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September 11: Management Quality

September 11: Management Quality. Administrative. Books Syllabus Articles Teams If you weren’t here a week ago Who is here?. Two Perspectives on Quality of Management. Slow and Steady, Boring, Shy Have to Make Change Fast and Tell Everyone How Great You Are But First, Does it Matter?.

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September 11: Management Quality

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  1. September 11: Management Quality

  2. Administrative • Books • Syllabus • Articles • Teams • If you weren’t here a week ago • Who is here?

  3. Two Perspectives on Quality of Management • Slow and Steady, Boring, Shy • Have to Make Change Fast and Tell Everyone How Great You Are But First, Does it Matter?

  4. Methodology • Analysis of Fortune’s America’s Most Admired Companies (AMAC) 1985-2000 • Correlations run on change in mean scores and changes in financial measures (sales, profits, and earnings per share. • Volatility of perceived management quality tested between two time periods: 1985-1994 and 1995-2000.

  5. Historical Data: Alcoa Alcoa Survey Average 10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

  6. Reputation and Financial Performance: Alcoa

  7. Historical Data: Fruit of the Loom 10.00 Fruit of the Loom Survey Average 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

  8. Reputation and Financial Performance: Fruit of the Loom

  9. Historical Data: Airlines

  10. Reputation and Financial Performance: Airline Industry

  11. Level 5 Leadership

  12. Five Levels • Level 1: Highly Capable Individual – good work, skills, knowledge • Level 2: Contributing Team Member – makes the team better through individual efforts • Level 3: Competent Manager – organizes people and resources • Level 4: Effective Leader – creates commitment and vigorous pursuit of a higher set of performance standards • Level 5: Executive – builds enduring greatness

  13. Collins – Level Five Leadership • Lincoln vs. Caesar • Bush vs. Clinton? • Self-effacing, quiet, reserved, shy • Professional will & personal humility • Bill Gates vs. the Millionaire Next Door

  14. Professional Will • Ambition is the Institution • Burn the Boats: there is no other option • Focus on the long-term health of the institution, not the short-term gains • Set up successors well • Value system is focused on the greatness of the organization • If Lincoln had only wanted peace, not a great nation, would we be the same today?

  15. Personal Humility • Press not important, shuns public adulation • Usually from inside – not an outside savior • Looks at the mirror, not out the window • Apportion credit to others, apportion responsibility to themselves • Inspires through determination, not charisma • Boring

  16. First Who, Then What • Right People on the Bus, Then Start Driving • Who Before What: The Right People are Everything • Not a Genius with A Thousand Helpers • Vigorous Debate • Not How Much You Pay, But Who You Pay • Rigorous, not Ruthless • When in doubt, don’t hire • Make change fast • Best people on best opportunities

  17. A Nation of Grinders – NY Times Magazine • In America, you are rewarded if you: • Get an education • Get married and stay married • Work hard • Mixed-up – no class consumption

  18. “You Got Six Months To Make Your CEO Look Great”

  19. Key Points Reputation = $$$$ Management Quality = Reputation Management Quality is more important than ever Perceptions of Management Quality are changing faster than ever Bottom Line: You have six months from a management change to start communicating value or it is over in a year and a half

  20. Importance of Management • Executives and analysts SAY that management quality is the most important factor when evaluating a company.

  21. Today… • The relationship between management quality and overall reputation (both change in and mean scores) has also grown stronger.

  22. Importance of Management(Overall Reputation and Management Quality Correlated With One Another)

  23. Today… • Perceived management quality has become more volatile.

  24. Importance of Management • The average rate of change has doubled. • The change from 1999 to 2000 was the biggest ever – 4%.

  25. Judgment Day Comes Faster Than Ever Among Those Who Buy Your Stock

  26. Methodology • 1000 interviews conducted with the general public February 8, 2001 – February 11, 2001. • Identified individual investors were asked subsequent questions related to the performance of a Fortune 500 CEO. • Individual investors are defined as people who own stocks.

