June 15, 2009 | Refinancing


Archive for June 15th, 2009

What Outside Executives Need to Succeed

June 15th, 2009

“I don’t know anything about cars,” discloseed Edward Whitacre in an interview with Bloomberg News given after being named the new chairman of General Motors. “A business is a business, and I think I can learn about cars. I’m not that old, and I think the business principles are the same.”

Long-time Michigan political observer, Jack Lessenberry, lauded GM’s hiring of Whitacre as an example of the new leadership the company will require if it is to succeed.

But Whitacre is joining a company with a history of rejecting executives from the outside. H. Ross Perot and Jerry York, as a surrogate for investor Kirk Kerkorian, tried without success to shake things up at the board level. Another senior executive who failed to change G.M. was Elmer Johnson. According to the New York Times, Johnson was so frustrated he wrote a memo saying “Teamwork has been replaced by Balkanization. Our culture discourages open, frank debate among G.M. executives in the pursuit of problem resolution.”

Hiring an executive from the outside for any company is always a gamble. According to a 2008 study conducted by the Institute for Executive Development (IED) and the Alexcel Group, thirty percent of executives hired from the outside fail to meet expectations within the first two years. One key reason that executives — not simply those from the outside — fail, is an inability to collaborate with others.

Negative trends aside, it is useful to consider those positive characteristics that will make the newcomer an asset to his new business.

eager intelligence. Not only do you have to be a quick study, you have to be able to size up the gaps as well as the opportunities. Learning the business is the easy part; finding out what works and what doesn’t requires not only experience but insight. Lou Gerstner, a former McKinsey partner, was especially adept at determining corporate strengths and weaknesses. After trimming IBM to fighting weight, Gerstner pursued strategies that would capitalize on IBM’s unique capabilities rather seeking to be all things to all customers.

People skills. It is common sense to value your people but it may be “so common” that it is often neglected. The outside leader needs to reach out to employees and treat them as colleagues. One technique that many executives employ and that I encourage newly promoted executives to adopt when meeting their direct reports for the first time is to ask: what can I do to help you? Such a question does two things: one, it establishes the direct reports as the experts; two, it positions the leader as one who wants his people to succeed.

Strong will. The hidebound mindset that made hiring someone from the outside necessary will seek to maintain the status quo. Some in senior management will feel slighted that one of their own is not running the show. While they do want the organization to succeed, they will want to protect their domains and their influence. A new leader must stand up to entrenched powers and their stale ideas. Therefore, he will have to fight hard to be heard, believed and eventually followed in his own organization.

One executive who has shown strong backbone in bending the culture of his new employer, Ford Motor Company, to a common purpose is former Boeing executive, Alan Mulally. As reported in Fortune, Mulally, as CEO, has instituted the One Ford approach, which seeks globally-derived vehicle platforms as well as a more collaborative approach to planning and execution. [Note: While Mulally was new to the auto industry when Ford hired him in 2006, he is an engineer with extensive background in product development and manufacturing.]

Organizations bear responsibility for the high washout rate. The IED/Alexcel study also demonstrated that on-boarding programs and mentoring programs are valuable. Executive coaching, too, can help. In other words, don’t let the executive fend for himself; provide him assistance.

For the sake of us taxpayers who have a stake in General Motors, I hope the company provides Whitacre — as well as any other outsiders he may bring with him — with more than a tutorial on the automotive business. He, like all outside executives, needs the support of management so that he can earn its trust and help the company succeed in very trying times.


Finance News

Become a More Creative Leader — Think Small

June 15th, 2009

What kind of leadership do we need now?

This was the question I asked last week at the beginning of a day-long workshop attended by a group of senior-level women at a major technology firm headquartered on the west coast of the US. And I’ve been asking this question of thousands of other business professionals over the last year or so in similar settings around the country. Just a few days ago, in Puerto Rico, I asked it again at a gathering of business executives and, again I heard pretty much the same thing.

By far, the most common responses? Adaptive, flexible, and innovative.

Because of the ubiquitous sense of turbulence in most of our lives these days, the leadership attribute that comes to mind most often is the means for dealing with chaos. It boils down to this: playful creativity.

Now, more than ever in my experience, people are feeling a need for greater control. When you believe in your own power to generate new ways of getting things done — that is, when you have the confidence and competence to produce meaningful change — then you are less likely to succumb to the stomach-churning anxieties that come from not knowing how you’ll deal with whatever obstacle that’s next to be thrown in your path.

