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Posted by Sigrid Caroline Schroder, Esq.
Guidance from a Legal Perspective
When business change you need, change the guard.
©Copyright 2009. Sigrid Caroline Schroder. LLC. All rights reserved.
You need change. The deal’s gone south, the model’s cracked, or the business plan is in a tail spin. Management wants change. The board wants change. How far do you have to go to get it? How far should you go? Sometimes the CEO leaves; sometimes the CEO is pushed. Even a founder can get an unceremonious push. Do you substitute in with the planned successor? Do draw the replacement from your top team? Do you bring back previously departed talent? Often a board wants one of its own to take the helm. Others talk of bringing “fresh blood” in. How fresh should it be? When you’re in crisis, should you look close at hand for the familiar hand who knows the facts, understands the story, gets the “vision thing,” and can quickly take the helm? Recent research suggests not. Go for a fresh perspective.
It’s hard to change. There is a lot to be said for maintaining continuity and building on prior experience. The existing top team and the board know, or should know, the company, the business and the people. They should know how things are done and not. Presumably they understand the facts and have weighed the factors in making the decisions which have gone wrong. They should be able to see where they went wrong and why. They should be able to see the fix.
But can they really see? In crisis, it is hard to get one’s collective bearings. Events can move quickly in a flow of new facts and consequences. Worse, in a state of crisis, people react differently, accelerating into panic at different rates or not at all. People begin to diverge in protection of self-interest. Personal agendas begin to emerge. Temper and pressure cause new sequences of events, alliances, and schisms to occur. If it is hard to get one’s collective bearings, it is hard to trust. Little changes and incidents which ordinarily are insignificant suddenly have greater effect on the mix.
Meanwhile the people involved in the original decisions tend to retrace ground. Whether you select from the top team or the board or bring back previously departed talent, they see things largely as they always have and perpetuate the old relationships, blind spots and biases. Under pressure, it is difficult to see beyond the original facts, factors, people, and deliberations. It is even more challenging to see out of the box to a new idea. It’s even harder when the remaining leaders know that their own past deliberations and decisions are to be replayed and second guessed. There is a lot of comfort in self-confirmation.
This is why advisors suggest bringing in fresh blood, the outsider. Truly new talent brings a new perspective born of different experience, learning differently. While the fresh leader may not have intimate understanding of company, business and people, the newcomer also is not blinded by habit, indebted to a history of long internal relationships, or imprisoned by the need to validate pertinent prior judgments. The outsider has a steeper learning curve, but it’s a new curve, not old.
Now recent research at the Kellogg School of Management and the London Business School confirms the “fresh” approach. Adam Galinsky, Brian Gunia and Niro Sivanathan studied the phenomenon of decison makers becoming fully invested in confirming the deliberations and decisions of others. Through a process they dub ‘vicarious entrapment,’ they show that decision makers will “justify and escalate” commitment to the decisions of others in the presence of even subtle and seemingly superficial psychological bonds. This occurs despite negative and personal financial impact on the new decision makers. Thus psychologically bonded decision makers reinforce the negative decisions, continue the decline in results and throw more money after bad. No wonder that we record the deepening of insolvency by successive inside leaders.
Top teams, boards, and departed talent maintain strong psychological bonds. We want those bonds to deepen as they work. Even when they have gone on to pursue the proverbial “other opportunities,” those psychological bonds remain, some good, some no doubt bad, but always re-energized by recreating the relationships. “Vicarious entrapment” indicates that to move beyond those bonds, to think the crisis and the plan through differently, and to stop throwing good money after bad, you need to hire and not just think outside the box.
© Copyright 2009. Sigrid Caroline Schroder. All Rights Reserved.
For more information:
B.C. Gunia, N. Sivanathan and A.D. Galinsky, “Vicarious entrapment: Your sunk costs, my escalation of commitment,” 10.1016. J. Experimental Social Psychology 2009.07.004.
Playing Nice: Work and Cooperation in the Age of Competition
© Copyright 2009. Sigrid Caroline Schroder. LLC. All rights reserved.
Whatever you think (or don’t) of their politics (or their video), not many years ago the Dixie Chicks wrote a smart little song which nicely captures the dark side of workplaces everywhere: “Not Ready to Make Nice.” While the drum beat of teamwork persists, and collaboration pervades the new tech tools of this competitive age, businesses, business columns, and lawyers’ workloads are full of Dixie Chick rage. Individual workers or entire organizations see work pirated, efforts distorted, performance undermined, contracts breached, and liability misplaced. The rage distracts teams, departments and entire ventures. This is not just true in the sick organization but in the healthy company left collateral damage by sector–or adjacent sector–risk and failure. It’s a familiar tune of the wider world as regardless of laws, treaties, codes, compliance and diplomatic pretense, tech theft, corrupt practices and contractual farces have driven the rhythm of business to a cynical beat. Brushed off, told to work around it, get over it, workers and companies do translate the brush off as “shut up and sing.” They sue. Or resort to the same or similar class of guerilla tactics. Is this any way to run a business? You bet it’s not. Unfortunately, hypercompetitiveness breeds fisticuffs, arrogance breeds contempt, and frustration breeds anger. With the global meltdown, where do you stand and what can you do?
