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.