Category Archives: Corporate ethics

Stephen R. Covey, R.I.P.

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Stephen Covey died today. Stephen was a truly “good man” in every reasonable sense of that word. He did his best to practice what he preached and what he preached was not simply good management, but moral, spiritual, ethical conduct in the board room, the workplace and in the home.

Many years ago, 1983 to be specific, when my American Spirit book was published, I joined Stephen in his Master’s of Excellence series, a once a month all-day workshop in which an author presented his book and the audience planned how to apply the lessons in their workplace. This was before Stephen had published 7-Habits and he sent me a copy of a pre-publication copy for my comment. I also joined him in Acapulco, Mexico for an Aetna presentation.

In all things Stephen practice the “abundance” mentality of sharing in the belief that all gifts are ultimately returned in some form that you may never expect. Both his writings and his life are a testimony to the value of applying spiritual principles in both your life and in your work.

Don’t pray for Stephen’s soul. There is no need. Pray that you (and I) can practice what he preached in our work and in our families.

Goldman Sachs and the Money vs. Morality Debate

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Yesterday, a young executive at Goldman Sachs, Greg Smith, resigned in a very public way. He wrote an op-ed in the New York Times titled “Why I am Leaving Goldman Sachs.” In essence he accused the leadership of Goldman Sachs of destroying the internal moral fiber of the firm, putting profit before meeting the needs of customers, and he cited the open contempt that Goldman personnel feel toward their clients. It is a sad commentary.

The readers of this blog who are most concerned with “lean” and continuous improvement may ask, “So what does this have to do with continuous improvement?” Trust me, it does!

Step back a moment to frame this issue. The material progress of a company, country or civilization is directly related to its moral character, its culture. But, not in an instantaneous and direct way. Rather, one is the antecedent to the other.

The historian H. G. Wells made the following observation about the decline of Rome: “After the fall of Carthage the Roman imagination went wild with the hitherto unknown possibilities of finance. Money, like most other inventions, had ‘happened’ to mankind, and men had still to develop – today they have still to perfect – the science and morality of money. What happened to Rome? Various answers are made – a decline in religion, a decline from the virtues of their forefathers, and the like. We, who can look at the problem with a larger perspective, can see what had happened to Rome was ‘money.’ Money had floated the Romans off the firm ground.”

Some years ago I was speaking at a conference and this was a time when I was involved at Honda American Manufacturing. I mentioned to the audience that every morning every Honda associate meets with his or her team for fifteen minutes to discuss how they could correct any problems discovered the day before, how they could improve their work.

Immediately after I said this a hand shot up from the audience. I saw his name tag said “General Motors.”  I called on him and he said “Cost justify those meetings. I can tell you that at General Motors we know the costs of stopping that line for even one second. If you can’t cost justify it, it won’t happen at General Motors.” I could only reply by telling him that he had me, I couldn’t cost justify it, I only knew that they did it.

Of course, he was right. General Motors cost justified everything. GM was run by financial managers, with the Chairman drawn from the financial group and with a financial background. He knew money, not how to make cars.

A month later I was at Honda and asked Scott Whitlock then Executive VP of Manufacturing the same question. How do you cost justify those meetings? Of course, at this time Honda America Manufacturing was led by Iri Irimajir, an engineer and Formula One engine designer, who designed an engine being produced at the very time. Scott looked at me and said “Why would anyone ask such a question?” Which of course made me feel stupid! He then said, “We just have faith, that if every day, every associate thinks about how to improve his work, we will make better cars.”

At that same time the work hours required for auto assembly at Honda was about 12 hours per car. At GM it was in the range of 22-24. Yet, at GM it was about money.

Money had “happened” to GM and the dominance of money, versus serving customers with great cars, drove GM to bankruptcy while Honda’s market share continually rose.

