category: Uncategorized

Three cool books to tell you about.

Looking Back – The Power of Legacy

First is Your Leadership Legacy, by Robert M. Galford and Regina Fazio Maruca. [Disclosure: Rob was my co-author, along with David Maister, on The Trusted Advisor].

It’s built around one of those ideas that can sound fluffy and vague—until you grasp it firmly. Galford & Maruca have discovered a powerful application for the notion of looking backward from the vantage point of the future. (We called it “envisioning” in Trusted Advisor). The subject matter they apply it to is one’s own leadership.

Now, for my money, the literature on “leadership” has staked out more than its fair share of vacuity in the pantheon of business books. But this approach has power. By asking people to look back at their own careers and think of the legacy they are leaving, a lot of remarkable things happen—which the authors document. It actually gets people to think differently—no small feat.

I think the power of this simple but clean idea was tapped by Mark Twain years ago in Tom Sawyer: the vision of sitting up in the back of the church, watching an entire town deliver your eulogy. That same power was invoked by Dickens in A Christmas Carol. And yet again in Frank Capra’s cult-for-the-masses Christmas movie, It’s a Wonderful Life.

Looking backward from the future, focused on the meaning we will have left the world, focuses the mind wonderfully, and is an antidote to cynicism and short-term focus. You can’t help but think about your own legacy as you read it. Which, of course, is their point.

The Blind Side: Evolution of a Game

Second is Michael Lewis’s The Blind Side: Evolution of a Game. You may know Lewis as the author of Liar’s Poker, or as the sports-oriented author of Moneyball and Coach: Lessons on the Game of Life. It’s one of those multi-level books: it’s about football, and the evolution of the left tackle position in particular. It’ll let you second-guess John Madden in any jock argument and look like you know what you’re talking about.

But it’s also about the hard edges in our society—the enormous gaps between the various American sub-cultures—and about how hard it is to reach escape velocity from any of them.

Finally, it’s a ripping good read about the decency of some people, and the hard-won, big-yet-small gains that their efforts yielded. It reminds me of that story about the kid on the beach throwing back starfish into the ocean after a storm. An adult comes along and says, "Kid, there are millions of starfish who were beached here; it’s not going to make any difference." The kid throws back another starfish and says, "It did to that one."

The Accidental Investment Banker: Inside the Decade that Transformed Wall Street

Third is The Accidental Investment Banker: Inside the Decade that Transformed Wall Street, by Jonathan Knee. Knee was an investment banker at Goldman Sachs and Morgan Stanley in the go-go years 1998 – 2003, so he certainly had a good seat at the feast. What sets Knee apart from his fellows is the ability to be in it and yet—at least in his telling—not of it.

He does a job I’ve not seen anyone else do well—articulate the higher aspirations and social good that can come out of the role of investment banker, properly done. In this regard, it’s quite the opposite of Liar’s Poker and most expose-type books about the wild and woolly excesses of Wall Street.

Which makes the contrast all the more telling when Knee does get to talking about those excesses. The most vivid of all, to me, is his acronym IBG YBG. It’s what one investment banker would whisper to another when the most absurd of deals were getting cut, when propped up hype was about to be packaged and sold down the line to the next greatest fool.

It stands for “I’ll be gone, you’ll be gone,” and it aptly reflects the cynicism and greed that characterized the dissolution of those good intentions, especially in the later years of the boom.

And all three are about trust—trust me.

 

 

Fortune Magazine has a couple of blog columns. One is called Legal Pad, by Roger Parloff, Fortune’s Senior Editor for Legal Affairs.

An experienced and educated journalist who writes well in what is normally an informative blog, Mr. Parloff recently posted what I take to be a temporary moral faux pas or blind spot. You decide. The posting is titled Backdating: A Little Less Than Meets the Eye.

Parloff says:

In a recent conversation about options backdating that I had with Stanford law professor Joseph Grundfest, who heads its Rock Center on Corporate Governance, he kept having to use the phrase [“I’m not defending it”] as he explained an interesting point I hadn’t really appreciated until then. Now I’ll need to make liberal use of that phrase too.

