High Praise for Goldman Sachs Execs

In a recent blog, I chastized AIG management for not understanding the word "optics". The management team at the insurance giant seems to be incapable of understanding the world outside of their confines on Wall Street. They just don't get it.

Today, however, came word that the maanagement team at Goldman Sachs will not take their bonuses in 2008. This is a big deal! The decision effectively caps the salaries of the top team at Goldman at $600,000. While few people will cry for them, let's put in perspective that last year the CEO took home about $68 million.

Now, many would say that the execs don't deserve a bonus in the first place. That may be true. But, as we can see with AIG, there are many things that may not be deserved that people do not often understand. Bonuses have been awarded to countless executives whose companies have nearly tanked. Currently, Chrysler has on its books millions of dollars in promised "retainer bonuses" for its top team--given when DaimlerBenz divested itself of Chrysler to keep the top team in tact for a new owner. Why anyone wanted to retain this group of people who have mismanaged the company, I cannot figure out, but the bonuses are supposedly legally owed. This means that Chrysler could be in a position of asking the US for a hand-out with part of the money used to pay millions to its top executives. Outrageous! AIG is fighting the federal government on back taxes with--you guessed it--tax payer money. Perhaps it is time for the shareholders of AIG--US tax payers--to demand that all of the management team there be fired and the board be replaced. What else can one do when it seems impossible to change the behavior of a company?

So, with all of this going on, I think that we should all thank the top team at Goldman. They will now draw a line in the sand passed which few will want to cross. It will be interesting to see if anyone has the nerve to go in a different direction.

Starbucks--Can an Expanded Brand be Contracted?

Starbucks began as a creation of Howard Schultz--a high-end coffee house in the European tradition. Flavors and armomas of coffee being ground, people lingering, a feeling of neighborhood. It was a life-style brand.

When Schultz stepped down as CEO, his successor changed the brand by expanding it. Food was brought into the stores; coffee was no longer ground. The customer base was expanded by "dumbing down" the original concept to appeal to a wider audience.

Schultz is back and has brought back with him his original chief marketing officer. The two want to recapture the Starbucks brand that they first created. However, the question is whether or not the "horse is out of the barn". The brand is no longer the same and the question now is whether it can be contracted and returned to its original. It is a facinating brand question and living case study.

I am not sure that Starbucks can return. Consider that the brand was built in a time of good economic growth. People had money and were willing to pay $4 for a latte. It was a bit of an extravagance, but Starbucks was not for everyone--it was only for those who appreciated high quality or for those who wanted to be considered well bred enough to appear to appreciate the coffee and the experience. It was the experience (life style) that was being sold. Starbucks created an XM radio music station so that you could "take the experience with you".

Mistakes were made--they are made in every business. From a brand perspective, I cannot quite understand why they licensed their name to franchisees that opened small "Starbucks" at service stops on highways or in college classroom buildings. These bear the Starbucks name, but do not offer the Starbucks experience--just the coffee--but it is made by people who could be working at McDonald's, not baristas like they have in their "real" stores. It is a diluted Starbucks. A mistake.

The economy is bad now and a $4 latte looks a lot more expensive than it did a year ago. Starbucks recently announced a quarterly proft loss of 97%. The company is loosing market share to McDonald's, Dunkin' Donuts and the like. How many of these people will return to Starbucks once the economy improves after they learn that coffee at 1/3 the price is not that bad?

I am not a Starbucks customer, but I wish them well.

Has AIG Heard of the Word "Optics"?

When I was active as a corporate executive, we had many occasions when our financial situation was not going full steam. There were many times when we had to curtail spending and change policies mid-stream. I remember on many occasions debating with my colleagues whether or not first-class travel, high-priced meetings, and other such spending areas should be curtailed for everyone. The challenge I repeatedly set before our group was this: "what would be the optics of doing such-and-such?" How could we ask employees to cut back if executives still flew first class or had meetings at the Ritz? In fact, we changed several of our executive retreats from high-priced resorts to the Executive Suites, not only to save money, but also to send a message that it was the meeting and not the surroundings that were important.

With this in mind, I listened the other day to the CEO of AIG trying to explain to Larry King the rationale for having a training session for independent agents at a high-priced resort in Phoenix. He explained that training is important for these people to help them sell the right AIG product. He also explained that the company defrayed costs by having sponsors pay for much of the meeting.

I sat an listened and thought to myself: "these people just do not get it". It is a matter of optics. It was going to look bad and should never have been done. No amount of explaining this intellectually will negate the fact that taxpayer money has bailed out AIG and that they are playing at expensive resorts with our money. They may explain how important this was and how they got others to help foot the bill, but the question reamins: why didn't you go to the Executive Suites or Hilton? Couldn't the meeting have been just as well done there and for even less money? I know that they likely already had a contract and might not have been able to cancel, but cancelling and taking the financial hit might have made them look even better. In addition, a television news crew followed AIG executives through the airport trying to get comments. They followed them all the way to their plane through--you guessed it--First Class boarding. Tough times at AIG!!

