"Capitalist Gone Wild!!"

Trapped in a Toys-R-Us parking lot
Or
How I almost got beat up in a holiday parking lot for spreading FGS (Financial Good Sense)

Last Wednesday (12/17/2003) I was walking up to my car in the local Toys-R-Us parking lot (those that say the economy isn’t improving should try to park at a toy store this holiday season) and was sagging under my efforts to add to Toys-R-Us’ equity holder value.

As I approached my car I noticed somebody was peering in its windows. Behind my car was a black Mercedes S600 stopped, engine running, with the driver door open. Clearly it was the owner looking into my car’s windows. This was curious. While my car is nice it’s not unusual for the local demographic. I noted the guy’s sharply tailored Prada suit.

“Hi, can I help you?” I said walking up with a big holiday smile (genuine at this point).

"Is this yours?” he said nodding sharply toward the car.

“Yes,” I answered, still holding my colorful and burgeoning shopping bags.

He pointed at the license plate, “You put out this newsletter?”

I looked at the license plate which clearly references this blog. Also the license plate frame spells out my company’s name. Obviously my cover was blown! “Sure. Are you a reader?”

“Well I think your last issue about corporate responsibility was full of sh*t!” (Referring to The Sullivan Principles.)

His comment surprised me because there were kids and parents around. Then somebody tooted their horn as his stopped car was fouling up traffic in the busy parking lot.

“Well, why don’t you park and we’ll talk about it.” I said this knowing the next parking spot was probably in the next city, LOL.

“No, this’ll just take a second,” he snapped glancing at the cars wisely backing up. “You guys say you’re all for maximizing equity holder value but by advocating that companies I invest in spend money on social BS, well, that’s basically like stealing from me. Really, that’s just liberal bullsh*t.” He started moving back towards his car door to get in. “That’s all I wanted to say.”

As he was about to get in his car I said, “Can I ask you something?”

“Yeah. What?”

I smiled. “Would you like my parking place?”

He scowled, called me a nasty name (a body part), then climbed into the $120,000 car and roared off. Still standing there with my packages I shook my head as if to wake up. While it felt like an hour or so the whole scene had taken only a few seconds. Traffic started moving again. The world seemed safer.

Now, it would be simple to just say that the fellow was having a bad day (rare holiday parking spots being the supreme annoyance they are) and I was an easy target. But the fact is at last count we’ve gotten over 100 e-mails saying basically the same thing: ‘business is tough-it’s irresponsible to suggest spending any corporate resources on non-essentials like a company’s social responsibility programs.”

Ok, let’s think about Corporate Social Responsibility (CSR) this way…

Had the gentlemen in the parking lot stuck around I would have asked him some simple questions such as:

1.     Do you think it would be ok with equity holders for a company to reject the notion that people of different races, gender, or sexual orientation can add value to a company and therefore block them from working there?

2.     Do you think it would be ok with equity holders for a company to pay fines and huge legal fees for polluting?

3.     Do you think it’s ok to attract the negative attention of the press and risk revenue sucking boycotts?

4.     Do you think it would be ok with equity holders that a company turn its back on the growing number of customers that prefer doing business with companies that try to improve society and take care of the environment rather than simply exploiting them for profit?

5.     Etc. Etc. Etc.

Frankly, it sounds to us like spending money on social responsibility programs can be a good investment rather than just the reckless squandering of corporate resources some seem to believe!

Think about it…

Holiday Comments about Corporate Responsibility

A Broader Perspective on Corporate Governance
"The Global Sullivan Principles"

Any reader of this occasional newsletter knows the focus is on providing executives with techniques to provide stakeholders with sustainable increases in the value of their equity. We often do this by converting key battle tactics to business strategy and by showing the behaviors of history’s great generals. We get feedback that this has proven useful as it has helped readers ask themselves questions that have resulted in action items ultimately enriching their stakeholders. That's gratifying. It’s hard to find any group more focused on helping clients enrich their equity holders than we are, and by extension, our core readers. They are an impressive group.

Of course we also get asked questions ourselves. One of the most frequent is, “But what about the Big Picture? What about corporate governance?”

What does the board DO other than work together, in a principled manner, to help the company create and maintain customers for the benefit of the stakeholders? The point is, with the power large companies have today perhaps enriching the stakeholder isn’t enough—maybe that’s just the beginning.

Ok, this holiday season, with Saddam Hussein now in jail, and with 2004 looking better, we’d like to suggest something…

Back in 1971 a Baptist minister by the name of Leon Sullivan joined the board of General Motors (Sullivan was the first African-American on the board of a major US corporation). At the time General Motors was the largest employer of blacks in South Africa. Sullivan used his position on the board to oppose apartheid, the set of official policies in the Republic of South Africa that discriminated against nonwhites. To do this he created the Sullivan Principles in 1977 which were a set of ethical guidelines for companies operating in South Africa. Where other reformers, such as Nelson Mandela, had failed, the Sullivan Principles were instrumental in bringing about the ultimate dismantling of apartheid. The country has flourished since. (I’ve worked there and greatly enjoyed both the country and its varied people.)