Though recipients of backdated options received unfair gains, and shareholders were deceived—and I’m not defending either injustice—in each case the extent of the harm may be a little less than some of us are assuming….

…Of course, a lot of quarters can mount up to real money, so I’m not defending this practice…

…there is a snowball effect that, in some cases, may be disproportionate to the crime.

But I’m not defending it.

Roger, if you’re not defending it, just what is your point?

Chris Cox—Chairman of the SEC— stated clearly in testimony before Congress just what is at stake in these cases:

The purpose of disguising an in-the-money option through backdating is to allow the person who gets the option grant to realize larger potential gains-without the company having to show it as compensation on the financial statements.
Rather obviously, this fact pattern results in a violation of the SEC’s disclosure rules, a violation of accounting rules, and also a violation of the tax laws.

Morally Bankrupt: Options Backdating

Are you suggesting, Roger, that there is some dollar amount below which you would recommend SEC disclosure rules, accounting rules and tax laws be ignored? That these kinds of violations, committed by CEOs and CFOs, should be judged based not on principles but on how much they stole?

That’s what your readers seem to think you meant. Four of the five comments to your posting say the options backdating scandal is “a public opinion-generated frenzy,” that “no harm was done,” that a market cap shouldn’t be punished by 25% when unjust compensation added up to only a few million, and that damages are less than funny accounting might indicate. If you thought you were being subtle or sardonic, the point appears to have been lost.

Come on, Roger—can we have just a little moral outrage here, please?

Business Scandal

At the heart of all business scandals are a few common themes: lying, intentional breaking of laws, and rampant selfishness. Add them up and, for lack of a better term, let’s call it ethics violations.

Now, there’s nothing wrong with assessing the economic impact of law-breaking; in fact, it’d be great to hear some numbers from Parloff or others.

But if you’re going to do that, then factor in the cost of trust destroyed. When dozens of corporate leaders intentionally violate the law behind closed doors for the sake of personal self-aggrandizement, what is the cost of employee cynicism, social skepticism and moral rot that you create? I’m guessing it far exceeds the ill-gotten gains of several dozen CLOs (Chief Lying Officers).

Economic Cost of Low Trust

That’s not just rhetoric. The economic cost of low trust is massive; for one thoughtful approach to the subject, see “Collaboration Rules,” by Philip Evans and Bob Wolf, Harvard Business Review, July 1, 2005.

The options backdating scandal is fundamentally about integrity and honesty, not about the dollar amount scammed. For a national magazine’s senior editor to headline his comment as “Backdating: a Little Less than Meets the Eye” is to miss the point and—as evidenced by his responses—to influence others to miss the point as well. It should have been "Backdating: More than Meets the Eye," and Perloff should be reminding the Stanford professor and the rest of us about the cost of trust abused.

We should expect better from Fortune.

Update: This article has been featured in the Carnival of Capitalists

 

Last week I suggested that listening was the necessary condition of most forms of persuasion: if you want to convince someone of something, you’re best advised to listen first to what they have to say.

Here’s how Thomas Friedman put it:

People often ask me how I, an American Jew, have been able to operate in the Arab/Muslim world for 20 years, and my answer to them is always the same. The secret is to be a good listener. It has never failed me…Never underestimate how much people just want to feel that they have been heard; once you have given them that chance, they will hear you.

Friedman’s insight echoes that of the Dean of Influence, Dr. Robert Cialdini; more on him and the link to trust another time.

I also suggested last week that the best form of listening is simple: to pay attention. Full, complete, dedicated paying attention. Not active listening, or body mirroring, or great questioning: just paying rapt attention.

The problem with paying attention is: how can you pay complete attention and still think about what you’re going to say next?

You can’t.

But what you can do is to change your manner of thinking to enable listening by paying attention. Specifically, to think out loud. By that I mean literally verbalizing our thought process in the presence of the person we just listened to.