In 53 BC Marcus Licinius Crassus, considered the wealthiest man in Rome, and who had gained his wealth through the lending of money, who knew money better than anyone, led the Roman army against the presumed to be inferior Scythians at Carrhae where they were led into hot sand and the immobile Romans repeatedly charged on foot the Scythian cavalry that circled and fired arrows into the legions.  Twenty thousand Romans were killed and ten thousand more carried into slavery, among them the wealthiest of all.

When those who lead the operations of a company are more expert in money than they are in the operations that serve customers, you are likely in decline and will not recover until your leaders care more about customer service, are expert in the operations that serve those customers, than about money. Then, money will follow.

Greg Smith said of Goldman Sachs “To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.”

“It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.”

I have no direct knowledge of the culture of Goldman Sachs. But the fact that an executive is sufficiently motivated, negatively motivated, to publish a piece like this in the New York Times is a red flag that should trigger intense self-reflection by that firm’s leaders. It should also be a cause for all corporate leaders to reflect on their own culture, the values they imprint on their associates, particularly their young recruits.

Social capital, internal trust among members of the firm, and external trust, or what may be called brand equity, are the leading indicators that precede a decline in innovation and service; and that in turn precedes the decline in financial success. You don’t get money by focusing on money. You get money by following the path of dedicating yourself to service, service to your customers and service to your associates, and then money will follow. Those who lead the firm must be expert in what precedes money, not in the counting of fruits after the harvest created by others.

 

Straight Talk: Avoid the Con of Quick and Easy Lean

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Lean is a strategic initiative that will require at least three to five years for any organization of size. It is a lifestyle change, not a diet.

(The following was published earlier today in Industry Week’s Continuous Improvement newsletter)

I recently spoke to the head of lean implementation at a large European-based manufacturing and engineering organization. He is discouraged. Contrary to his advice, the senior executives just agreed to purchase the services of a major consulting firm to implement lean.

What they bought were a series of quick and simple kaizen events in which the participants would do A3 problem-solving, and the consultants guaranteed quick financial results. The executives were assured that it would require no burden on their part, just verbal and financial support (for the consultants) and the consultants would handle everything else.

Simple. No problem.

These executives were led to believe that they would then be “doing lean,” Toyota Production System and all that good stuff. There is one thing I can absolutely guarantee you, in addition to the sun rising tomorrow. They will NOT be doing lean or TPS!!

Quick and easy solution = quick and easy sell. Unfortunately, more and more executives are being duped into what is essentially a scam.

Let’s be honest about this problem. Many senior executives suffer ADD (attention deficit disorder) and lack the tenacity, vision or as Dr. Deming would say, the “constancy of purpose,” to implement significant change in the culture and processes of their organizations. Feeding them quick and easy solutions is like selling dope to a drug addict.

Here are some clues to avoiding the scam:

  • If you want to achieve short-term financial gains by just cutting head count, don’t pretend it’s anything associated with lean. And don’t imagine you need a consulting firm to help you. Just do it! Then work on the important stuff.
  • If someone comes into your office and promises you short-term financial results and claims it’s “lean management,” throw him out of your office and tell him never to come back! Check to see that your watch is still on your wrist, first.
  • If someone claims that lean is doing 5S, an A3 or A4 problem-solving sheet or PDCA, they do not know lean and are appealing to your ADD. Tell them to stop insulting you, you have already taken your Ritalin for the day!
  • If someone tells you that you can implement lean “down there,” while you and other senior managers remain unscathed, avoiding effort or pain, tell them you have seen enough late-night cable-TV commercials telling you how to lose 50 pounds without breaking a sweat! It ain’t gonna happen!

On the other hand, here is some straight talk about implementing lean:

  • Lean is a strategic initiative that will require at least three to five years for any organization of size. It is a lifestyle change, not a diet.
  • It requires active leadership. Mr. Toyoda and Mr. Honda were both directly involved in shaping the culture, driving what was important in the organization and recognizing success. They did the gemba walk, were on the spot, where the value-adding work gets done, learning from those who are expert in the work.