What’s most essential for us in the Global Leadership 2.0 universe, then, is the capacity to be creative as leaders. The really good news is that you can learn to become more creative as a leader, at work — no matter what your formal position — and in the other parts of your life, and thereby gain a greater sense of control over the turbulence.

Leadership is the capacity to mobilize people toward valued goals; that is, to produce sustainable change — sustainable because it’s good for you and for the people who matter most to you.

To be innovative, to act with creativity, is to experiment with how things get done. The innovations people pursue in my Total Leadership workshops are designed to improve performance not only at work but also at home, in the community, and in your private life (mind, body and spirit) by better integrating these different parts of your life — I call the results four-way wins.

These short-term experiments could be trying a new way to delegate; reducing noise by shutting down your technology for a while; sharing your vision of the kind of world you’re trying to build with others; even exercising regularly to reduce stress and enhance your focus. These are just the kinds of small wins that the participants at the west coast technology firm and the executives in Puerto Rico were going after by the time we finished our workshops. But the larger purpose was to gain greater mastery of the skill of leading change. For once the experiment ends, the real learning begins, through reflection on what worked — and what didn’t — in the attempt to bring about something new.

A warning: If you’re not continually getting better at overcoming the three great inhibitors to creativity — fear of failure, guilt about appearing to be selfish, and ignorance of what’s possible — then you’re missing opportunities to strengthen your capacity to gain control in an increasingly uncertain world.

So, what small wins are you pursuing these days? How will they improve your ability to be creative and to have greater capacity to adapt to the rapidly shifting realities of your life and work?

Finance News

Why 1.5 Is Greater Than 2.0

June 15th, 2009

The proponents of 2.0 thinking on user-generated content, be they fans of Web 2.0, Enterprise 2.0, Health 2.0, or Rhubarb 2.0, would have us believe that their highly participative approach is the only one that works. And indeed, there is an appeal in democratizing content creation and management. However, in almost every case there is also value in professional involvement.

Take health care, for example. A couple of months ago there was a convention in Boston (I was unable to attend) on “Health 2.0 meets Ix.” For those unfamiliar with this debate, Health 2.0 fans advocate patients taking control of their own health care and sharing information across patient communities, rather than turning it over to professionals. “Ix” refers to “information therapy,” which is shorthand for the scientific/medical establishment’s 1.0 use of research, clinical trials, and licensed practitioners to fight disease. If you were sick, would you rely on Health 2.0 or 1.0?

In all likelihood, you’d go for both. You’d listen to what the medical establishment prescribes for your ailment, but you’d probably also check out blogs, wikis, and other patient-generated content and communities. As health care analytics expert Blake Zenger notes in his blog, Health 2.0 versus Ix is a false dichotomy. We can embrace the virtues of democratized health content without throwing away the benefits of professionalism and science. Depending on the circumstances, your personal equation may be 1.3 or 1.8, but you’re going to want both medical science and the comments of those who have opined on their own health situations.

The same is true in many other content settings. In journalism, while it’s useful to experience the passion of bloggers at the Huffington Post and the Daily Beast, they don’t replace the reporters and editors at the New York Times. Even Wikipedia, often held out as the epitome of 2.0 content, has increasingly employed (mostly unpaid) editors to monitor, verify, and sometimes even create content.

Inside enterprises, the same 1.5 mix is often desirable. For example, I once heard Steve Schmidt, the CIO of Vertex Pharmaceuticals, describe his company’s use of wikis for capturing the results of research. He said that the most successful ones are “curated” — facilitated and edited by humans whose job it is to do so. Before blogs and wikis came along, the same was true of discussion databases. The best ones typically had facilitators and online community organizers.

Of course, it’s more romantic and revolutionary to assert that only the masses can generate useful content. It’s attractve that the hoi polloi can replace experts, editors, and experienced professionals. It just doesn’t happen to be true. The key word is “augment,” not “replace.” 1.5 is greater than either 1.0 or 2.0.

Finance News

Can the VC Model Help Cure Alzheimer’s?

June 15th, 2009

Legendary venture capitalist and Chairman of Greylock, Henry McCance, is a co-founder in Cure Alzheimer’s Fund. Incorporated in 2004, the fund uses a venture approach to disease research. The results have been nothing short of extraordinary as their work linking new genes to Alzheimer’s has been named by Time as one of the top ten medical breakthroughs of this past year. Their message and approach continues to widen awareness as two of their researchers, Dr. Rudy Tanzi and Dr. Sam Gandy, joined music celebrities in this month’s GQ Magazine feature and photo spread on the “Rock Stars of Science.”

