Tag Archive for: Sidebar: Charles H. Green

Don’t worry: this is not a political blog, nor about to become one.

In 2000, Sen. John McCain campaigned for the presidency from his bus, the Straight-Talk Express. His image and strategy were about being the Man you could Trust to Tell you the Truth.

In November, 2003, John McCain said:

"Ethanol is a product that would not exist if Congress didn’t create an artificial market for it. No one would be willing to buy it. Yet thanks to agricultural subsidies and ethanol producer subsidies, it is now a very big business – tens of billions of dollars that have enriched a handful of corporate interests – primarily one big corporation, ADM. Ethanol does nothing to reduce fuel consumption, nothing to increase our energy independence, nothing to improve air quality."

In August of 2006, McCain said, "I support ethanol and I think it is a vital, a vital alternative energy source not only because of our dependency on foreign oil but its greenhouse gas reduction effects.”

And oh yeah—that’s while he was visiting Iowa, land of corn ethanol and presidential primaries.

I’m not bashing John McCain. He is not unique. Remember “read my lips—no new taxes?” “I did not have sexual relations…?” Or, going back, the “secret plan to end the Vietnam war?”

But McCain’s case acutely raises a dilemma. Can you—or can you not—speak truthfully and be elected? I don’t mean to be coy or cynical. I mean to pose a serious question: is the notion of trust fundamentally compatible with the practice of politics?

Do Honesty and Trust Win You Votes?

It would appear that McCain has answered in the negative. On the face of it, he is saying that direct appeal to various groups’ economic interests is a better strategy for getting elected than the “straight-talk” strategy he had before.

Resolved: Straight talk is a viable strategy for success in politics.

First, the ayes. Voters tirelessly say they want someone trustworthy. Bush scored big points on Kerry’s “flip-flop”— his convictions were unstable, he could not be trusted. Jimmy Stewart cleaning up Washington sells big movies.

Now, the nays. Politics is the art of balancing interests—“truth” is not relevant, compromise is. Except in state-threatening times of war, bi-partisanship and selflessness just gum up the works. People elect people to promote their interests. Politics is about allies, not trust; the art of the possible. If all sides hurt equally, the process worked.

I don’t think this is a no-brainer. Many businesspeople tell me that CEOs can be successful by embodying the values of trustworthiness and devotion to customer, employee and shareholder value. But, those same people say, you simply cannot do that in politics.

Would Iowans vote for someone who spoke the truth, even when it conflicted with their own sectarian best interests? Would you?
McCain answer is clear: the nays have it.

I suspect he may be right. Still, it would be most fascinating to see someone actually test the proposition someday.

(Further reading: John McCain’s biograph from Quick Overview)

The scandal du jour is options backdating. Recently, it was illegal snooping by a Board Chairman. We’ve seen late-trading and front-running charges at mutual funds, payoffs and rigged bids in the insurance industry. We’ve seen over-reported oil reserves, and under-reported profits.

The mothers of all recent scandals—Worldcom and Enron—have pretty much wound down. In perhaps the longest-playing scandal, Walter Forbes, former Chairman of Cendant, was convicted of accounting fraud in 1998 in his third trial in 8 years.

So—what’s up next?

You could make a case for executive compensation.

CEO Compensation Through Time

You’ve read about the increasing gap between CEO compensation and that of the rank and file. The Economic Policy Institute says the ratio of CEO total compensation to annual earnings of a full-time minimum wage employee went from 51 in 1965 to 821 in 2005 (due in part to low increases in minimum wage, and in larger part to increases in CEO compensation).

The Institute for Policy Studies and United for a Fair Economy in 2005 says “the ratio of CEO pay to average worker pay increased from 301-to-1 in 2003 to 431-to-1 in 2004. By contrast, in 1990, the average large company CEO made just 107 times the pay of the average production worker.”

Let’s assume the general direction is true: a higher gap, not a lower one. (If you think these sources are flawed, check their methodologies and feel free to add a comment on other sources here).

Now check Gretchen Morgenson’s excellent NYTimes article on 26 November, 2006, “Peer Pressure: Inflating Executive Pay.”
Morgenson maps a cross-institutional morass of plausible deniability, heretofore obscured by the absence of disclosure requirements. Here’s how it works.

A CEO’s compensation is generally determined by a subcommittee of the Board (note the interesting dynamics that creates between Board and CEO). The Board, in turn, typically hires an external executive compensation consultant. Some of the big ones are Hewitt Associates, Towers Perrin, Hay Group, and Watson Wyatt; executive compensation is one of several lines of business for them, so visibility is a little obscure.

Most importantly, the accepted methodology is to identify “comparable companies” for purposes of comparing base CEO pay; and also for purposes of comparing performance. Note: it’s better for the CEO if you compare base pay to bigger companies, and performance to lower-performing companies. Amazingly (well, it was to me), there’s no requirement those two comparable groups be the same.

So, how do those groups differ? Dunno—they don’t have to say, and choose not to.

Finally, what company, board or compensation consultant enjoys declaring that “our policy is to have our CEO paid in the bottom half of his comparables list?" The temptation is to dodge the issue by fudging the comparison bases, and hoping no one asks. As Morgenson points out, this is Lake Wobegon on steroids—all the CEOs are above average. (Are you comfortable with the idea that there’s a 50% chance your doctor graduated in the bottom half of his or her class at med school? Think about it.)

That’s a lot of opportunities for blame-throwing and conflict-avoiding people to point fingers at others, hide behind “methodologies,” and generally obfuscate.