Thinking out loud allows us to postpone thinking until after we’re done paying attention. And it does even more than that. By articulating our thoughts even as we are formulating them, we allow the other person to have a window into our thinking—a fairly radical form of transparency, when you think about it.

By being so transparent we are also living collaboration; if I am willing to let you in on my thinking, I am implicitly inviting you to join in, to correct me where wrong and to add to and participate in my thinking.

Those who already do this tend to be people who are very successful, and who are very secure in themselves, comfortable with what they don’t know as well as what they do. To listen in this way—particularly to think out loud—takes a certain personal courage; or maybe just self-acceptance.

Either way, it’s the ability to lower our own self-orientation and focus on the other person.

And that’s pretty bedrock stuff. No wonder it works.

We trust individuals (or not). We also say we “trust” (or not) institutions—the SEC, Citibank, physicians (as a class), or business in general. Let’s talk about the latter. (Insert your favorite version of “trust in business is at an all-time low.”)

Take the scandal du jour—options backdating—as an example (it’s tough to choose, what with mutual funds, reinsurance, mark-to-market accounting, influence-peddling, capitalizing expenses, and looting for personal gain all vying for attention—but I digress).

Four broad approaches to dealing with low trust in business

a. enactment of laws or regulations, particularly re conflicts of interest;
b. enforcement of existing laws or regulation;
c. an increased transparency or visibility of transgressions;
d. an increase, in for lack of a better term, the ethical behavior of individuals.

All have their role, but it seems to me that—at least in the US—we have become too reliant on the first, and not enough on the latter three.

1. Enactment. Think Sarbanes-Oxley. There is no shortage of critics about its cost (Going Private blog is a good one); it also has its proponents (e.g. Annette Nazareth, SEC Commissioner, Business Week’s Ideas: Outside Shot, “Keeping SarbOx is Crucial”, November 13, 2006). Enacting our way into trust can be a massively expensive proposition—a serious cost of a low-trust business environment. But it’s also a mistake to phrase the debate solely in terms of efficiency.

The even bigger issue is whether reliance on the blunt instrument of the law saps the societal and cultural will required for other approaches to low trust. This is particularly true of conflicts of interest.

When Sarbanes-Oxley (or Glass-Steagall, decades ago) legislated barriers between kinds of business (accounting and consulting, merchant and investment banking), it said, “human beings cannot reasonably be expected to behave well towards each other in this circumstance—our baser instincts of selfishness will win out.”

This assumption puts a cynical ceiling on the expectations we hold out for individuals. Not that the cynicism hasn’t often been justified. Then again, low expectations are often self-fulfilling.

2. Enforcement. Think Eliot Spitzer. Not Spitzer the politician, or heavy-handed cop, but Spitzer the AG who single-handedly brought about some serious change. He didn’t invent any new laws, he just enforced. Enforcement has the great virtue of efficiency, but it also increases the integrity of the law, by taking it seriously.

The SEC has been active here on the issue of options backdating. Chairman Chris Cox says of options backdating, "this fact pattern results in a violation of the SEC’s disclosure rules, a violation of accounting rules and also a violation of the tax laws." If I’ve got it right, Sarbanes Oxley did not create the regulations that companies are running afoul of. Sarbanes Oxley made mandatory the disclosure which allowed violations to be discovered.

3. Transparency. Think whistle-blowers like Sherron Watkins; investigative journalism at its best; the increasing power of blogs. The options backdating scandal was first brought to light not by new legislation, or by the SEC, but by an academic whose studies showed that many companies’ options dates were statistically suspect in the extreme.

Like enforcement, transparency leverages existing agreed-upon norms. But it has the added power of galvanizing social groups around social norms, not just legal ones.

