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| Volume 8, Issue 2
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In This Issue:
 Leading high-performance teams
Why lax access governance leads to trouble
 Managing [your companies] demographic risk
Managing divestitures for maximum value
 Is your "cash" in danger?
The declining dollar
Preparing your company for recession
 That '70s look: Stagflation
Wall Street banks confront a string of write-downs
 Does your company have an attitude problem?
 Inspiration, not just perspiration, is what matters
Managers drowning in change
How to kill morale and start an exodus
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Leading high-performance teams
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Horizontal, high-performance Teams with real decision-making clout and accountability for results can transform a company.
When Catherine Burzik became president of Applied Biosystems (AB) in 2004, top-line revenue was flat, the stock price was depressed, and R&D productivity was low. AB was the world’s largest developer of “tools” for the life sciences industry, but the
market and employees had lost confidence in the company. Just two years later, AB’s stock price was up significantly, and its market cap had jumped from $3 billion to $6 billion. Wall Street’s confidence grew, and employees became true believers. In
2001, the founders of women’s clothing retailer Chico’s FAS appointed Scott Edmonds president. His challenge? Turn an entrepreneurial, single-brand company with revenues of $378 million into a growth-oriented, multi-brand powerhouse. By the time
Edmonds was named CEO in 2003, revenues had grown to more than $760 million. Three years later, Chico’s had three brands with revenues of $1.6 billion and enjoyed nine years of double-digit, same-store sales growth. In 2004, executives at Novartis
Oncology discovered that the company’s breakthrough leukemia therapy, Glivec, was threatened by a new product projected to gobble up 20 to 30 percent of market share. CEO David Epstein swiftly called on his division vice presidents to put together
competitive action teams that played out alternative business scenarios and possible responses. They evolved a strategy to boldly reposition Glivec and accelerate development of another Novartis medicine. The result? The competitor’s drug took a
modest 5 percent of the market, and Novartis’s sales grew robustly. What sets these leaders’ achievements apart is not merely their success in overcoming a challenge. Senior executives get paid to do just that. What Burzik, Edmonds and Epstein did was
develop a “burning platform” to drive fundamental changes in how their organizations were led and run...
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Why lax access governance leads to trouble
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Scrapping Sarbox Voluntary measures offer efficient and effective protection without hobbling management. [A simple test shows SOX’s Achilles’ heel...]
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Security experts say lenient access controls could trigger SocGen type of frauds.
If Societe Generale, had effective access management controls, the bank wouldn’t have had a severe beating in the form of a $7 billion loss, triggered by an overzealous 31-year-old rogue trader, say industry experts. Last month Societe
Generale, the second largest public sector bank in France, uncovered massive fraud by a Paris-based trader, which resulted in a loss of over $7 bn to the bank, which security analysts believe is mostly due to lax controls at the bank. Security
experts say that lack of proper access control mechanism in companies has resulted in an unwanted exposure of information to employees, which exposes the company to enterprise risk. “The loss of more than $7 billion at French bank Société Générale
might have been averted had better internal controls been in place to prevent Jerome Kerviel's apparently disastrous financial trades. And Steven E. Hutchins Architects might not have lost an estimated $2.5 million in architectural data to the alleged
actions of a disgruntled employee had the firm implemented better security measures,” says a report published in Information Week . Late last month the Hutchins Architects, a small architectural services firm based in Florida, reported
an incident of data sabotage where an agitated woman employee, misinterpreted a help wanted ad in a local news paper, by her employer as a threat to her job and allegedly leveraged her access to destroy seven years of crucial data worth an
estimated $2.5 million. In an interview to CE Online, Brian Cleary, an access management and controls expert...
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Managing [your companies] demographic risk
An aging workforce will compel businesses to change how they operate and could even threaten some comapanies' viability.
How vulnerable is your business? Most executives in developed nations are vaguely aware that a major demographic shift is about to transform their societies and their companies – and assume there is little they can do about such a monumental change.