I have been fortunate enough to have Henry McCance as a mentor, friend, and investor. Last month we sat down to talk about Cure Alzheimer’s Fund and specifically how he has applied lessons from 40 years plus of venture capital experience into an inspiring non-profit model. Here are some excerpts from that conversation. A video of the conversation can be found below as well.

Tony Tjan: Take a step back for us and describe how large the Alzheimer’s problem is and why it’s so important to get breakthrough research now?

Henry McCance: I knew nothing about Alzheimer’s disease until it touched my family personally. It was discovered just over one hundred years ago and the only fool proof diagnosis is an autopsy of the brain. There’s no blood test or MRI scan one can take. There are about five million Americans with the disease and it costs the country about 0 billion of Medicare and Medicaid expenditures annually. Not captured in that figure is the price tag of the stress and burden of the caregivers or spouses. Estimates suggest by the time we reach 2050 there will be 16 million people in the U.S. with Alzheimer’s disease with someone developing the disease every 33 seconds. Between now and 2050 — unless we find a cure — the cumulative expenditures of Medicare and Medicaid will be nineteen trillion dollars.

TT: Those are sobering statistics. How did Cure Alzheimer’s Fund come into being?

HM: Like a lot of ventures, it begined with sketching some things out on paper with like-minded people coming together somewhat serendipitously. In 2004, Cure Alzheimer’s was begined by three families: venture capitalist, Jacqui Morby, whose mother had Alzheimer’s, and her husband, Jeff; the Rappaport family of Boston, and our family.

TT: Describe the exact model you are using for Alzheimer’s research and how it is applying best practices from the VC industry?

HM: A successful VC is proactive about finding the most interesting markets and fields and providing growth to the world-class leaders therein. We try to do the same.

We were exceptionally fortunate to recruit Dr. Rudy Tanzi of Mass General Hospital, who would be our chief visionary, develop a world-class research consortium around him, and finally to find Tim Armour, HBS ’75, who just left the JASON Foundation as executive director, to join as our CEO.

TT: What made Dr. Tanzi standout so much for this new Fund?

HM: I’ve spent my whole career as a venture capitalist, studying and analyzing entrepreneurial talent, and when I met Rudy, I knew that he was a world class research talent in his field. He was smart, charismatic and could explain complex subjects simply.

TT: Let’s get back to that VC model approach – how else did it manifest itself?

HM: The most important way it did was in our mission: we are daring to be great. VCs don’t seek 5% improvements; they try to invest in things that will be transformational, like Google, Cisco, Red Hat, and others. We wanted to apply the same upside-seeking strategy to Alzheimer’s research. We looked at the way research was traditionally done and said we needed a much more entrepreneurial and VC mindset towards funding projects that could move us more rapidly to a cure. When we hosted a dinner for some leading neuroscientists, we learned that they spend a disproportionate amount of time, 30 to 35%, filling out bureaucratic forms to receive research grants from the NIH or other well-meaning organizations. The worst part is that the grant making peer review process is so risk adverse resulting in incremental progress. That kind of funding is the equivalent of a one-yard plunge by a full back from the New England Patriots, a far cry from the breakthroughs we wanted to fund. The scientists told me that they don’t have any funding available for the twenty and thirty-yard pass kind of research. This was like the early days of VC when some very talented entrepreneurs did not have good funding sources for big ideas. After that, I was convinced that there was a role for Cure Alzheimer’s Fund.

TT: What kind of monitoring or evaluation systems do you have for the research you fund?

HM: We’re taking a higher risk set of research projects and hopefully we are doing it in a more sensible way with checkpoints on the way so we’re not going to waste the dollars. It’s very important to define the projects in a way you can see tangible evidence in a relatively near term. To date we’ve funded about .25 million in research and are very pleased with the outcomes.

TT: On that note, Cure Alzheimer’s Fund had a terrific past year. Can you comment on some of these wins including being named a top ten medical breakthrough by Time Magazine?

HM: When I first met Dr. Tanzi, he explained that there was a manageable, very important project we could tackle right away. As a geneticist, he was convinced that the funding of an Alzheimer’s Genome Project (AGP) was critical towards rapid research advancement. The goal of establishing this project was to identify and map the full set of disease risk factors so that better therapies could be better developed. The project was picked by Time as one of the Ten Medical Breakthroughs of the Year for publishing details of a subset of seventy new genes linked to the disease.

Prior to 2006, the time we begined the research, virtually all the work being done on the genetics of Alzheimer’s was done around four genes. We recognize that there is still a lot of work to be done, but at the same time are incredibly proud of the progress we helped make happen.