How did he do it? Simple. Economic pressure. Sullivan knew multinationals and large, nongovernmental entities, are growing in power where nation states are increasingly having a difficult time achieving co-operative solutions. Sullivan mobilized over a 100 companies to leave South Africa and apartheid eventually crumbled. That’s a simplification but the Sullivan Principles are credited as the flashpoint.

In 1999, not long before his death, Rev. Sullivan and United Nations Secretary General Kofi Annan, introduced a revised set of ethical operating guidelines called the Global Sullivan Principles of Corporate Responsibility. These expanded guidelines call for multinationals to take a more active role in the advancement of social justice.

But if you read them, and think about them, you can see the Principles provide a sensible framework and filter set for balanced corporate behavior on a global basis. It’s easy to see why many large and admirable companies have adopted the guidelines and why some significant institutional investors have chosen to focus on investing in companies that follow the principles. Have a look and give it a thought.

Happy Holidays and Happy New Year—-and cheers to a strong 2004. –Tal Newhart

***

The Global Sullivan Principals

Announced November 2, 1999 at the United Nations, New York City

As a company which endorses the Global Sullivan Principles we will respect the law, and as a responsible member of society we will apply these Principles with integrity consistent with the legitimate role of business. We will develop and implement company policies, procedures, training and internal reporting structures to ensure commitment to these principles throughout our organization. We believe the application of these Principles will achieve greater tolerance and better understanding among peoples, and advance the culture of peace.

Accordingly, we will:

• Express our support for universal human rights and, particularly, those of our employees, the communities within which we operate, and parties with whom we do business.
• Promote equal opportunity for our employees at all levels of the company with respect to issues such as color, race, gender, age, ethnicity or religious beliefs, and operate without unacceptable worker treatment such as the exploitation of children, physical punishment, female abuse, involuntary servitude, or other forms of abuse.
• Respect our employees' voluntary freedom of association.
• Compensate our employees to enable them to meet at least their basic needs and provide the opportunity to improve their skill and capability in order to raise their social and economic opportunities.
• Provide a safe and healthy workplace; protect human health and the environment; and promote sustainable development.
• Promote fair competition including respect for intellectual and other property rights, and not offer, pay or accept bribes.
• Work with governments and communities in which we do business to improve the quality of life in those communities - their educational, cultural, economic and social wellbeing and seek to provide training and opportunities for workers from disadvantaged backgrounds.
• Promote the application of these principles by those with whom we do business.
• We will be transparent in our implementation of these principles and provide information which demonstrates publicly our commitment to them.

Think about it…

Lucius Quinctius Cincinnatus: The Perfect Leader?

As senior recruiters we are constantly studying the idea of "leadership". We need to understand it before we can reliably see it and identifying it is a large part of our job. We spend a lot of our time judging who really has it vs. "fractionals" or outright posers (resumes being one of the greatest outlets of fictional prose known to man…). But that's just the beginning. What's frustrating is that a good "leader" can still lead a company to destruction, especially if the board isn't strong. So, in our playbook, it goes beyond who can "lead", you have to know to where that person will tend to lead a company (or military force in that context). So it's complicated. Our company term "corpcraft" only begins to describe it.

However, you have to start somewhere and the past is always useful. Any serious student of leadership will tell you one of history's greatest leaders was Lucius Quinctius Cincinnatus. Even George Washington, clearly a great leader, partially modeled himself after Cincinnatus.

Here is the short and valuable story of Lucius Quinctius Cincinnatus.

In 458 BC Rome was in danger of falling to the Aequi and Voslcians, two nearby tribes. Roman law at the time had a provision to basically draft a "dictator" in times of great peril. Rome was then a republic and had no emperor. The dictator was given absolute power for a period of 6 months. Of course, during this time the potential for the dictator to abuse his power was on everybody's mind.

Due to the imminent threat to Rome the Senate knew they needed a real leader. The group (think Board of Directors) looked around itself and, not seeing the required talent, decided to draft Cincinnatus, a former Senate member who had resigned in disgrace over something his son had done (evidently children could be a problem even then…). This is key: The members of the Senate knew that under similar circumstances none of them would have stepped down. They knew they needed somebody of strong character.

The delegation found Cincinnatus at his farm. Note: The farm was the smallest size plot that would allow for Roman citizenship. Cincinnatus was literally behind a plow working the field when they arrived. The delegation handed him some papers and saluted him as dictator. Cincinnatus donned a toga and they all went back to Rome. Pretty straightforward.