I am starting to wonder whether it might be worthwhile to bring in outside directors onto the boards of companies the government bails out. We are putting money into companies that got themselves into trouble because of their own bad actions. Their boards were part of those bad decisions and to expect the same boards and same management teams to act more responsibly may be too much to ask. Perhaps the taxpayers need some representation on these boards--after all, we own the companies!

The Diminished American Brand

As a follow-up to my earlier post, I thought it important to note that what has suffered most is the American brand. What this means is that people inside the country and those around the world no longer view America as having the same attributes that it ones had. America was a place of enormous opportunity, wealth and creativity. There was nothing we were afraid to do, and little we could not accomplish if we put our minds and resources behind it. That was the perception, real or imagined, and people responded. It was no surprise that at one time a large portion of those founding Silicon Valley companies came from other countries, drawn to the US because of capital and our willingness to invest in potential. We were not a country looking toward the past, but one always looking to the future.

This economic mess has unraveled that brand. We are now looked at as being reckless and greedy. The same attributes that were respected are now looked at from a different perspective and they don't look very good.

Why should this matter? Brands differentiate and create desire and behavioral action. People buy, they invest, they join, etc. What will happen when people do not believe in our markets? What will happen when the best and the brightest from around the world no longer want to come here? What will happen when the dollar is no longer a currency that people covet and benchmark?

The other issue is that brands are always judged within a context of competitive offerings. We have now helped to elevate the brands of places like China, Brazil and India. They have serious problems, but they have future upsides that to many appear much more appealing than the US. This is sad.

Can we reverse this problem? Yes, brands can be rebuilt when the foundation of what made the brand great in the first place still has substance and perceived value. The next president will be the leader of brand America and will have to regain the confidence of those inside the country first and then regain the confidence of those outside the country. It won't be easy. We have a deficit of mammouth proportions--almost unimaginable. The Bush Administration has left us in shambles economically and with few friends around the world. Most of the world is smiling that the arrogant Americans are getting knocked down a notch. The smile would be larger if we weren't taking the rest of the world with us.

What the Hell is Happening?

As we go through an economic meltdown, the US Congrees has brought before it the CEOs of several companies that were directly involved with the economic crisis, including Lehman Brothers and AIG. Others will follow.

The CEO of Lehman sat there calmly and defended his salary of nearly $60 million and disputed the contention that he had taken $400 million from the company. "I only took out about $250 million", he said. Well, now everyone feels a bit better and a little more sorry for him!! Thousands of Lehman employees have lost their jobs, the bad debt accumlated by Lehman has helped create our worst economic disaster since the Depression, and a CEO has the nerve to sit there and argue over his millions in salary and bonus. Never mind that this fellow should be in jail for giving false information to investors just weeks before going bankrupt. He was dealing with the best information available? Yeh, right! Is he that inept or does he have such poor financial managers that he would make such an aggregious mistake? Or, perhaps he is lying. Ya think??

Next came AIG and the fingers really started to point in all directions. Hank Greenberg, the former CEO blamed the most recent CEO, who blamed everyone else other than himself. Now we hear that AIG took the taxpayers money and held a $400,000 event. These people should be forced to give back every cent and also be investigated for fraud.

What the hell is happening in America right now? Our ills are causing a global economic crisis, but most importantly, our ills are creating a new lack of trust and decline in esteem for American capitalism. When Republicans who fought Franklin Roosevelt on social security, claiming it was socialism, have to support a government bailout of Wall Street, you know things are bad. Whether the $700 Billion infusion will work is not yet known. The continuing bad news each day is now creating a mental situation that expects things to get worse, and perceptions are the same as fact in the marketplace--expecially when one isn't certain of what the facts might be.

I do not know all of the facts--no one does. But this I do know. There has been a lot of wrongdoing and our entire system will pay the price. By our system, I mean the interrationships in our economy that are built on trust. We don't know who to trust now, so we don't trust anyone. When trust evaporates, so do investments, retail spending, credit, etc. The economy starts to unravel.

We all heard stories of 25-year olds on Wall Street with multi-million dollar condos, and a home in the Haptons. We have read about the e-mail from one who said "I hope we are all rich and retired when this starts to unravel". The sad thing is that many of them are still rich with money made from greed that has ruined the lives of millions of people.

If life were fair, the riches these people took would have to be given back or paid out through charities to benefit those who are in ruin. But, this is not Hollywood; this is reality. And it sucks!!!

Companies Should Live By Their Values, but Which Ones?

Values are becoming an increasing area of interest and concern for corporate executives. The Arhtur W. Page Society’s The Authentic Enterprise document suggests that communications professionals should help define their company’s values, not just articulate them. Bill Nielsen, retired head of communications at Johnson & Johnson, has been urging the profession to take ownership of values and has put together a “credo” of values for the profession to follow. In addition, the Arthur W. Page Center for Integrity in Public Communications at Penn State University has put out a call for research aimed at determining if values play a role in a company’s behavior.

