Character of the day: Eleanor Roosevelt

Eleanor Roosevelt may be best known as the wife of US President Franklin D Roosevelt. However she was an amazing and influential woman in her own right.

Perception – Seeing with Fresh Eyes

This “seeing with fresh eyes” exercise is something I often use when I find myself stuck or I think my client is stuck. When I’m stuck I can make decisions but I’m not confident about them. They might be OK or they might not, either way they don’t resonate. When I’m in this state this exercise really helps me to see things from a different perspective and usually enables me to see a key piece I’ve been missing. Why don’t you try it out?

Find a quiet place take a few calming breaths and close your eyes. Imagine the room you’re in. Because you’re imagining you can make it anything you want. You can change the colour of the carpet, rearrange the furniture, put people in the room and take them out again or turn the lights on or off. You’re now fully in imagining mode. Now let yourself go to sleep ready for a new day. You drift into a deep sleep and wake slowly from it. As you become aware of everything around you again you realise something is different. You went to sleep as the man you know you are but you have woken up as a woman.

Only you know you were a man right up until this point. All of your memories
are living a life of a man but everyone else seems to be living in some sort of parallel universe because to them you are a wife, a mother, a businesswoman!

Now it’s over to you to do the work of imagining what happens next. Here are some questions to get you started, but I want you to really put yourself in this situation and use your imagination to follow through with all the details.

Think about how you would handle the situation if: 

  • You sensed the board wasn’t taking your brilliantly prepared presentation seriously just because you were a woman?
  • One man kept looking at your cleavage the whole way through the presentation?
  • The men couldn’t look you in the eye and the women ignored you?
  • Whenever you made your best points, the men spoke over you or, to make matters worse, represented your ideas as their own?
  • You  were  a  woman  for  a  whole  day/week/month/year?
  • As  a  woman  at  home  you  are  now  a  mother instead of a father. How does your relationship with your children change? How do your responsibilities change?
  • How do you think you’d relate to your partner in this role reversal?

Now I want to take your thinking to another level. Instead of negative thoughts and feelings, I want you to think about the opportunities this presents. Suddenly you have the ability to see the world through a completely fresh set of eyes. Everything is the same and everything is different. You have the opportunity to experience how perception really works.

You have the ability to noticethings  you  never noticed before. You have the ability to notice things about your company that you never noticed before.

Think about relationships:

  • Who has the real power?
  • What really  matters  to  these people? 
  • What  really  matters  to  the company? (is it more than just profit?)
  • Although  your  gender has changed, do you think the core of you has changed?
  • Think about the things that really matter to you. Have any of those changed?

By allowing my imagination to really get into experiencing all of what the contrast has to offer, and by allowing myself to step out of my own body and look at life with fresh eyes, this exercise has allowed me to see what really matters to me, sometimes with a clarity that I’ve never before thought possible!

Other results I’ve discovered is a different type of energy and the ability to act swiftly and decisively.

I hope you give this ‘seeing with fresh eyes’ exercise a go. Your world may become a place of clarity, full of possibilities and opportunities.

If you would like to share your scenarios and experiences I’d love to read them – just click the ‘comments’ link above.

In times of great change

In times of great change, the learners will inherit the Earth while those attached to old certainties will find themselves beautifully equipped to deal with a world that no longer exists.

Eric Hoffer

James Hardie – Why did they do it?

The general commentary on the recent James Hardie verdict is that it sets a new bar for non-executive directors. I’m not sure I agree.

A more obvious interpretation is that James Hardie’s directors acted with extraordinary disregard for their duties and deliberately set out to deceive their stakeholders. The question that remains in my mind is why they would do this? It is not as if it is a unique case. The tobacco companies have repeatedly been accused of hiding their knowledge of the health effects of smoking. I could understand the owners of a company trying to cover up their actions. But the directors are not the owners. They are generally supposed to act in the interest of the owners.

In this case, how could James Hardie’s directors have thought they were acting in the interests of their owners (shareholders). Surely they were going to be found out. The evidence seems that they knew (or seriously suspected) that the compensation fund the company set up was not fully funded. At some point this was going to become public knowledge.

Perhaps it could be argued that it would be in the interests of shareholders to have relocated the company to the Netherlands so that it was immune to any future liability for asbestos related effects of their products. There was a possibility they would have been able to protect this position in court, but it would surely destroy the company in the market. Who would buy anything from a company with such a tarnished reputation – a company that had simply walked away from its moral responsibility and left many of its employees and customers to die a horrible death with completely inadequate compensation?

I ask again. How could this possibly be in the interests of shareholders? One possible answer is that it was not and the directors acted not only with complete disregard to their moral responsibility but also with complete disregard for the interests of their owners.

If, for the moment, we accept this argument, the more fundamental question is “Why did they do it?”

