How much does Henry Kravis get?

Talk about a complex story reported completely different ways. What's a poor blogger to do?

The Wall Street Journal (WSJ) has buried their original Money and Investing cover piece, "KKR Stock is Coming, via Europe" on http://www.wsj.com/ -- to the point where it appears they're intentionally trying to de-emphasize the original story even if that's not true. Here's their version (requires subscription to access: Check that. The story link is GONE, as in off the list.) Strange days in new vs. old media land. It must be a really busy business news day.

The New York Times, meanwhile, has a more "so what" take -- http://www.nytimes.com/2009/06/25/business/25kkr.html?ref=business.

Getting to the point...The Times reports that KKR execs. will get "40 percent of carried interest" after a merger between a European-based subsidiary that they already own an interest in along with investors. Then, according to the WSJ, they're going to seek another listing on the New York Stock Exchange (NYSE) after abandoning a previous attempt to list on the NYSE last year. Bottom line: They're doing a Euro end around to access much needed public capital. For exactly what remains a bit unclear.

The only detail that really matters here is what KKR's Founding Partner, Henry Kravis, expects to take home and why? While the latter may be obvious these days, the road to this complex deal is anything but simple.

It continues to amaze how little details such as how much individuals receive don't factor into the equation. Sometimes it's obviously not clear until a public filing, which in this case might help shed light. But in the larger picture, it's almost as if they're all so larger than life, when in reality, they're less mortal now than ever before. Even Henry Kravis, the self appointed king of private equity.

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In the nick of time

It's about time someone at a local leadership level woke up and did something in the public's interest.

DeKalb County CEO Burrell Ellis has asked the county's development authority to delay a decision that would have rewarded $52 million in tax abatement to an out-of-town developer trying to finish the next great mixed used park in northeast Atlanta. See the AJC's coverage by Ty Tagami at http://www.ajc.com/metro/content/metro/dekalb/stories/2009/06/18/sembler_0619_web1.html

While the final outcome remains up in the air, Ellis' leadership is a refreshing attempt even though it came late in the game. The system remains highly out of step. It's also a classic case study in how metro Atlanta's politico-business complex has been slow adapting to change in the new economic environment. Here's a run-down:

1.) Effective governance remains locked in a time machine with no sign of reform whatsoever. Members of DeKalb's development authority are appointed by the governor. In this situation, that means the authority could have voted to reward millions of dollars in tax abatement without a single locally elected official being held to a vote. What's the significance? The system gets gamed with personal preference, and without responsible watchdogs, it's impossible to hold anyone accountable.

2.) DeKalb's Development Authority (DDA) comprises a board of political appointees, not a robust slate of directors pushing for change. See for yourself at http://www.decidedekalb.com/site/authority/authorityLanding.html. The board chairman and vice chair have zero development experience in their background -- what makes them qualified to serve on a development authority?

3.) Old economic impact projection models no longer apply, or at least not in the current climate. When the economy is in tank, new expansive projects simply sap money from existing businesses. Standard projections about jobs and what the businesses will generate in economic impact don't take into account what is sucked away from other local companies feeding the tax base. Granted in some cases, properly managed projects can revitalize and strengthen local communities, assuming an open market. But what's unfolded doesn't qualify.

Don't misinterpret the message. We all want robust businesses willing to relocate and hire local workers -- especially when the state's unemployment rate is at a record high. But that doesn't mean those businesses should get handouts or 100 percent tax relief for doing so. Particularly not now when so much public money is being allocated that it's difficult to tell where it's going and what it's actually paying for.

Here's an idea to help reach compromise on the Sembler project. Why not ask for a revenue matching program? For every dollar generated by the project's development, $.25 or $.50 would go to specific teaching materials or after school programs for K-12 children in the DeKalb County schools.

The politicians will explain that away as impossible or not workable in the current system, to which someone needs to say, why not? If there ever was a time to demonstrate public leadership with money, then the time is now.

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Au contraire, Mr. Rattner

Tuesday's selection of Edward E. Whitacre, Jr. to be Chairman of the "new GM" is starting to make a little more sense after reading today's story http://www.nytimes.com/2009/06/11/business/11auto.html?_r=1&hp=&adxnnl=1&adxnnlx=1244728921-+2dCjpiPUSmxex6n6dmDWQ by Michelle Maynard at The New York Times.