This focus on values is well founded. Values form the foundation of an organizations reputation, since they shape organizational strategy, its decisions in terms of what and what not to do, its policies and practices, how it treats employees, and ultimately, its actions toward its external stakeholders.
While many communications professionals have been entrusted with leading their organizational efforts to define its “vision and values”, there still remains a question whether or not we are helping to develop and then articulate the real values of company.

Organizational business strategists differentiate between “first-order values” and “second-order values”. The former are values that are intrinsic to the organization --part of its cultural DNA. The latter are values that the company articulates and attempts to demonstrate through a variety of external programs because they are believed to have market benefits. It is interesting that many business writers include CSR programs as examples of “second-order values”.
At first glance, the inclusion of CSR as an example of what a company does to influence the market perceptions may seem to be an affront to communicators. However, upon honest reflection, one can recognize that far too often companies espouse values that are different from those they live. Moreover, many communications professionals have been behind these efforts to make companies appear to be something that they are not. Some companies have external programs that reflect their true values; many, however, have external programs that are designed to make them look good to stakeholders and have little or no relation to the real values of the company.

Over the course of my career, I have managed, talked with and worked with countless professionals inside the company and the agencies serving the companies. Far too often, there was a tendency to believe the corporate leadership’s view of what constitutes the company’s values and far too little attention paid to really “taking these views to ground” to determine if they were in fact real.
Let’s consider that Enron had a statement of values which they called RICE (respect, integrity, communications, excellence). It is clear in hindsight that these values were not worth the paper they were printed on. Enron had values, but these were primarily focused on creating financial value for shareholders and the senior management team. Or, consider Mattel, a company which had well articulated values about its responsibility to its customers and other stakeholders on its website. After learning that its toys made at its outsourced plants in China contained lead, Mattel failed to file the mandatory 24-hour notice with the Consumer Products Safety Commission, took 6-weeks to withdraw its toys from the market, blamed the Chinese and claimed no responsibility for the problem. Another example comes from a major corporation where I was called in to be a consultant. The CEO was upset that his company did not enjoy the reputation he believed was deserved and indicated that another company in the same industry was viewed much more positively. He was jealous, angry, defensive of his company, and wanted my counsel as to how to build the reputation. I asked him some pointed questions to determine if there were gaps between his view of the company and the perceptions of stakeholders. He readily admitted that employees of the company did not believe that the executives “walked the talk” and that he backed promotions of those who were good at financial returns even if they were not well regarded as people managers. I challenged him that this was a serious gap and noted that the company he envied was well known as one of the best companies to work for and placed high value on the ability of managers to be both financially profitable and to build a positive work environment. They would not accept those who were only financially oriented. Other questions led me to recognize that he wanted to “paint a good picture”, but that the reality of the company left much to be desired. I indicated that I was not right for the job. Instead, he hired an advertising and PR firm that could help shape his “image” the way he wanted.

In contrast, consider the Tylenol crisis that confronted Johnson & Johnson in 1982. While many people point to this as an example of good crisis management, which it surely was, the real learning for me was that the company turned to its values to determine what to do. J&J turned to its Credo for guidance and determined that that document “required” it to withdraw its products from the market within 4-days, stop all J&J advertising for several months, and introduce new packaging within 2-weeks. This was a true demonstration that J&J had first-order values that it lived by, while the other examples noted above had only second-order values.
So, while I applaud the efforts on values, I also challenge all of us to really recognize the difference between real (first-order) and articulated (second-order) values. Conduct research with employees and external stakeholders to determine the gaps between the organization’s values, perceptions and culture. Values-perceptions gaps will highlight that external stakeholders do not believe that the company behaves in accordance with its articulated values; while values-culture gaps will determine if employees believe that the company “walks the talk”.

I believe that unless we are dealing with “first-order values”, we will not be able to realize the full reputation value of our organizations and the type of organizational change espoused in The Authentic Enterprise.

Is This Any Way to Select a President?

It has become a source of dismay to me what has happened to the election process in the U.S. Clearly, if one reads U.S. history there were nasty campaigns as far back as the early 19th century. However, the more recent attacks and character blows are really troublesome. We are electing the leader of the "Free World", not American Idol. Comparing Barack Obama to Brittany Spears and Paris Hilton may be cute, but hardly the stuff of good debate. I used to be a real John McCain admirer. I have lost respect for him. He is allowing himself to follow the same strategy that was used against himself in 2000 by George Bush.

We have serious problems in this country. Once cannot help but get the feeling that we are on the edge of a cliff. The era of the American Empire may well be coming to an end. All great empires have had their day. And, most have never seen or admitted that the end was coming. We coninue to tell ourselves that we are the leader in wealth, education, etc. Other countries are coming up rapidly and we are in a different world order. But, what we get is Obama pandering to the left and their calls for doing away with NAFTA and other treaties and somehow bringing manufacturing jobs back to the U.S. At the same time, McCain talks about the aftermath of Iraq as if we were dealing with a world order in the 1940s.

The saddess thing about this is that most of the public doesn't want a debate or real substance. They want their politics dumbed down to emotional jabs. Who can "dis" who the most. "Oh no you didn't......."

I can't help feel a bit down and concerned for the country I love so much.