Finance News

Asian Market Power: The Next Step in Globalization

June 15th, 2009

shah-110.jpgIn early 2008, when U.S. markets began to slide but Asian markets held steady, analysts worldwide asserted that western economies were decoupled from those in emerging markets, namely China and India. The crisis, it appeared one year ago, was a problem created by and for those in the west. As 2008 ended and 2009 began, however, growth rates in China and India, while still impressive, did not meet expectations. Decoupling theorists, tails between their legs, rushed to offer different explanations of the economic conditions, and while, yes, Asia felt the pain of the recession caused by the west, they are now emergent again, reaping the benefits of their own stimulus plans, proving perhaps that the decouplists were on to something. And now, as China and India lead Asia — and the world — into recovery, it’s fair to wonder if the next step in globalization will be governed by a new set of economic rules that are not Euro-centric but instead devised in Beijing and Bombay.

The economies of China and, to a slightly lesser degree, India account for the majority of Asian economic growth today. As their growth regains momentum in the east, western economies are headed for a slower and less-pronounced recovery. These dynamics will enable the Asian economies to amass more and more market power which, over time, they are likely to assert in creative, novel ways that could significantly impact the future arc of global business:

I. Currency market power: Western efforts to exert influence over currency valuations (mainly the Chinese RMB) will continue to fall on deaf ears, a condition which could have negative long-term effects on western manufacturing.

II. Energy market power: China and India are growing at paces that require vast, diverse supplies of energy; their race for resources will drive up world prices and create strong incentives for their indigenous global firms to scour the globe for the best deals.

III. Increased power of indigenous firms: Conglomerates born in China and India, such as Chinese state-owned enterprises and Tata Sons, for instance, are flush with cash and primed to deepen their existing roots in high-growth markets such as Africa, the Middle East, and Central Europe, and even the west through mergers, acquisitions, and spin-offs. Western incumbents will have no choice but to factor these companies into their own competitive threat analyses.

IV. Government power: Many credit China’s massive 2008 stimulus, which was twice as large as the United States’ (as a percentage of GDP), to paving the way to its recovery. Both China and India have significant infrastructure needs, so it’s safe to assume both governments will continue to allocate GDP for this development. Therefore, consumer demand will follow.

V. Consumer power: Buoyed by more government-sponsored stimulus, citizens in emerging markets will grow more comfortable with spending their savings, and this spending could perhaps be accelerated with the introduction of personal loan financing and state-sponsored retirement programs. The growing Chinese and Indian consumer markets will be the base source of this new Asian market power, where the majority of global firms, in order to survive, have no choice other than to create products and services these emergent players want.

Organized in such a framework, the potential for a new Asian economic order may alarm many, but none of these trends should strike anyone as surprising. While capitalism as our collective system of governance is here to stay, the luxury of writing the rules is bound to shift with the ownership of capital as it has over centuries, from Alexandria to Rome, from Florence to London, and now from New York to China and India. Western firms would be wise to acknowledge these slow yet tectonic shifts and adjust their long-term global strategies accordingly. Those failing to do so may not survive — or they may become acquisition targets.

Semil Shah is a Principal at India Strategy Consulting, a boutique services firm that advises small and medium enterprises and global universities on how to approach India strategically. Semil is also a Principal at de Novo Labs, which takes equity positions in clients’ begin up ventures relating to India. Prior to founding these firms, Semil spent four years as a director of business development and project management for the National Center for Employee Ownership in the San Francisco Bay Area, where he consulted to employee-owned businesses, completed research for the National Bureau of Economic Research, and co-authored a book on nontraditional applications of employee ownership. You can follow Semil on Twitter at www.twitter.com/semilshah.

Finance News

(Good) CEOs Are Underpaid

June 15th, 2009

The financial crisis and the recession have turned up the heat on U.S. corporate boards, exposing them to intense criticism for their decisions on executive compensation. But the evidence indicates that CEOs typically aren’t overpaid – in fact, good CEOs may be underpaid.

My research with Josh Rauh discloses that CEO pay has failed to keep pace with the rising compensation of top hedge fund managers, investment bankers, private equity investors, money managers, and lawyers.