  27. Time Allotted to New CEO • Average = 17 months

  28. Compared to 10 Years Ago… • Three times more say shorter than longer

  29. Still… • CEOs are American Icons!

  30. Who Wants To Be A CEO (Anymore)? An Investment Community Perspective

  31. Methodology • Brief Telephone Interviews with Targeted Audience • Conducted in January & February 2001 • Market Conditions • January 31, 2001 • Dow Jones Industrial Average Close: 10,887.36 • NASDAQ Composite Index Close: 2,772.73 • As of 3/16/01 • Dow Jones Industrial Average Close: 9,827.64 • NASDAQ Composite Index: 1,890.74 • Percent Change • Dow Jones Industrial Average: -9.73% • NASDAQ Composite Index: -31.81%

  32. A Cross Section of Top US Financial Institutions

  33. In your opinion, what is a reasonable timeframe (in months) for a new CEO to significantly increase shareholder value? • According to the Investment Community, new CEO’s have, on average, 14.5 months to increase shareholder value

  34. Is that time frame shorter, longer or the same as your time frame say, 10 years ago? • 85% of participants surveyed feel that this is a shorter time period than 10 years ago • Nearly half believe this time is 1-3 years shorter than 10 years ago • “More immediate results are required…Wall Street and analysts are more involved in management choice today.”

  35. CEO Turnover • In the 1990s, a third of CEOs appointed at 450 major corporations lasted three years or less • One in four companies went through three or more CEOs

  36. Recent CEO Tenures • Jill Barad, Mattel • 37 Months • John McDonough, Newell Rubbermaid • 35 Months • M. Douglas Ivester, Coca-Cola • 28 Months • Robert Knowling, Covad • 28 Months • Michael Hawley, Gillette • 17 Months • Durk Jager, Procter & Gamble • 17 Months • Lloyd Ward, Maytag • 15 Months • Richard Thoman, Xerox • 13 Months

  37. “Why is everyone mad at me?” –CEO • Earnings performance • Share price • Litigation/Crisis • Compensation/Golden Parachute issues

  38. Are CEOs generally worth the compensation they receive in salary and options? • Fully one-third of the participants do NOT believe that CEO’s are generally worth the compensation they receive in salary and options

  39. CEO Compensation • Top 10 CEO’s by Total Compensation (1999) • Salary Plus Bonus, and Long-term Comp. • CHARLES WANG - COMPUTER ASSOC. INTL. = $655.4 Million • L. DENNIS KOZLOWSKI - TYCO INTL. = $170.0 Million • DAVID POTTRUCK - CHARLES SCHWAB = $127.9 Million • JOHN CHAMBERS - CISCO SYSTEMS = $121.7 Million • STEPHEN CASE - AMERICA ONLINE = $117.1 Million • LOUIS GERSTNER – IBM = $102.3 Million • JACK WELCH - GENERAL ELECTRIC = $93.1 Million • SANFORD WEILL – CITIGROUP = $90.2 Million • PETER KARMANOS JR. – COMPUWARE = $87.5 Million • REUBEN MARK -COLGATE-PALMOLIVE = $85.3 Million

  40. CEO Compensation: A Widening Gap • 1989: $1.2M • 45 times the blue-collar wage • 1999: $12.4M • 475 times the blue-collar wage

  41. Should exiting CEOs be paid the “golden parachutes” they receive in salary and severance? NO!

  42. Should exiting CEOs be paid the “golden parachutes” they receive in salary and severance? • Three out of four participants feel that exiting CEOs should NOT be paid these “golden parachutes”

  43. Is a troubled company better off appointing an insider or an outsider as CEO? • Three quarters feel that it is better to appoint an outsider as CEO of a troubled company to bring in a “Fresh Perspective” • Current Environment • 80% of CEOs are still hired from the inside

  44. Would you want to be the CEO of a Fortune 1000 company today? • Nearly two-thirds would NOT like the title of CEO on their office door or parking space CEO’s Office

  45. Professional Heartburn • “It is bad enough being an analyst!”

  46. My Doctor Said… Communicate

  47. Conclusions • Reputation has a measurable financial value • Management quality drives reputation • Perceived management quality is more important than ever You’ve got six months; or your CEO has no more than a year and a half.

  48. Presentation Guidelines Redux

  49. Guidelines • Each Team Member Has a Role • Have a Team Leader • Use Any AV Approach that works for you • One-page handout – should include: • Team members • Key question(s) • What you propose • Three Steps: • What you are going to say • Say it • What you just said

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