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April 1, 2009
Exclusive: Judas Iscariot, CEO?
Colonel Kenneth Allard (US Army, ret.)
Like Rick, the police chief in Casablanca, President Obama may have been shocked by those recent AIG bonuses; most Americans, however, were angry but hardly surprised. Even the scandalous Bernard Madoff is something less than an exception. While dodging bankruptcy and firing colleagues, Merrill Lynch CEO John Thain spent over a million dollars redecorating his corner office. Although it’s hard to say why, we also paid $18 billion in executive bonuses during the first round of bailouts. It is as if American business leaders, once the managerial gold standard, had adopted Judas Iscariot as their patron saint for the New Age of Entitlement.
Corporate disasters typically begin as camouflaged leadership failures, a point argued in my 2004 book, Business As War. That failure chain can even begin with the nation’s business schools, which are deeply conflicted about producing leaders of character. (I admit to certain biases acquired long before teaching at West Point with its deliberately rigid Honor Code: “A cadet does not lie, cheat, steal or tolerate those who do.”)
With other priorities and vastly different mindsets, B-school faculties are too preoccupied to place much importance on developing character, even if they knew how. But ever since Enron, ethics courses have become de rigueur, some barely distinguishable from the latest academic fads on social responsibility and political correctness. A courageous scholar, Amitai Etzioni, offers a direct but scathing assessment: “B-school education not only fails to improve the character of students, it weakens it.”
Let personal standards slide long enough and characters like Madoff eventually show up. Worse yet, future CEOs trained to think instinctively about Number One can gradually become self-obsessed. Instead of a pervasive curiosity about the competitive environment, the work force, the customers and managing those challenges, the focus narrows to stock options and bonuses. Three closely related symptoms of the Me First syndrome stand out today:
Failure to think strategically: One business text (Strategy Safari, Henry Minzberg et al, NY: Free Press, 1998) outlines ten different schools of business strategy, each with countless variations – like medicine before germs were invented. The reality is that much of modern business “strategy” is really “tactics.” Even worse: the “big hairy audacious goals” periodically trotted out to reassure Board members with the latent good judgment to be scared. The inevitable result is strategic surprise, those nasty shocks and aftershocks now reverberating across corporate America. As with 9/11, the real culprit is a pervasive lack of institutional imagination.
Failure to exploit business intelligence: Business intelligence is neither corporate espionage nor data mining software. Instead, it is a disciplined methodology for verifying assumptions, suppositions and raw data by rigorous cross-checks and even war-games. Yet none of that happens if top executives don’t demand it. Paul Bracken of Yale makes the sensible observation that business intelligence is a particularly effective way to manage risk. But he also points out that AIG, while “streamlining” decisions, disbanded the risk management group overseeing financial derivatives – effectively destroying “one of the world’s most valuable companies.” (Paul Bracken, “Intelligence and Risk Management,” Speech at the Foreign Policy Research Institute, Philadelphia, PA, January 9, 2009.)
Bad security compromises everything: As FSM readers may recall, I was one of 10 million Americans victimized last year by identity theft. The indelible lessons: neither our financial institutions nor our law enforcement establishments measure up against the aggressive onslaught being mounted by networked cyber- criminals. They systematically exploit the underlying weaknesses of American bank security, including computer passwords (obsolete for a decade) and incomplete means to verify identity. Especially with credit cards, banks have emphasized easy profits over security and even common sense. Nor are they alone: U.S. corporations spend only 1-2% of their annual budgets on security.
After Vietnam, the Army began its renewal not with bailout budgets or the latest weapon technologies but through an often painful process of self-examination, asking just where our leadership standards had failed. In war, as in business, we learned once again the painful lesson that character really counts. Whether the character being examined is corporate or personal, lasting recoveries often begin in just that way.
FamilySecurityMatters.org Contributing Editor Col. (Ret) Kenneth Allard is a former NBC military analyst, and is an executive-in- residence at the University of Texas, San Antonio. E-mail him at Warheads6@aol.com.
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