Ray Kroc did it too. Ray Kroc spent half of his time visiting McDonald’s locations, and when he did, if the bathroom was dirty, he grabbed the bucket and mop and cleaned it. That was when he was chairman, with tens of thousands of stores. You may think he was crazy, but he did it. He built one of the most significant corporations in the world around a few core values (quick, clean and courteous), and he demonstrated their importance through his own behavior.

You need to do it!

  • Knowledge of lean is more important at the top than at the bottom. The cost of waste is far higher in the poor decisions made by managers and executives than it is on the front lines. Time and again I have seen senior executives making multi-million-dollar decisions without following any disciplined decision process — little fact finding, little brainstorming of root causes of problems, little brainstorming of potential solutions, etc. Adopting lean management means continuous improvement in management processes and behavior, as well as the processes and behavior on the front lines.
  • Consultants cannot do it for you. Use experienced consultants to develop internal capacity and competence among internal change agents and then work themselves out of a job at your company. You need to own the capability to continuously improve. You do not need to continuously employ consulting firms. Consultants should also be willing to deliver straight talk to senior managers. It is hard for internals to look you in the eye and tell you that you need to change! But, that is often the truth, and an external consultant must be a truth teller.
  • Lean is a culture, not an acronym or a workshop. Certainly 5S, A3s, etc., may be part of lean implementation, but they can also be an excuse for not doing the really important things like knocking down significant walls in the flow of work through the organization. Those walls are management walls. Lean requires the development a healthy value system in the organization, and that cannot happen in the short term. It can start tomorrow, but it must be pursued continuously by the leaders of the organization.
  • Lean management is both a social and a technical system, and both need to change together.Yes, lean is just-in-time inventory management, continuous-flow or interruption-free processes, the adoption of IT solutions that enable the process flow, etc. That is the technical system. But it only works if the social system — the trust in employees, the empowerment to make decisions and improve processes at the first level, teamwork, the respect for those who are on the spot, and the recognition and reinforcement of positive behavior — are all aligned to the new work processes. One without the other is likely to lead to short lived success.

And, one more thing: Straight talk, absolutely honest, frank and open conversation about both problems and successes, is a necessity of developing a lean culture. In fact, it is an absolute necessity of any healthy organization, family, community or country. It requires straight talk both to and from leaders.

Comment:

If you detect a note (or a shout!) of sarcastic annoyance in the above you are right. That is a response to a pattern I have seen over and over again from the most prestigious and largest consulting firms. During the TQM days I was working at Inland Steel and one of these prestigious firms was employed there claiming they were implementing TQM. They formed teams of employees to do little more than identify how many heads could be cut. That was their goal, not any change in process or culture. It didn’t take long for employees to catch on. And, they called it TQM. It was nothing of the kind. Now I am seeing that exact same pattern from that same firm and others. I am frankly sick of this exploitation. It needs to stop and someone needs to call them on it. If they really want to implement lean or TQM then they should learn what it really is and have the intellectual honesty to confront the executives of their clients with the real commitment and change in behavior that it will require of those executives. And, that will not appeal to those addicted to quick and easy solutions. It is a fundamental of consulting ethics that you do not simply sell a client what they think they want. You have a moral obligation to tell them what they need, which is often much more difficult and a harder sell.

Also, this is not a condemnation of consultants in general. After all, I am one. And, I know and would recommend many other consultants who have integrity and skill and are not appealing to this quick and easy addiction.

Well, I am glad I got that off my chest!

Have a great day!

 

Goldman Sachs and the Need for Hangings in the Village Square

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Are public hangings an essential feature of capitalism? Or, can we trust in principle based morality?

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This is not a trivial question. The child like and pseudo religious belief that the free market will, by itself, right all wrongs in time, a belief adhered to by Alan Greenspan and other groupies of Ayn Rand, is at the heart of our financial crisis and the crisis of capitalism. This Greek tragedy was played out at Enron, Lehman Brothers, and now Goldman and BP. It is the failed reliance on “rational self-interest” as a moral code.