Look first to your own organization: There has been a myth that only those who play nice get ahead, and yet we see every day that people who get ahead do not play nice. The nice managers you know will shock you by admitting they set up teams to fail or trick disfavored workers into irretrievable blunders. Pleasant people down the hall will take someone else’s work; underlings or the nice are bullied into surrendering credit. Part of playing nice has been “making nice,” letting deficiencies slide, overlooking offenses and “getting over it.” Yet the hurt feel the Dixie rage and may or may not back down. Practically, playing nice is politically applied, favoring the insider, excluding the outsider, whether based on intrinsic value or alternative agendas. Maybe the one not ready to make nice has a point. The seriously hurt do not readily “get over it.” Do not discount the value of their hurt.
Use the downturn to set new standards. Level the playing field. Overcome the office wars. Lay down guidelines for collaboration. Hear the resentments; consider the injustices; don’t penalize the victims. Settle the scores equitably and teach values to those who have learned only the value of manipulation and competent legal advice. Times have gotten out of hand when you are counseled not to commend anyone’s work in writing but only confirm fact of employment by name (and serial number). Get back to communal values and forget the myth that the best always finish first. Darwinian competition will eventually kill the team. It encourages a culture of One and Self. Even Jack Welch says his culture went too far. Many victims later.
Global meltdown has a way of leveling the playing field while also tempting the desperate to further corruption. Look to your offices and to your practices. Be aware. Don’t sit on the signs of fraud or creeping deception. Reaffirm standards. Don’t back workers into cutting corners or tricking out numbers in fear of irrational quotas or punitive layoffs. Confirm the value of quality, responsiveness, people and customers. Look outside to your suppliers and retailers. Confirm not only the value of honest relationships but the value of their role in proving your own quality and integrity.
Whatever the laws, the procedures of compliance, the ethics of the company, and the politics of the workplace, anywhere, people abroad do not play nice. Time, distance, cultural difference and geographic immunity mute even the drum beat of teamwork in a joint venture. Far less do standards, ethics, codes and friendship matter across fungible suppliers, retailers and market outlets. Values and fairness are harder to enforce. The global meltdown exacerbates the effects and losses encourage governmental protection of its own. Corruption feels justified as emerging markets reverse or relationships shift power. Trade wars loom. Rage, cynicism and litigiousness rise in response. The RIAA protects pop music more vigorously and enlists government enforcement than other industries secure their own value. Complacency, lethargy and permissive defeat had lower costs in a boom economy. Get active, enlist the ITC and USTR, participate in STOP. Not only enforce FCPA but educate your employees, agents, and partners in the practices and consequences. Exercise your power to force a level playing field in whatever corner you can. Don’t make nice to avoid playing nice and don’t make nice to avoid the discussions of playing nice.
© Copyright 2009. Sigrid Caroline Schroder. LLC. All rights reserved.
7 Warning Signs of Organizational Cancer
© Copyright 2009. Sigrid Caroline Schroder. LLC. All rights reserved.
When one is asked to take a C-level or board position in the current environment, it can be very difficult to immediately gauge the true character of a company, public or private, regardless of filings, reports, disclosures, and discussions. The character of a company is just as important as its financial position and its corporate culture. There are, however, several signs which will warn you of a real battle ahead, one which you might even choose to miss rather than be additional inevitable collateral damage:
1. Orchestration of Information: Informational flow is heavily controlled by one person so that different teams, departments, and leaders all end up relying on a single source for critical direction.
2. Upwards informational sanitization in the guise of rank appropriate filtration.
3. Organizational terrorism enforcing artificial hierarchy and separation of silos, and stifling communication and joint action.
4. Extreme CEO/Chairman-in either direction-dictatorial or disengaged, central genius or out to lunch.
5. Extreme CFO-delegated central power, runs the company strictly to grow the numbers, and controls the numbers.
6. Nuanced discrepancies between the CFO’s words and personnel’s facts.
7. History of performance compensation calculated on value of closed transactions and/or short term growth, regardless of quality, sustainability and durability.
© 2009 Sigrid Caroline Schroder. All Rights Reserved.
DON”T GET SUCKERED IN THIS ECONOMY
© 2009 Sigrid Caroline Schroder. All Rights Reserved.