Auto Czar Steve Rattner was behind the decision to appoint Whitacre, according to the Times. Which still begs the question: Why do you need a search firm to find him? But that's beside the point.

In reference to changing GM's insular culture, Mr. Rattner says, “It’s not uncomplicated...We hope and believe that it can take place.”

If 'not uncomplicated' means lacking complexity, then this guy is all wrong. Changing GM's culture will require changing behavior, which can be complex and extremely difficult to do. Especially when the old guard remains in place calling the shots with a Chairman of the Board who has no real turnaround or expertise dealing with contemporary change.

This situation is shaping up to be a real albatross from every conceivable point of view. Sooner everyone wakes up and snaps to, the better.

Oh, and while that hopefully happens, someone please put a temporary halt to those slick ads, which should not run until re-emergence from bankruptcy. The last part of the TV spot even references "going back to Chapter One." What a bad choice of words. Guys, you're in Chapter 11 right now in case no one noticed. It's now impossible now to go back to first base.

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Incredibly good take -- wish it were ours

http://www.businessweek.com/print/managing/content/jun2009/ca2009065_772331.htm

I don't normally fully endorse other POVs, but this fellow consultant is really on to something here. Those holding senior-level management and leadership positions would be well versed to read AND apply these points.

Big search firms live on -- for now

Love 'em or hate 'em, the large retained executive recruiting firms remain standing. Two in particular, Spencer Stuart and Heidrick & Struggles, are active at the highest levels, making daily headlines with General Motors (GM), AIG and Freddie Mac.

Spencer Stuart is remaking the GM board after the company named Edward J. Whitacre, Jr. chairman. See yesterday's post for our POV on this latest installment. http://povblogger.blogspot.com/2009/06/stuck-in-time-machine.html Summary: The more things change, the more they stay the same. Not to mention: Why do they need a search firm to find Ed Whitacre? Guess the answer is because the government told them to.

The latest flurry of high profile activity doesn't mean search firms are immune from change -- or that everything will remain in current form. Far from it. Every major search firm active in North America, with the exception of Egon Zehnder, has been forced to cut staff to the bone. Even the top privately held firms, which love to talk about the advantages of not being public, have whacked away forcibly within their ranks. Russell Reynolds reportedly has experienced four cutbacks during the past 18 months, while Spencer Stuart has cut staff for the second time since 2001.

What's leading the contraction? Well, for starters, the loss of good paying jobs at every level. Unlike the previous two recessions, this one has spared few levels except for CEOs, which (shock!) are the buyers who along with their boards generally hire search firms. Regrettably losses have not ratcheted down all the blah-blah about "talent war" and "shortage of qualified workers."

What the downward spiral has brought to the surface are a couple realities, which will either be dealt with or held in contempt at the firms' peril. First, the most sacred cow: How big firms are paid by clients. Pricing is getting whacked like a pinata. Anecdotal evidence suggests the traditional payment structure -- retained fees/expenses or one third of placement's first year salary -- will be revised as a result of the current recession. Some industries, such as private equity, have already forced their own variation. Other client buyers are asking that the final payment be paid upon delivery of a hired hand. At least one middle market search firm, CTPartners, is doing executive-level work for a flat fee and then asking for more business when the market turns.

The second reality is search as a traditional practice has grown dated by not innovating quickly enough to keep up with what's going on in the marketplace. Companies can't afford to get the leadership vs. management question wrong so they're turning more inward to more controllable practices, such as succession planning and development. Effective succession, such as what unfolded at P&G this week, doesn't require putting out a search. Then there's the simple reality that many inside companies don't have enough to do so they're handling recruiting themselves. Or the chosen few, such as GM, that require political cover.

The large publicly held search firms are currently caught in these crosswinds and have invested in two models, search and advisory. They'll tell you the businesses are complementary. But that's like saying you're a dentist and doctor, too. Talk to some big firm consultants and they'll tell you they don't even know what advisory services are offered by their own firm. Until the marketplace embraces one more than the other, then the muddle will remain.