The question is whether corporate executives are capable of adhering to principled behavior, behavior that supports a good other than their own, in the absence of punishment of significant severity to balance out the significance of potential rewards for unprincipled behavior.

Extreme rewards cause the mind’s eye to be severely out of focus and nothing serves as well to focus the mind as the anticipation of hanging in the village square at sunrise. So it appears that we must periodically publicly execute an executive to assist us to become principled. It would be nice if they didn’t make themselves such convenient and obvious targets.

I have been in the corporate world long enough to know two things: most executives are principled and do seek to adhere to fundamental values; and, there are companies and there are subcultures in which the value of “winning” as defined by financial performance alone, completely overwhelms any other morality.

On June 10th Goldman Sachs stock hit a one year low after another report of legal problems. This time the SEC is investigating a mortgage investment Goldman bundled and sold in 2006. They were already investigating possible fraud involved with an investment Goldman created called Abacus, a CDO, that was allegedly set up to enable Paulson & Co. to take short positions against this basket of what they believed to be distressed mortgage securities, while at the same time marketing this to their customers.

Goldman Sachs CEO Lloyd Blankfein

This was obviously not set up on the Deming philosophy of “delighting” your customers. If you are selling something you have created to your customers while at the same time betting against it, you are shafting your customers and you are, therefore, not trustworthy. The morality of this is simple.

What proves to me, beyond a reasonable doubt, that Goldman has not learned the lessons of principle centered leadership is not the above charges. It is the pathetic game being played with a Congressional Commission investigating Goldman’s dealings.This week the Wall Street Journal reported that…

A commission probing the financial crisis denounced Goldman Sachs Group Inc., saying the firm first dragged its feet over requests for information then dumped hundreds of millions of pages of documents on the panel.

This is an old and tired lawyer’s trick: You want documents? OK, here is a truckload of documents. See what you can find! And the investigators are so overwhelmed with irrelevant documents that they never find what they are looking for. As the police tell young thieves everyday, “If your not guilty, why are you running away and making yourself look guilty?” The Goldman legal team is either tacitly admitting guilt or is too dumb to know what “guilty” looks like.

The virtual collapse of every major Wall Street financial firm was not sufficient to awaken the spirit of moral conduct or the sensibility of moderation. The intervention of the government, required to prevent the collapse of the entire financial system, allowed many of these executives to obfuscate their own participation in the events that led up to that disaster and caused their minds eye to be blurred to consequences of their own behavior.

Before I was a parent, and a student of behavior modification and the power of positive reinforcement, I was convinced that I could raise my children without ever resorting to the “old way” of punishment for bad behavior. Nothing humbles one as well as parenting. I did resort to punishment, sparingly, as I realized that even the most superior children (my own!) occasionally needed to experience the pain associated with misconduct. But, you hope that as one matures, the intellect takes over, and the ability to adhere to moral principles, religious or otherwise, will be sufficient to keep behavior within acceptable control limits.

But, I fear that the more one is paid into the millions, the more one develops a childlike need to test the limits of the environment, to exceed the bounds of what is obviously “right conduct” until one once again one must contemplate the significance of a well constructed scaffold erected in the village square.

Lean Politics: Give Up Ideological Waste

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The environmental disaster in the Gulf of Mexico is in part the result of political/ideological waste. Lean management focuses on the elimination of waste from manufacturing and other processes. Lean managers develop a keen sense for what adds value and everything else is waste.

I normally do not comment on politics in this blog, but in this instance I must. Our politics have been dominated by the left/right, big government/little government, politics and debate. Most of this debate is an entire waste! It is adolescent nonsense that belongs, and will end up, in the historical trash bin!