At times like these, don’t get suckered into overlooking quality, accountability and performance. As cash flow tightens, orders drop and credit gets squeezed, conventional wisdom focuses on the lowest bid, term concessions and fire sale prices. Don’t get so caught up in the mentality of fear that you forget your real focus: on getting things done right. All too often in this market managers focus on their own pressures. They take the low bid and then are reluctant to demand performance. They let irregularities slip by. They excuse omissions. Worst, certain that they are getting a “deal,” they accept “as is, where is” too readily and can be slipped a bag of liabilities. The “steal” is highway robbery, by the seller. Common warnings to beware of increased levels of fraud rarely address the real problem in such an environment, even when heeded.
Why? Guilt. Restricted by fear of your own cash position in negotiating and closing your transactions, you feel guilt that you have got a deal. Afraid that the good deal won’t continue if you demand too much, you hesitate to make demands. All too easily you get suckered by the times: Afraid to hear a higher price and tougher terms, you leave things to be settled later. You don’t demand the accustomed detail in the contract; you ease up on the reps and warranties. You allow vagueness, and let yourself to be lulled by verbal assurance, relying on generous understanding. In the back of your mind, fear is rationalizing that if you are understanding now, then if things should get bad and you can’t pay quite as agreed, the other side will be understanding too. Wishful thinking suggests that if you leave the terms hazy now, perhaps you can persuade the seller to go lower or longer later.
And then you are trapped. When you ask, hesitantly, for verification of the number of pallets, the grade of chemical, the quality of cloth, the currency of version or the timing of the next delivery, at first you will be ignored. Asserting yourself, you will get put off, you will hear threats that this is not what was bid on and will hear demands that the price will have to be higher if this is what you want now. Did you mean you wanted the software bug free? Debugging’s extra. Depending on who can prove who said what to whom when, one side will prevail now or at renewal, on the phone or in court— if everyone is still in business — or you can just make do with what you have got and bury the complaint in getting along. Except one side will not have got what it really needed — and paid for.
Fraud gets buried, shrinkage gets buried, incompetence gets buried– until the damage is too great. The machine fails, the landscape dies, the project sinks, and the money is gone, possibly to Brazil, or Jersey.
Worst, of course, is the case where you don’t look inside that fire sale deal and come up worse than dry. When the seller tries to persuade you that the deal’s too cheap to merit reps and warranties, look for liabilities in unexpected places. Look for the technology which is about to be exploded into obsolescence or stratospheric expense; look for the NIMBY come to call or the indispensable partner who won’t partner. Watch for the bit of deal asbestos. A fire sale deal is not worth the pennies on the dollar if you get stuck with someone else’s liabilities.
In this environment, don’t forget : there is no free lunch.
And the piper will be paid.
© 2009 Sigrid Caroline Schroder. All Rights Reserved.
DYSFUNCTIONAL COMMUNICATIONS or IT’S TOO TECHNICAL
© 2009 Sigrid Caroline Schroder. All Rights Reserved.
It was in the context of identifying distressed power assets and renewable energy technology for acquisition that I first came across the condition which cripples operations and development and is very much at the root of today’s banking, business and global economic crisis: Business and technical teams are dysfunctional in their communications, both unable and, more seriously, unwilling to understand the work and concerns of the other. Too often, critical knowledge and discernments are passed over or rebuffed as being the technical mumbo jumbo or neurosis of the other. Points are missed. Risks are unassessed. Business issues are overlooked for failure or refusal to look complexity in the face and work to understand. Engineers do not want to understand the business model from the economics and legal risks to the depths of the customers’ needs and prejudices. Finance people just want to crunch the numbers. Geologists and designers don’t want to manage people; they just want to see inanimate patterns. And the business people just want to keep moving, trouble them not about risk and regulation; send the complications back to engineering and have IT stay late to do whatever it is they do with code and networks. Marketing people just want to get it out there. While a systemic problem, this communication dysfunction is considered far too much the normal course of management engagement (or nonengagement). It is a complex problem rooted in attitudes towards risk, planning, deal making and project development. It is a matter of silo-ization, specialization and insulation from all the moving parts of organization, market and product. It actually requires not only education but re-education and attitude shifting (I hate to use the word ‘alignment’) to face the issue and resolve the conflict. It takes not just communication across and within all the parts of the organization and its outside consultants and stakeholders, it takes movement. It takes getting up and sharing to know and do what is done throughout the organization and its associated parts and interfaces. It now takes daring to say ” No I don’t understand” or “”How does that work?”" or “Should it?” and “And then what?” It takes daring to say the emperor has no clothes or the CDO is bare. And it should not.
© 2009 Sigrid Caroline Schroder. All Rights Reserved.
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