To suggest an answer to this question I am going to delve into the world of psychology and more particularly, one of its sub disciplines – psychodynamics. I suspect that the directors became caught up in a subconscious fantasy that they could get away with it and they would be seen as heroes. This fantasy in turn was possibly triggered by the awful facts they were presented with and the more difficult option that faced them. The only alternative was to face the music. To be the board that stood up and declared the king had no clothes — James Hardie had been involved in systematic deception and cover up for decades. They would have to ‘out’ their predecessors as having acted both illegally and immorally.  This would be an unforgiveable sin in the directors club. I would guess that you could go through the minutes of Hardie’s board meetings during this time and not find one hint that this thought had even been remotely hinted at. It’s probable that no suggestion of this possibility even passed the lips of any of the directors involved – either in the board meetings themselves or in private conversations. No one had to say what the alternative was. They all knew it.

It would have taken incredible courage to take this alternative route. A courage that the James Hardie board seemed incapable of finding. In the end, this seriously eroded the value of Hardie’s owners’ investment in the company.

If you accept this interpretation of events, you are left facing one more piece of evidence that “shareholder value” is not only a vacuous concept, but also an often used excuse for acting directly against the interests of shareholders. If we are really serious about maintaining shareholder value, we would demand that our directors and executives act with absolute moral rectitude.

Easier said than done to be sure. A better goal than “maintaining shareholder value?” I personally think it is.

Where is the focus of your attention?

There’s nothing like a crisis to focus our attention. We saw that recently here in Victoria on Black Saturday where all the emergency agencies, the government and a great proportion of the community could think of nothing else.

On a wider scale, the global financial crisis has focused the attention of world governments, financial regulators, economists and business leaders. For many of us, our attention is resolutely focused on surviving this dramatic downturn.

For many of us we have been happy in the past for our financial controllers to give us a summary of the balance sheet and point out anything that needs particular scrutiny. Now we go through it with a fine tooth comb. In the past we have been relaxed about some sections of our business that weren’t performing – allowing them time to develop. Now we need to justify everything we do to ourselves and our owners.

Many of us had forgotten what it was like to be so focused.

[Indeed one of the good things to come out of a downturn is that it shakes us out of our complacency and, like a bushfire, while it destroys it also prepares the ground for new growth to emerge.]

Perhaps, in the midst of all this activity we should stop and find a few microseconds to reflect on the balance of our priorities. There is no doubt that when times are tough our first priority must be survival. But I wonder if focusing all our attention on survival is the best way to increase our chances of doing so.

What subtle signals might we be missing by looking so closely at ourselves? Is this just another cyclic (albeit much larger than normal) downturn or are we observing the emergence of a new world economic order? Of course we cannot know the answer to this question in the traditional sense of the word and there is no shortage of analysts prepared to give us (often conflicting) opinions. But what do our on senses tell us and to what are our senses atuned?

One of the most courageous things we can do in the midst of a crisis is to not act. I love the title of a book I was introduced to recently:

Don’t Just Do Something, Stand There!

That is, even though everything is urgent, take time to stop and pay attention to what you may be missing.

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Trujillo kills agency theory

Well this title is not exactly correct. I would like to think that Sol Trujillo’s resignation as CEO of Telstra, his performance in the role and subsequent payment of $40m from the telco would clearly and unequivocally lay Agency Theory to rest. Take this excerpt from The Australian:

But the legacy he leaves will last far longer than his four years in
charge of the nation’s biggest telco – a testy relationship with the
federal Government, a broadband strategy in tatters, a share price near
10-year lows and a business only part-way through the five-year
“transformation” he promised on arrival in mid-2005. Telstra shares –
and its formidable core business – have held up relatively well in the
financial storm, but yesterday’s press conference announcing his
departure came with a warning that profits would fall short of
expectations in the coming year.

Unfortunately, I think agency theory is so entrenched in current economic and management thinking Sol’s resignation will either be seen as just a blip or, even worse, proof itself of the theory.

It didn’t matter much what Trujillo did at Telstra, he just had to do a lot. It didn’t matter if it was successful as long as he was making an impression. If you’re a Telstra shareholder and you think that was worth $40m, good on you. [Declaration: my partner owns a small parcel of Telstra shares.]

Who can honestly believe that Trujillo really cared about the long term outlook for Telstra? If the telco fell over in five years time, at worst his reputation is shot but he’s got $40m in the bank. More likely he would shrug his shoulders and lay the blame at the feet of his replacement while earning another $40m or so from another bunny prepared to take him on.

Agency Theory argues that the owners (ie shareholders) can only influence managers to act in their interests by offering them (largely) financial incentives.

The Spiral Path has long argued that there are two fallacies in this argument.

