Sunday, August 28, 2016

What CEO Pay Says About Your Culture

This week I was reminded of Chapter 4 on Trust in my book Corporate Bravery when I saw two very disappointing news stories in the headlines.

While the two headlines may seemingly be unrelated that couldn't be more about the same issue - a culture of trust in business organizations. Or sadly, what has become a culture of mistrust.

The first story was the incredible arrogance of Mylan, the company that manufactures and has the patent for the Epipen, the shot used to treat severe and life threatening allergic reactions. While the news story of its apparent accelerating price increases has been bubbling to the surface for some time, it hit a crescendo this week when the CEO of Mylan Heather Bresch appeared on CNBC to answer questions.

What happened next was, well just see for yourself...
One of the things Heather was confronted with in the interview was her sizable pay increase to over $18 million. To which, like most of the other questions, she changed the subject and failed to answer the questions.

My feelings regarding the entire Mylan saga was punctuated by a study released this week by Glassdoor, the online recruiting site that allows employees (and former sometimes disgruntled employees) to rate their employers. In the study they found that, "No matter how you look at the data, we found a negative link between CEO pay and CEO approval ratings."

The report continues by saying,
"Then, Glassdoor's researchers controlled for other factors, such as the company's financial performance, CEO demographics and how the culture was rated by employees on Glassdoor. After doing so, researchers still saw a clear link between the lowest approval ratings and the highest-paid leaders, though the effect was lessened in companies that also had a good corporate culture."
And it all goes back to trust and CEO pay is a major barometer for the kind of trust being established all the way down to the lowest levels of the organization.

In addition to mistrust, I document in Corporate Bravery how this disproportionate increases in pay packages at the top also cause fear based decision making that is clouded by protecting the growing pay they are receiving. "When focused on protecting what they have or what they can continue to accumulate, executives are far less likely to make good, bold decisions that create lasting, long-term value for the organization."

The same thing appears to be happening at Mylan as Heather and the executive team has clearly lost focus on the long-term impacts of their ability to raise prices past a point the public is willing to tolerate.

Monday, August 1, 2016

The Bravery of IKEA

This weekend I returned two Ikea chest of drawers, which could have been any weekend for any family. But this trip warranted a blog post on the bravery of Ikea.

As you may have heard about in the news, Ikea is voluntarily recalling many of the chest of drawers produced since 2002 because of the risk of tipping over and harming or even killing children.

Safety recalls are a regular occurrence in the retail / consumer products world so why is this one so special? It really comes down to the unprecedented response by Ikea on the issue.

Most people recognize that this isn't an issue that is specific to Ikea, but haunts much of the furniture industry. And despite many efforts to educate consumers and provide anchoring brackets with their products they went to unprecedented lengths to keep additional children from harm.

Included in the options provided to consumers were the following:

  • Free wall anchoring kit
  • Free installation of the wall anchoring kit on existing products
  • Free pickup of existing Ikea products
  • Full refund without receipt with clearly identifiable products (requires a bar code still be attached)
  • $50 in-store credit for non-marked products

I received $265 in cash for the two products, both of which had been damaged over time by my young children.

As I remarked to the Ikea associate during my return process, this is the first recall or class action type situation where consumers actually won. Typically many attorneys get involved and consumers only see a fraction of the sum paid out by the company.

A fearful company would have continued to offer the anchoring kits and refused to do anything which could have offered a hint of responsibility for the deaths but Ikea went above and beyond the call of duty and set a new standard for how to handle product recalls. They truly put consumer safety above the bottom line. But I would say they still put the long-term bottom line first as they continue to acquire and retain satisfied customers that are loyal and will continue to buy their products.

Wednesday, June 15, 2016

The Nestle Noodle Example

At Corporate Bravery we highlight examples of bravery but we also highlight epic examples of fear-based failures. Lost in the details of major corporate blunders is the role that fear played in management decisions and how the culture of fear or elements of a fear-based culture contribute to major losses.

Fortune magazine's May 2016 provides one such example. While we don't typically think noodles when we think Nestle, the international conglomerate is in a lot of food lines beyond chocolate and sweet confections.

The Fortune article dives into the problems surrounding their Maggi line of Ramen Noodles sold in India and issues it had with the Indian version of the FDA. If I could sum the problems up in a few words I say that pride, dismissiveness and fear created a host of problems.

In the words of the Fortune author, "a violation punishable with a fine of up to $4,500 - had Nestle paid it, the story might have ended there." But they didn't and after a series of blunders ended up costing the company 1/2 billion dollars.

Nestle's culture was to avoid using the press because of fear resulting from a past experience. As the story states, "Chalk it up to a natural Swiss reserve, but Nestle's aloofness also has to do with the long shadow cast by the company's notorious baby formula scandal." A scandal from 1974 had informed the company approach some 40+ years later. The author continues by saying "Nestle executives lost their appetite for broad public engagement. It has taken a generation to overcome this feeling."