Here are a few data points that may surprise the politicians and other commentators who demonize boards and their highly paid CEOs:

  • The pay of other groups has increased substantially since the mid-1990s, and by at least the same order of magnitude as the CEOs’–evidence that CEOs aren’t benefiting from cozy relationships with boards.
  • CEO pay in the U.S. peaked around 2000. Average pay has declined since then while median pay has been flat. Average and median pay for S&P 500 CEOs declined in 2008 and are likely to do so again in 2009.
  • CEOs made up only about 3% of the people with the top 0.1% of U.S. adjusted gross income in 2004-2005, a fraction that was little changed from a decade earlier.
  • The S&P 500 CEOs’ fraction of the total income earned by the top 0.1% declined markedly from 1.2% in 2001 to 0.60% in 2006. That fraction is likely to have declined further in 2007 and 2008.
  • The top 20 hedge fund managers earned more than billion in 2007, substantially more than the .5 billion combined income of all of the 500 CEOs of the S&P 500.
  • Take home pay for CEOs is strongly related to performance.

Employment on Wall Street is a very real alternative for CEOs and top executives–many of the most successful corporate chief executives have moved to private equity firms as advisers or investors. Boards are well aware that they need to pay the going rate in order to attract and keep top executives. On the whole, they respond rationally to the inexorable force of the talent market.

Finance News

Why Leaders Should Practice "Pull" Management

June 15th, 2009

An increasing percentage of the work done today depends, as Blanche DuBois might have said, on the kindness of strangers. Your success as a leader hinges on your ability to entice people — many of whom you may never even meet — to want to go the extra mile for your business.

Discretionary effort is the life blood of today’s economy.

As we move to business models that depend on people working together, on innovation, on individual expertise and craft, on crowds contributing to the whole, we must also move sharply away from our traditional concepts regarding the key responsibilities of senior executives.

I’ve had the opportunity to conduct a lot of research over many years on how and why people collaborate and innovative; through it all, one conclusion stands clear: you can’t make anyone do these things. There is no correlation between traditional “push” management approaches — directives, power-based approaches, or even compensation and performance management, and people’s willingness to be a little more creative, more enthusiastic or service oriented with customers, to ponder the challenges they face with greater focus and energy, to be more emotionally contagious and proud.

Today, encouraging a greater number of people to go just a little bit further is the essential job of leaders. Long gone is the time when our primary management challenge was to ensure that workers performed tasks consistently and reliably, using standardized best practices. Now we need “pull” approaches, geared to encourage individuals to share their ideas more widely and constructively, to push the boundaries of what’s possible further — or to be more collaborative and innovative.

Statistics tell a striking story. The number of total goods-producing jobs — manufacturing, construction, extraction — has declined sharply in the U.S. economy, from 36% of all jobs fifty years ago to 15% today. In the service sector, the most rapid job growth has occurred in those areas demanding high levels of expertise or knowledge. Education and health-related jobs have gone from 5% of the U.S. economy in 1959 to 14% today. Professional and business services, from 7% to 13%.

While any work can benefit from the extra push of discretionary effort, consider the contrasting characteristics that add to the shifting management challenge: most manufacturing jobs need everyone to be in the same place at the same time; in-process activities can be easily inspected by a supervisor. Knowledge-based work can often be done virtually and asynchronously, making it difficult to judge an individual’s performance based on observation of the approach. Quality is often evaluateed only after completion, based on the product produced. While the work is in process, we count on the individual to give it their very best.

Consider your leadership approach against this changing template. Is your style likely to engage the “kindness of strangers?” What would you imagine a leader who was able to entice others to contribute greater levels of discretionary effort would do or be like?

Here are three characteristics that I’d put at the top of my list:

  • Interesting and intriguing — able to capture people’s imagination and create excitement about the task
  • Tolerant of ambiguity — open to considering a wide range of possible ideas and respectful of divergent points of view
  • Authentic — offering a consistent “deal” and delivering on commitments reliably

What would you add? What characteristics of a leader have prompted you to go that extra mile?

Finance News

BCCI’s Shukla defends Team India after its 20-20 World Cup exit

June 15th, 2009

New Delhi, June 15 : The Board of Control for Cricket in India’s (BCCI) media and finance committee chairman Rajiv Shukla on Monday defended Team India and its skipper M S Dhoni, a day after the team was ousted from the second Twenty20 World Cup that is being played in England.

Finance News

Pak govt. sanctions more funds to modernize armed forces

June 15th, 2009

Islamabad, June 15 : Apart from hiking its defense spending by a whopping 15.3 percent, the Pakistan government has allocated 102.4 billion rupees for the Armed Forces Development Plan (AFDP) for fiscal 2009-10, country’s Finance Secretary Salman Siddique has announced.

Finance News

World stocks down as dollar rise hits commodities

June 15th, 2009

People pass by the electronic stock board of a securities firm in Tokyo, Japan, Monday, June 15, 2009. Asian stocks edged lower Monday as investors evaluateed whether recent signs of improvement in the …

Finance News