Maria Bartiromo’s (CNBC) Logic:

This debate has made us crazy. On Friday I was watching Maria Bartiromo on CNBC. The DOW was dropping more than 300 points because the jobs report had revealed a lower than expected rate of private sector job creation. She commented that the low rate of private sector job creation proved that government policies were failing. So, the failure of the private sector to create jobs is, in the mind of this free enterprise advocate, the fault of government to do more to create private sector jobs. This despite hundreds of billions of tax dollars spent to save the private sector banking institutions, saving GM and all its suppliers, and lowering taxes on small businesses. Why isn’t creating private sector jobs the responsibility of the private sector?

Somehow the failure of BP to stop the leak from their own well becomes the burden of the President who knows nothing about oil exploration or production and can’t possibly know how to stop the leak. We blame the government for the failure of the private sector to operate in a safe manner while at the same time arguing for less government regulation and control.Every conservative politician on the Gulf Coast is now arguing for the Federal Government to do more to rescue their beaches and business, not to do less. The libertarians would argue for virtually no regulation and letting the free market sort it all out. How many Gulf disasters would it take for consumers to put BP out of business or force their stock holders to give up their dividends?

There is some mass schizophrenia when it comes to the role of government and the private sector. This madness is a complete waste of resources and is itself responsible for many of our problems. It is past time to get beyond this madness.

Both the BP disaster and the collapse of the banking system have proven the need for effective government regulation – not more or less – better. Not waste, but value-adding actions. I have no doubt that we did not need more inspectors or more money spent at the Minerals Management Service that regulates the safety of offshore oil drilling. But, we did need regulators who were focused on serving the public good, not serving those who may violate safety and put the public at risk, as was BPs practice! Why didn’t the government do its job in administering justice to a serial criminal whose behavior has been well known and widely reported? In recent years BP killed thirty workers in its operations before the Deepwater Horizon explosion killed eleven:  From ABC News…

BP’s safety violations far outstrip its fellow oil companies. According to the Center for Public Integrity, in the last three years, BP refineries in Ohio and Texas have accounted for 97 percent of the “egregious, willful” violations handed out by the Occupational Safety and Health Administration (OSHA). The violations are determined when an employer demonstrated either an “intentional disregard for the requirements of the [law], or showed plain indifference to employee safety and health.” OSHA statistics show BP ran up 760 “egregious, willful” safety violations, while Sunoco and Conoco-Phillips each had eight, Citgo had two and Exxon had one comparable citation.

Can anyone seriously argue that we do not need government regulation of the oil industry’s environmental and safety practices? Can anyone seriously argue that we do not need regulation to prevent excessive risk and transparency in the banking industry? Or, effective pharmaceutical regulation, food labeling, traffic laws, or a national defense?

What we need is effective government action, not too much of it, not too little of it, but effectiveness. Of course, we would all like to pay as few taxes as possible. Of course, we do not want government bureaucracy inhibiting business formation or innovation. Of course, we all want small government. But, we want a government that utilizes its resources well; that does its job in the most effective manner with the least wasted resources.

In the corporate world we do not argue whether we should have management or not. We do not argue whether we should have accounting or not. We accept the need for “governance”. But, we know that management and accounting can be efficient or wasteful. Why can’t we focus our political debate on creating effectiveness of government, not whether government is good or bad? Ronald Reagan famously said that “Government is not the solution. Government is the problem!” It was one of those incredibly simplistic comments that created a demon one group could rally around. Demonizing has been a favorite tool of politics and demagogues since the beginning of time. Government is not the demon. Poor government, ineffective government, wasteful government, is the problem. The opposite is the solution.

It is time to get beyond the adolescent ideological nonsense of “government good”, “government bad.” The entire discussion is cultural waste. Let’s get lean and eliminate it and focus on what is important… the effective enforcement of practical regulations that protect the public safety, while encouraging business creation and innovation. Effective rules and referees do not destroy, but enable, great competition in sports. This should be the goal of every politician. As citizens, it is this that we should be demanding from our politicians and from our political discourse.

Larry Miller

www.lmmiller.com