This aversion to engaging the press caused many problems with public perception.
"Why wasn't Nestle more proactive? Partly because , as a general rule, the Nestle way is to deal with authorities directly rather than through the press. To outsiders, Nestle appeared paralyzed - or worse, guilty. Rumors spread in the hinterlands that Maggi contained glass particles - a mix-up due to the linguistic similarity of the words "lead" and "glass" in Hindi."

What followed was a succession of fear-based decisions that led them to fighting regulators in the legal system. This was based on words used in a statement by regulators that the product was "unsafe & hazardous for human consumption."
"They felt the phrase exposed them to legal action. Millions of people in India ate Maggi. What was to stop anyone who had health problems from blaming Nestle's noodles?"

To recap, at this point Nestle has violated several key tenants of a brave organization. This includes aversion to media engagement, use of the legal system as a weapon, uncooperative approach to regulators. That is 3 of the 8 fear factors we outline in the book Corporate Bravery.

Ultimately the issue would get swept up into a larger national debate in India about multinationals. The case went all the way to the nation's high court where they would side with Nestle but not before fear-based decision making led to the loss of hundreds of millions of dollars in shareholder value, new competitors and a tarnished reputation among consumers.

Wednesday, May 4, 2016

Trump Feeds on Fear

"Fear is limiting. It is content with living small, constrained and underwhelmed. Fear doesn't accomplish. It defeats. Fear plays the short game. It masquerades as momentary success. But then, once it has infected your culture, it destroys you in the long run."

This is the quote from my book, Corporate Bravery, published last year. It was written for businesses and organizations to free themselves from negative cultures that create sub-par returns and are full of demoralized workers.

But a year later it could have been written for the Trump campaign and the man himself. I don't know the culture of his business organization. By many accounts there seems to be some success - there are even good people that work inside of Trump's many businesses. But that is the way it is for many cultures run by fear.

This is not, nor was it ever intended to be a political blog, website or think tank. But as I sit silently watching the theatrics and mud wrestling that has become the 2016 campaign I keep getting reminded of why I wrote Corporate Bravery.

Going back to the quote I started this post with, I want people to live lives that are not limited, small, constrained and underwhelming. I want people to have a long-term perspective, not satisfied with short-term victories at the expense of their future.

But this is exactly what Donald Trump offers as President. And by proxy I don't want this for the people of the United States.

Take this tweet for example:
Yes Trump is striking a chord with terrorism. He is also striking a chord with immigration because in both cases he is preying on American's greatest fears. His campaign slogan may be "Make America Great Again" but you can't make any organization or culture great by playing to its members' greatest fears.

What happened to real men presidents or presidential candidates that led with slogans like "The only thing to fear is fear itself"? Notice the massive shift that has happened to our culture in a few decades?

Despite the campaign slogans, Trump doesn't offer any real hope, only escalation, litigation and anger. When I think of the motivations behind Trump's rhetoric I am reminded of a recent quote from Seth Godin's newest book, "People in power have taken advantage of glitches in our personalities and errors in our instincts to create an environment where they profit and we come out behind."

While publicly he uses slogans such as "Make America Great Again" his entire history has been motivated by his own personal gain. I would challenge anyone reading this post to point out anything he has accomplished that has been for the greater good, yet suddenly his only motivation is to make America great again?

A recent article in Quartz discussed in more detail how Trump is tapping into these primal instincts.
These ancient instincts explain why so many are instinctively drawn to Trump, says Shenkman. Less educated voters are particularly vulnerable to Trump’s demagoguery, he says, as they have no alternative source of knowledge to counter their biological instincts. “His base is low-information voters and he’s just coming right out and saying it: ‘I love the poorly educated,’” he adds.
 One of the strongest instincts is tribalism, says Shenkman, as we instinctively favor those with shared ancestry:
"Since Donald Trump began his election in June, he’s been activating an ancient instinct in human brains, which is fear of the other. For many people, who lack other knowledge on which they can make their judgments about Mexican immigrants of Muslims coming into the United States, this winds up becoming a powerful trigger for their political beliefs."
It takes a brave leader to provide real solutions that considers the potential, far-reaching impacts. To rise above organizational fear factors and to sow seeds of hope instead of fear.

Lets revisit the eight fear factors as outlined in my book Corporate Bravery:
1. Mistrust
2. Squashing individuality
3. Politics
4. Competition
5. Regulation
6. Control
7. Media
8. Legal system

While regulation isn't exactly relevant to this discussion, Trump uses each of these as a weapon to move up the polls. A dysfunctional organization could exhibit a strong tendency toward three, but seven out of eight is a level of dysfunction that is unprecedented.

Going back to these primal instincts, we may not be able to just ignore them all together. But as the article points out,
Shenkman adds that we have the means, through culture and education, of countering our instincts. “We’re not slaves to our instincts,” says Shenkman. “We do have higher-order cognitive thinking.”
But we must all step back and ask what type of culture will we create by allowing these primal instincts to lead us toward a possible President Trump. I have seen the outcome from leaders like Trump and I am confident in saying - that is not a culture I want to raise my family in.