There’re right in the first instance, wrong in the second. The statistics are compelling. In most developed economies the workforce is steadily aging, a reflection of declining birth rates and the graying of the baby boom generation. The
percentage of the U.S. workforce between the ages of 55 and 64, for example, is growing faster than any other age group. The situation is particularly acute in certain industries. In the U.S. energy sector, more than a third of the workforce
already is over 50 years old, and that age group is expected to grow by more than 25% by 2020. The number of workers over the age of 50 in the Japanese financial services sector is projected to rise by 61% between now and then. Indeed, even in an
emerging economy like China’s, the number of manufacturing workers aged 50 or older will more than double in the next 15 years. But national and even industry statistics like these serve mainly to put managers on notice of a general problem.
The important issue is the demographic risk to your own firm faces. As employees get older and retire, businesses can face significant losses of critical knowledge and skills, as well as decreased productivity. The demographic trend has been
exacerbated by the relentless focus on cost reduction that’s become the business norm. In their zeal to become lean, organizations continue to have round after round of layoffs – without realizing that in just a few years…
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Managing divestitures for maximum value
When companies treat divestitures as an afterthought rather than a strategic opportunity, they neglect a chance to create considerable shareholder value.
Many companies treat divestiture as an afterthought. When they decide to sell a business, they focus on doing a deal, any deal, rather than finding the best deal - one that maximizes shareholder value. And when it comes to managing the divestiture
process, they often do the minimum, offering standard information templates, rough estimates of valuation multiples and future discounted cash flows, and limited explanations if the business strategy and operating model. They are missing a big
opportunity. A company in the process of divesting a business is the exclusive seller of a unique asset. Often it can create far more value for shareholders by selling the asset to another owner than it could ever create by continuing to run
the business itself. Doing so, however, requires viewing divestiture as a strategic opportunity rather than as a quick sale to generate cash, stem losses, or fund the next acquisition...
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Is your "cash" in danger?
Auction-rate securities, which thousands of companies report as a cash equivalent on balance sheets, may be imperiled.
The market for auction-rate securities seems to be coming to a screeching halt. And that's a frightening prospect for those companies that consider ARS to have the safety of cash on their balance sheets. Citigroup has told the Associated Press that
about $6 billion of mostly municipal debt auctions failed on Tuesday alone. The financial services giant was the lead underwriter for most of those sales. But the wire service also pointed out that six other offerings failed prior to Tuesday. And
the problems in the auction-rate market, estimated at $250 billion, could have a huge spill-over effect on corporations. Auction-rate securities are long-term bonds and preferred stocks that resemble short-term instruments because their interest
rates are reset periodically — usually every 7, 28, 35, or 49 days. The rate is reset by a modified Dutch-auction process; because investors can sell or buy the securities on those auction dates, the AP explained, the securities have long been
regarded as cash equivalents. Earlier this month, we reported that in the fourth quarter Bristol-Myers Squibb took an impairment charge of $275 million on investments in auction rate securities, partially consisting of subprime mortgages.
The company said it had $811 million of principal invested in ARS at year-end. Its estimated market value, however, was $419 million, reflecting a $392 million adjustment to the principal value. The impairment charge reflects the portion of ARS
holdings that the company has concluded have an "other-than-temporary decline in value."The company's investments in ARS represent interests in collateralized debt obligations supported by pools of residential and commercial mortgages or credit
cards, insurance securitizations and other structured credits, including corporate bonds. Some of the underlying collateral for the ARS held by the company consists of
subprime mortgages, the company said. Other companies taking hits from their ARS investments include...
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The declining dollar
For every penny the euro increases against the dollar, United Technologies Corp. records an additional $10 million in earnings.
A diversified manufacturing behemoth that earns more than 60 percent of its revenues outside the United States, UTC received an earnings boost of about $100 million last year as the dollar slid against the euro — and slid, and slid a little more. Despite
its far-flung revenue streams, the company has never done any financial hedging, says vice president of accounting and finance Greg Hayes. Instead, UTC relies on what are essentially operational hedges: ensuring that it manufactures its products
in the markets where they are sold. "The key is to manufacture locally and not put yourself into situations where you're affected by things you can't control, like
foreign exchange," says Hayes. With the dollar at its weakest point in a decade, protection against currency risk looms ever larger on the CFO's agenda...