Do you believe it when someone says “the reason for high CEO pay is that it’s a competitive market?” I like free markets, but I’m finding this one hard to believe. I don’t think the supply side is the issue here; it’s the demand side.

Maybe that’s about to change. Beginning December 15, the SEC will require a company “to reveal which companies it uses in its peer group and to provide an extensive description of its compensation philosophy.” According to Mercer HR’s website, “the new rules allow companies to withhold specific, confidential performance criteria only if disclosing it will result in competitive harm. The SEC is expected to scrutinize this area to ensure robust disclosure in the CD&A.”

Scandal time? Consider this: SEC Chairman Chris Cox said of executive compensation, “no issue in the 72 years of the Commission’s history has generated such interest.”

More likely, it’ll be another crack in the dam. But as more data emerge, one thing will become clear yet again—the real crime is the cover-up.

CEO compensation is significant, it could make a difference if redeployed, and we don’t like such evident greed. But the even bigger issue is the cost we pay as a society when institutions are seen to have tweaked data, kept information secret, and in various ways loaded the dice—all the while claiming not to be doing so.

We are all creditors to a system based on trust; and we’re all left holding the bag when some players default on that trust. Trust betrayed is trust eroded. Let’s start letting some sunshine in.
 

First, I want to thank all those who have commented on this blog in its early weeks. I appreciate, it and so do the many other readers who have yet to make the jump to commenting themselves: to whom I’d say, come on in, the water’s fine!

Maureen Rogers
Brooks Sackett
Steve Smith
David Andrew Thompson
David Maister
breakingranks
Ian Welsh
Dan Keeney
Drew Neisser
Martin Calle
Vince Kuraitis
Chui
Sharon Horstead
Karen Hudak
Mike Slater
Barbara Garabedian
Todd M. Warner
Martin Calle
Michael Fabiano
Shaula Evans
Philip McGee
Eddie Rogers

A few words about Thanksgiving.

Many of you may already know that Thanksgiving was initiated by Abraham Lincoln in 1863, in the heart of the Civil War (but not me—I didn’t know until Tom Hudak set me straight). It is worth reading Lincoln’s words in the original; few writers can improve on Lincoln.

I am hardly unique in my great admiration for Lincoln. He was not only a world-historical figure, but a freak of humanity. He burst upon the world from obscure Kentucky roots. He had four sons, 3 of whom died young, with Robert living into the 1920s—none of them leaving any descendants.

Lincoln had an astonishing capacity for empathy. You get the sense that he personally felt deeply the loss of every soldier from both sides—in the hundreds of thousands.

No doubt there were politics involved in the proclamation—maybe someone can comment on that—he was profoundly political. But he was also conscious of subordinating politics to the pursuit of broader goals. Or so it seems to me.

In any case, the holiday he started has become perhaps America’s favorite. Largely secular (or at least non-denominational), and largely non-nationalistic—Lincoln’s appeal explicitly transcends our national boundaries—it appeals to our better impulses.

It is good to aspire to an attitude of gratitude, and, thanks to Lincoln, to have a holiday that reminds us to do so.

For those of you in business development and sales, what would you say is the most important aspect of that process?

Here’s what the market thinks. Or, at least what Amazon’s search algorithm produces when the word “sales” is linked to a related term:

Sales 302,410
Sales price 24,969
Sales pitch 11,797
Sales meeting 5,608
Sales close 5,390
Sales leads 5,270
Sales buyer 4,756
Sales quality 4,616
Sales presentation 4,610
Sales decision 3,041
Sales qualify 691
Sales screen 597

I’ll talk another time about the issue of price. (Doncha love how sales “pitches” get mentioned nearly three times as much as “presentations?”).

Let’s focus on closing—clearly a big deal to people who must persuade others for a living. What’s the relationship of trust to closing?

Here it is:

If you stop trying to close, you’ll build trust. And you’ll close more.

And yes, that’s a paradox. So is much of life. Here’s why it works.

Closing a Sale

First, why do you want to “close” the deal? The usual answers are:
 

a. to get my sale now
b. because if they leave, they won’t come back
c. because they need that little “push” to make a decision
d. because closing uncovers objections that need to be overcome.

The first reason is selfish and will reduce trust; you deserve a “no” if that’s all you’re up to, because it’s manipulative.

The second is only a disguised version of the first.

The third infantilizes the customer; fine for the emotionally needy, not for most competent buyers.

The fourth—to identify and overcome objections—is the most serious. It comes from a belief that buying is about rational decision-making.

If they haven’t bought, so the logic goes, there must be a reason. If I can uncover the reason, I will remove the blockage to their buying. Repeated attempts to close (the ABC rule, Always Be Closing) make sense based on this logic. And it doesn’t have to be manipulative.

But it’s still not quite right. As Jeffrey Gitomer puts it, “the buying decision is made emotionally, and justified rationally.” Lawyers, consultants and accountants think this doesn’t apply to their clients, but it most often does.

When buyers buy, it isn’t because their objections have been met; it’s because they’ve gotten comfortable with the decision. And the chief road to comfort is not through a rational litany of point-counterpoint, but through a human process of being listened to, clarifying issues, and envisioning outcomes.

Which late-discussion question do you think is better?

1. Are you ready to buy now?
2. What would you like to do now?

The first question, whether you say it that way or use similar words, is what’s usually called closing. It’s ultimately all about you, the seller. And the customer knows it.

The second question, whether you say it that way or use similar words, is all about the customer. The subtext says “the timing is yours, the next steps are yours—I’m here to be of help to you. What do you want to do?”

The second question isn’t “closing.” But it closes better than the first question.

And that’s the paradox.
 

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.