In a short time Cincinnatus had taken over command of the army, then marched out to meet and quickly defeat the Aequi and Voslcians. He returned to Rome a hero.

But what did he do then? Rather than hang around and abuse his unlimited power he resigned and went back to plow his fields and tend to his family. The whole thing took 15 days. Wow.

It's easy to see why history points to Cincinnatus as a great leader. He was a leader in the purist sense. He did what was asked; lead Rome to a solution without regard for personal gain. And then, his job done, he simply went home.

Similarly, history sometimes refers to George Washington as "the American Cincinnatus". Washington too did great things then went back to his farm. He just coolly delivered what he was asked to do. That’s a great trait for great CEOs.

Think about it…

____________________

And yes, the city of Cincinnati was named after Lucius Quinctius Cincinnatus.

Getting Ahead Through Fakery

"Make an uproar in the east, but attack in the west," -Sun Tzu, 500 B.C.

What is being illustrated below—aside from considerable hubris—are the timeless battle principles of deception and control. They can work great in business too. Your competitive intelligence says your competition is going to make an active, perhaps aggressive move. That’s fine, but YOU must control their actions—and they must not know you are doing that. As always, a great CEO, just like a great general, controls the movements of his competition, often by creative and cost-effective fakery. Below a Fortune-level Chairman/CEO comments on how he does it…

In reaction to the “snake comment” of a few months ago, where the CEO compared himself to a Chinese snake (to date, about 110 readers have properly guessed who the CEO is), one comment that is consistent and certainly reflects good corpcraft follows:

“I would never attack like a snake. That guy’s crazy. All that thrashing around? Even with the best management in the world it’s too difficult to control. It’s better to be subtle. [For example] we send out inexpensive teams just to show up, make some noise, look interested, then disappear. The next thing you know they’ve [the competition] sent in their own people and have started spending money to get in front of us because we’re supposed to be so smart. Fact is we’re leading them all around by their corporate nose ring and they don’t even know it. It’s interesting that they haven’t figured it out. But it's great for our equity holders, and pretty bad for theirs.”

When asked about the chance that his competition have, in fact, ‘figured it out’ he responded, with a grin: “Impossible. I have much better spies!”

I love this guy. He gets it.

Here, getting his competition to open up resource draining outlets, where the CEO has no intention of competing, allows him to focus his best resources, all initially deployed in secret, on opening locations where he gets a very solid market jump on those that can still follow. Note: The individual stock performance of these competing companies comes as no surprise.

So think about it: What illusion can you create to get your competition to do something they really shouldn't…

Concentration of Force

“The law of successful operations is to avoid the enemy’s strength and strike at his weakness.” –Sun Tzu

Concentration of force is one of the great principals of successful battle. Alexander of Macedon (a.k.a. Alexander the Great) and Napoleon both employed it. It’s also very effective in business—and can be savagely effective for “the little guy” with limited resources. That David fella knew just what to do when Goliath came along—aim for the weakness. Herb Kelleher did the same thing with Southwest Airlines.

The key is to look for weakness in your opponent’s strengths then engineer a relative superiority (e.g. like Keller did). You then apply the strength against your competitor’s weakness (making sure it’s a TRUE weakness, and not just clever bait—ouch!). Napoleon was brilliant in his ability to actually create the weakness in the enemy’s line using skillful maneuvering, and not necessarily superior firepower (e.g. using cleverness instead of committing capital). Then he would drive through. It was first employed by Alexander the Great 2,000 years before who used it to repeatedly defeat the decidedly less clever Persian leader Darius.

We used this around here, of course. When we started out again after selling JobPlex.com we were just another small recruiting service. But we studied, then specialized in “high-speed/high-impact search” (e.g. clients could come to us to quickly marginalize their competition by having us use our competitor intelligence skills to first identify, and then dutifully extract, valuable talent from a worrisome competitor). This focus, this concentration of energy, gave us a tremendous advantage over our entrenched, slow-moving competition. As the market caught up, we then moved onto more interesting specialties and services.

By thinking like this, smart small-guys like Southwest Airlines and many others have been happily poking javelins at the rear end of big guys for thousands of years.

You can too. Ask yourself, what are my competitor’s true weaknesses and does it make solid sense to attack there? The notion of ‘true weakness’ needs to be emphasized since really tough, knowledgeable competitors will create lures and wait for you to fall for them. Don’t do that unless it’s part of a broader, carefully engineered strategy.

And if you think it’s beginning to feel a bit like a game of chess, then you’re getting it.

Think about it…

Normal vs. Extraordinary Performance (vs. Vanity)

There was a lot of mail from people that didn’t understand the CEO’s snake comment a while back about his not being afraid of personal embarrassment and how that opened up a lot of opportunities for him and his company, which is very large and successful.