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Preparing your company for recession
Face it: Financial crises are inevitable. To emerge strong, companies must be quick and smart in their responses.
"At kitchen tables across our country, there is a concern about our economic future," the President said in his State of the Union address Monday night. He might well have mentioned conference-room tables, too. Though the president never uttered
the word "recession," his speech came just before news that the Case-Shiller Index of home prices for November showed a year-over-year drop of 7.7 percent. That represents a loss of $1.6 trillion to American households — which have long been a
steady buttress of the country's economy. Recession or not, that's an economic event that should have companies thinking about how to respond. A new paper by The Hackett Group notes that financial crises are an inevitable part of the business cycle, and
that companies that respond rapidly and wisely often emerge stronger. For Hackett, that involves a three-part strategy...
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That '70s look: Stagflation
Mike Mergen/Bloomberg News
Charles Plosser, president of the Federal Reserve Bank of Philadelphia, says the Fed must remain committed to price stability.
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Lately, many people are hearing an echo — faintly perhaps but distinctly audible — of the stagflation of the 1970s.
Even as economic growth sags, oil and gasoline prices are surging to new heights. Gold is on the rise, along with the prices of such basic commodities as wheat and steel. And on Wednesday, with the latest government report on consumer prices, there
are signs that overall inflation, after years of only modest increases, may be breaking out of its box. For the Federal Reserve and its chairman, Ben S. Bernanke, all this could not come at a worse time. With the credit markets in disarray from
the collapse of the housing bubble, Mr. Bernanke is cutting rates in a headlong rush to blunt the risks of recession. But in putting its emphasis above all on reviving growth, America’s central bank, according to some economists and even a few Fed
officials, may face a bigger inflation problem down the road.“They are cutting rates with a bill to be paid later," said John Ryding, chief United States economist at Bear Stearns. “The question is not, will we get inflation, but how much will it cost
to stuff the genie back in the bottle. This has the feel of 1970s stagflation.” Over the last 12 months, consumer prices...
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Wall Street banks confront a string of write-downs
Wall Street banks are bracing for another wave of multibillion-dollar losses as the crisis that began with subprime mortgages spreads through the credit markets.
In recent weeks one part of the debt market after another has buckled. High-risk loans used to finance corporate buyouts have plummeted in value. Securities backed by commercial real estate mortgages and student loans have fallen sharply. Even
auction-rate securities, arcane investments usually considered as safe as cash, have stumbled. The breadth and scale of the declines mean more pain for major banks, which have already written off more than $120 billion of losses stemming from bad
mortgage-related investments. The deepening losses might make banks even more reluctant to make the loans needed to prod the slowing American economy. They also could force some banks to raise more capital to bolster their weakened finances. The
losses keep piling up. Leading brokerage firms are likely to write down the value of $200 billion of loans they have made to corporate clients by $10 billion to $14 billion during the first quarter of this year, Meredith Whitney, an analyst at
Oppenheimer, wrote in a research report last week. Those institutions and global banks could suffer an additional $20 billion in losses this year on commercial mortgage-backed securities and other debt instruments tied to commercial mortgages,
according to Goldman Sachs, which predicts commercial property prices will decline by as much as 26 percent. Analysts at UBS go further, predicting the world’s largest banks could ultimately take...
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Does your company have an attitude problem?
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You know the type: coworkers who never have anything positive to say, whether at the weekly staff meeting or in the cafeteria line.