First, the owners of a large corporation are so diverse who can tell what their interests are and what they want. Over the last twenty years the term ‘Shareholder Value’ has come into common use. This has come to represent the sole measure of owner interests. Managers, however, are very clever. They know they can do just about anything they want as long as they say it is in the cause of Shareholder Value. Can they prove their actions are providing increased value to shareholders? No. The only way to tell would be to run the exact same scenario and take a different set of actions. Outperforming the market is often taken as a measure of shareholder value but, as we know, the market is very fickle. If Sol shaved off his moustache it would have an effect on the market. If we were to use market outperformance as a measure, we should use long term (perhaps 20 years) outperformance.

The other problem we see with Agency Theory also has to do with the cleverness of managers. If managers are going to require financial incentives to act in the interests of owners, they have learnt very quickly they can demand very very large financial incentives. And once the owners have agreed to these incentives, it is very hard not to pay them regardless of company performance. We suggest that Agency Theory rather than giving a lever to owners to encourage managers to act in their interests, has given managers a tool which allows them to act with scant regard to the interests of the owners.

What can we do about this?

First, we can take the path advocated by Australian Treasurer Wayne Swan in this article. Swan suggests that we could regulate to provide shareholders with greater control of executive remuneration.

One of my favourites is to remunerate executives based on long term performance. That is we allow them an adequate annual salary but provide most of their benefits in terms of long term bonds or shares in the company. Whichever instrument we chose the executive would only be able to convert them to cash over a period of time. Say 20% of the total amount every five years. This would encourage executives to look to the future and give them an incentive to stay with the company longer.

Of course, not all managers act against the interests of their shareholders. Many chief executives do look long term and use a whole range of measures to determine both their own performance and that of their companies.

Many executives also passionately believe in what their company does. These executives, while still being well paid, do not ask for multi million dollar salaries. Their level of self-fulfilment more than adequately compensates them for the blood sweat and tears they put into their business.

Of course, all of this begs the question of who really owns the company. Remember that Corporations Law is really only a couple of hundred years old. The Dow Jones Indexes only came into existence a little over a hundred years ago. The vast majority of historical commerce was achieved without any form of shareholding.

Perhaps we need to look to a new way for companies to raise the capital they need to operate.

The End of Wall Street’s Boom

The Spiral Path has linked to Michael Lewis on several occasions. In this piece, Lewis gives his take on what went wrong on Wall Street. In the introduction he reminds us of his three years at Salomon Brothers:

To this day, the willingness of a Wall Street investment bank to pay me
hundreds of thousands of dollars to dispense investment advice to
grownups remains a mystery to me. I was 24 years old, with no
experience of, or particular interest in, guessing which stocks and
bonds would rise and which would fall. The essential function of Wall
Street is to allocate capital—to decide who should get it and who
should not. Believe me when I tell you that I hadn’t the first clue.

I’d never taken an accounting course, never run a business, never even
had savings of my own to manage. I stumbled into a job at Salomon
Brothers in 1985 and stumbled out much richer three years later, and
even though I wrote a book about the experience, the whole thing still
strikes me as preposterous—which is one of the reasons the money was so
easy to walk away from. I figured the situation was unsustainable.
Sooner rather than later, someone was going to identify me, along with
a lot of people more or less like me, as a fraud. Sooner rather than
later, there would come a Great Reckoning when Wall Street would wake
up and hundreds if not thousands of young people like me, who had no
business making huge bets with other people’s money, would be expelled
from finance.

He goes on to discuss his surpise that, twenty years later, Wall Street was still going strong. No amount of scandal or impropriety, it seemed, could dent America’s advantaged youth from embracing wealth like never before. This was, according to Lewis, until an otherwise obscure advisor named Meredith Whitney from Oppenheimer Securities who

on October 31, 2007, ceased to be obscure. On that day, she predicted that Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust. It’s never entirely clear on any given day what causes what in the stock market, but it was pretty obvious that on October 31, Meredith Whitney caused the market in financial stocks to crash. By the end of the trading day, a woman whom basically no one had ever heard of had shaved $369 billion off the value of financial firms in the market. Four days later, Citigroup’s C.E.O., Chuck Prince, resigned. In January, Citigroup slashed its dividend.

It appears that Americans, and the rest of the world for that matter, were very much prepared to accept that Wall Street Bankers were corrupt. What came as a shock to us all was that it turns out they are also stupid.

Australia’s worst ever natural disaster

I have to pause for thought to remember the events of the last few days around me. As I sat in air-conditioned comfort last Saturday, Australia suffered its worst ever natural disaster with at least 170 people having lost their lives and the towns of Marrysville and Kinglake wiped off the map as devastating bushfires swept my state of Victoria.

Each day as I read the news, it sinks in a little deeper just how terrible this event has been and how sudden it was.

Initially for us it was just the hottest day ever recorded in Melbourne, but then the news started filtering through. We had been complaining about how hot and awful it was but we were safe and we had air conditioning. People not far to the north of us were at that very time losing everything – including for too many, their lives.

If you are so moved, the Red Cross is organising a bushfire appeal.