The underlying issue is normal vs. extraordinary performance and it's the same in a military or commercial battle. Slow, steady gains come from solid, methodical performance. And that's great. However, big gains often require audacity and if they go wrong, well, it can be humiliating to the CEO. So CEOs often take a pass on such moves, taking the safer route instead. That said, a great CEO never forgets he or she is a servant of the stakeholders. Sometimes he or she MUST take chances and vanity should be the last thing on their mind.

“The general (CEO) who advances without coveting fame and retreats without fearing disgrace, whose only thought is to protect his country (the company and employees) and do good service for his sovereign (chairman), is the jewel of the kingdom (equity holders).” Sun Tzu

An old battlefield saying forgotten by many (R.I.P.) dot.com CEOs in the early days of the Internet: "The easy way is always mined."

Think about it…

Pressuring Generals (CEOs) to disclose their plans—Wrong!

For 2,500 years smart armies have known: “A great general is unfathomable, his actions having formlessness.” Translation: a great general keeps his enemy guessing. A great CEO moves in the same way because the competition wants to prevent him or her from reaching their goal. And reaching intelligent goals is where increases in equity holder value are found (the point of the exercise). But most market share needs to be “taken” just like ground in the battlefield. And taking ground is expensive in countless ways—and even more so if the enemy (your competition) is waiting for you which, if they’re good, may be the case.

So the great general (CEO) thinks ahead. Keeps his battle plans vague. Keeps the enemy (the competition) guessing. This allows the great general (CEO) to show up where he isn’t expected and that’s beautiful competitive technique. That's great corpcraft. And isn't that what we want when we hold equity in a company? Sure.

So why are some criticizing corporate leaders for not publicly disclosing their plans?

Last week the Financial Times (which we hugely admire), published a story with ratings of the annual reports and websites of 50 major companies in the U.S. and Europe. They listed the five “Best” and the five “Worst” companies via a multivariate model (the study was done by Shelly Taylor Associates). The companies were rated on a variety of parameters that heavily weighed how much information they disclosed to readers/viewers. What we found questionable was a major downgrade was bestowed if a chairman didn’t discuss, in relative detail, his or her upcoming plans. The more detail the better.

As sharp-end, equity holder oriented competitors, we think that’s a bit shortsighted.

Berkshire Hathaway was given the lowest possible rating, the bottom of the list (50th out of 50!) because Warren Buffett didn’t exactly rhapsodize about his future plans. Hey, we trust Warren to do right by equity holder value. I don’t want to know the details—because we don’t want the competition to know any more than they already do. We want Buffett to act like the great CEO (general) he is—be vague, be formless, keep the competition (enemy) off guard, in the smoke and wasting resources, all while our CEO skillfully swings around in the induced fog of competition and increases the value of the company.

Think about it…

A Reader's Strategy--Act Like a Snake

Last week we received an insightful e-mail from the famous CEO of a Fortune 100 company. He asked a quick technical question about e-mail and the use of our term ‘corpcraft’. As a postscript to our answer we asked him how he did it—how he had managed to consistently add or protect so much equity holder value, even in this grim market. His answer was illustrative given his fame as a fierce competitor, in both his business and personal life.

"Tal, to put it in terms you would appreciate: I learned a long time ago to act like a shuai-jan, you know, the snake. That and not being worried about personal embarrassment which opens up a lot of possibilities my counterparts avoid."

For the non-herpetologists out there: a shuai-jan is a snake mentioned in ancient Chinese texts on battle tactics: "When you attack the shuai-jan's head, it attacks you with its tail. When you strike its tail it attacks with his head. Strike at its middle and both ends will attack you."

Both traits help explain his happy equity holders.

Think about it...

Controlling Napoleon

RULE: “The primary target of a great general (CEO) is the mind of the opposing general (CEO).”

I discuss elsewhere how, when facing a superior enemy (your competition) you should grab something they cherish to slow or stop them. Military history provides many examples of this, one being the final months of the Napoleonic Wars in 1814. Instead of hitting Napoleon head-on the Allies actually turned away from him and captured Paris instead. This demoralized the country and forced Napoleon to surrender. His ability to compete was effectively over.

Any general (CEO) knows a major goal of strategy is to diminish the enemy’s ability to resist (e.g., to compete in the target marketplace). But a great general knows destruction can often be avoided. By moving quickly, invisibly, “marching swiftly to places he is not expected” he can distract and disorient his lesser opposition causing him to weaken or even abandon key points leading to their capture.

There are lots of ways to do this. Be creative, maybe a bit audacious. Ask yourself “How can I get in their way? What can I take that they need? Etc. As good recruiters we do it by removing a competitor’s key executives. This last move can have devastating, long ranging results but the same rules apply to real estate, patents, court action, etc. One of the surest ways to get into your competitor’s head is to reach out of nowhere and grab something of theirs. The question for you is simple: “What can I take?”

Think about it...