(In a fascinating bit of speculation, Joe Nocera’s NYTimes article (Talking Business, Sept. 23, 2006, "Curiosity Has its Merits and Its Profits") suggests that much of the haste of options abusers to crawl out from under the rocks and confess is due not to classical whistle blowers, but to corporate arbitrageurs who used the academics’ insights to catch the bad guys in a classic squeeze between being in violation of bond covenants, and paying the arbs to get out. This is one for free-marketers to love— a classic case of Gordon Gecko as Robin Hood.)

4. Individual behavior. At its simplest, business “ethics,” if it means anything other than “don’t get caught,” implies a beneficial relationship between businesses and people. Not just adversarial—beneficial.

Just educating people about the law succeeds only in teaching them to make informed guesses about what they can get away with. If that’s all we mean by “business ethics”—and judging by some educational programs, it is—then we’re just handing out sheep’s clothing to wolves.

“Values,” too, is a dodgy term. It is often either code-speak for religious right-wing belief systems, or a watered-down politically correct mantra (next time you see the word “values,” check to see if any specific value is mentioned—when the term exists only in the plural, it has no teeth)

The only valid way to change individual behavior is to reclaim business from its servitude to the idea of “competitive advantage” it has suffered under for the last three decades. We need to reframe business as being about commerce, not competition. The central organizing relationship in business has to change: from the relationship between competitors to the relationship between supplier and customer. Without a sense of that positive mutual relationship, there is no basis for expecting “good” behavior.

The problem isn’t in business ethics courses; it’s in the strategy and marketing courses. As long as we believe the goal of a company is to beat its competitors (and its suppliers and customers, a la Mike Porter), then we will have to rely on laws and enforcement to protect us from the implicit base motives we ascribe to people. Aiding the forces that increase transparency helps us to examine common goals—a good thing. And if we change the goal of business—if we begin to teach, and demand, that companies exist to serve customers in particular—then we have a shot at internalizing a higher order of corporate behavior in business people, the most desirable of the four roads to restoring trust .

 

 

Suppose you had to give a speech. To which audience would you rather present?

1. The National Speakers Association
2. The International Listening Association
3. Microsoft

The NSA might sound the most intimidating. Then again, they’d probably empathize.

Microsoft would probably be the worst—doing email and blackberries throughout.

Which makes me think, “hey, the ILA would probably be a great audience!”

Yes, there is such a group (the other two also exist, but that’s another post). Ever wonder where people get those statistics about “X% of what people hear is non-verbal,” or “Y% of people’s time is spent communicating …” You can find it here.

How about a new book titled “Sex, Politics and Religion at the Office.” It’s by John Boogaert and Douglas Noll, who say, “create a sustainable competitive advantage in your company with sex, politics and religion.” Attention-getting title, to be sure, but their thesis also makes sense; organizations that are scared to talk about combustible issues will fail.

A Key Competitive Advantage: Listening

And guess what one key is to that competitive advantage? That’s right, listening. Not a connection I had made by that route before—but I buy it.

But don’t listen to me, google “listening skills” yourself. You’ll get lots of practical advice. Listen for content not style. Engage in eye contact. Mirror body language. Stay active by asking open-ended questions. Sit near the front. Be responsive. Understand your own style. Listen with a purpose. Be interested. Look for non-verbals. And so on.

It’s all good on some level, but here’s my number 1 recommendation—part 1 of a 2-parter. It’s based on the assumption that a lot of what passes for listening is really just waiting for the other person to finish and shut up so we can start looking smart again.

Part 1 is do nothing but pay attention. Nothing. We’re way beyond no blackberries. Don’t think about body language. Don’t think about your next question. Don’t think about the implications of what you’re hearing. Don’t—think. Just. Pay. Attention.

Paying attention is paying respect. Attention is a scarce resource—we all crave it. To pay attention is to give a scarce gift. Empathy, caring, understanding, problem-solving, diplomacy, selling—all start with paying attention. IF you listen by paying attention, others will then pay attention to you—it’s a reciprocity thing. And it is a choice you have the power to make. You don’t have to play that other game.

Part 2 answers, “but how do I stop thinking about all that stuff so that I can pay attention?” Check back in a week for that one; there is an answer.