They can suck the energy from a brainstorming session with a few choice comments. Their bad mood frequently puts others in one too. Their negativity can contaminate even good news. "We engage in emotional contagion," says Sigal Barsade, a Wharton
management professor who studies the influence of emotions on the workplace. "Emotions travel from person to person like a virus."Barsade is the co-author of a new paper titled, "Why Does Affect Matter in Organizations?" ("Affect" is another
word for "emotion" in organizational behavior studies.) The answer: Employees' moods, emotions and overall dispositions have an impact on job performance, decision making, creativity, turnover, teamwork, negotiations and leadership. "The state of
the literature shows that affect matters because people are not isolated 'emotional islands.' Rather, they bring all of themselves to work, including their traits, moods and emotions, and their affective experiences and expressions influence
others," according to the paper, co-authored by Donald Gibson of Fairfield University's Dolan School of Business. An "affective revolution" has occurred over the last 30 years as academics and managers alike have come to realize that
employees' emotions are integral to what happens in an organization, says Barsade, who has been doing research in the area of emotions and work dynamics for 15 years. "Everybody brings their emotions to work. You bring your brain to work. You bring
your emotions to work. Feelings drive performance. They drive behavior and other feelings. Think of people as emotion conductors."In the paper, Barsade and Gibson consider three different types of feelings...
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Inspiration, not just perspiration, is what matters
Super Tuesday may have left the Democratic race for the White House no less clear, but what has been apparent for some time is that it is the ability of Barak
Obama to inspire the people around him that is key to the excitement surrounding his candidacy, and it is a lesson managers could do well to learn.
Research by British employer accreditation body Best Companies has suggested that to be a great manager you do not just need to be leading your employees, although that evidently helps, but inspiring them, too. Leaders clearly need to be effective,
reliable and trustworthy, but having an extra "wow" factor is a crucial part of the employee engagement mix. What's more, while this inspiration can come from the top echelons of management, being inspired by your immediate manager can prove just as
powerful, UK-based organization behavior change specialists ER Consultants has said. The Best Companies research found employees in the top rated three-star organizations were much more likely to agree with the statement "I have a great deal
of faith in the person leading this organization". In fact more than eight out of 10 employees in three-star organizations said "yes" to this, compared with just over half in non-accredited firms. Similarly, employees in three-star companies were much
more likely to have confidence in the leadership skills of their senior management teams and to agree that "I am inspired by the person leading this organization". Three quarters of three-star organization employees agreed with this sentiment, as
opposed to 47 per cent of unaccredited firms. But while this is all well and good, the difficulty for many employers is how to ensure this inspirational leadership is in place up and down the organization, argued ER Consultants. [The consultancy's
Paolo Moscuzza has identified five key warnings signs for managers to check whether they are sapping the energy of their colleagues or team. These are...]
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Managers drowning in change
Just like those annoying colleagues who tag every email as high priority, managers are drowning in a mass of conflicting "top of the in-tray" change projects, with the result that they never get to change anything.
Research by U.S. change leadership consultancy Pivotal Resources has concluded that the reason why many American businesses are so bad at effecting change is because managers have so many "priority" projects on the go at once they can't tell any more
what's important and what's not. While change projects are given a top priority rating by most companies, almost half of the more than 500 managers polled reported that a significant number of such projects failed to meet their stated goals. Nearly
four out of 10 said they juggled as many as five change projects a year, although for some it was a more reasonable one. Yet the top reason reported for failed change efforts was...
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How to kill morale and start an exodus
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Fewer people doing the same amount of work places a lot of stress on everyone" |
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The story you're about to read is true. The names have been changed to protect the innocent. My purpose for writing this is so that by reading it, people might learn what not to do.
Zoe is the departmental director for a 45-person department. Her employees are highly-trained and regulated. Working two different shifts in three locations, they're responsible for making highly-sophisticated components. Although for years
the department was tightly knit with high morale, it wasn't due to Zoe's leadership; she was known as a task master. It was her department supervisors that kept the gears of teamwork well-oiled. Scheduling people to cover two shifts at three
locations is rather tricky. Fortunately, the locations are within fifteen miles of each other, so if one location is short-handed, it's easy for someone else to be
there in just a few minutes. The first crack in Zoe's dam occurred without notice about three years ago...
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