Final thought: Only about 10 percent of the wider business public knows what executive search is. Even fewer fully understand "advisory," present company included. That leaves at least 90 percent left to offer up conjecture on something that they don't know anything about. What others do get are high profile brand names working in tumultuous situations. It's difficult to see that dynamic changing as long as Fortune 100 companies and their executives remain in existence. Unfortunately, or fortunately depending on market position, equally difficult to tell is what the major search firms will look like when the recession is over.

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Addendum: If you haven't seen the following gem on dealings between Whitney Group LLC and Hunt Scanlon, then you may want to: http://www.recruitingentrepreneur.com/2009-FEB.pdf. Not sure about the source, but at the very least, issue begs for an industry re-examination.

Stuck in a time machine

Is is it just us, or do Fortune 50 board-level matters feel stuck in a time machine?

Pick your exhibit: The so called Chairman of change at the new General Motors (GM), Bank of America (BofA) recently hired slate of directors or the proverbial AIG mix and match. Each has their own set of challenges. Yet all are united in one common governmental vision. It's time to cover our eyes and ears 'cause the governance horror flick is starting to make "Friday the 13th" look like a G-rated movie.

GM takes the cake with the hiring of former AT&T/SBC/Southwestern Bell CEO Edward E. Whitacre, Jr., a 67-year-old telecom cowboy of the tallest order. A person familiar with Whitacre used to regale us with first-hand stories dealing with 'ole Ed. Fear, intimidation and control were his management tools of choice -- no need to go there on evaluating his leadership style. This is the same man who didn't use email or a computer until his final years at the helm of the nation's largest telecom company. Whitacre evidently called called weekly executive meetings near his ranch in San Antonio every Monday morning. Executives had to show in person instead of calling in like they do in every other 21st century company. "Better to get everyone together, all in one place so I can tell them what to do," was the mantra; doing things his way or finding the highway was the other. To say Whitacre represents a different way to lead in a newly reorganized environment would be like saying former Vice President Dick Cheney personifies peace and love in a post-Islamic state.

But that's all water under the bridge. Now Chairman Cowboy can take on the New GM vision and everything else that comes with that bankrupt house of cards. Amazing. Just when you thought the page could be turned, it gets torn out of the book under the auspices of gray hair, experience and stability. Which, by the way, is what did in GM. But that's another story. Whitacre gets high marks in at least one required area: Dealing with government regulators, which he did so deftly there were often questions of who was regulating whom.

Here's a new suggested slogan for the Obama administration, which obviously signed off on this latest cutting edge decision. "Change We Can Believe In" should be renamed, "Change: It never happens in North America." At least not in the board rooms.

Where's Jon Stewart and Stephen Colbert to provide parody when we need them?

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Time to stir on BofA

So the nation's largest bank, Bank of America Corp. has finally made board-level change after being forced to by governmental gunpoint. Miracles never cease. Lead director Temple Sloan is out after 16 years of service. On a slow news Friday during a holiday week no less. For a guy with no real bearings in headquarters, Chairman Walter Massey is moving fast now. Look for a new director slate to emerge along AIG lines, or former industry chieftains representing lots of gray hair. Whether that will lead to actual change beyond the surface remains to be seen. Government is doing the bank's bidding. It's difficult to find anyone still in business who thinks that's a good idea or is willing to admit so publicly. But that's where we are -- for now.

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Take this jet and shove it

So we're based in Atlanta but have to receive something called the PE Week Wire to keep up with what's going on locally at The Weather Channel. Amazing. Here's the latest installment on CEO largess: http://www.nypost.com/seven/05062009/business/wrong_forecast_167802.htm?dlbk

Someone at NBC, preferably in a leadership not pencil headed management role, needs to step up and straighten out this broken process. Since buying the Weather Channel with a private equity consortium, the National Broadcasting Corporation has left their newest portfolio gem high and dry without effective leadership. First a long-timer named Deborah Wilson moved out while handing the job to interim help. Now they can't decide who should be CEO. The gap is beginning to show. From things as simple as lacking live storm coverage and programming to things as complex as leading through the toughest business climate in history, TWC has demonstrated all the signs of a rudderless ship.

Now some greedy former network hand wants to cover private flying privileges as a pre-requisite for the top job. Can we say completely out of touch? Where's the board, or better yet, is there a board to hold management accountable? Worse yet, why wasn't this story reported locally by the daily newspaper otherwise known as the Atlanta Journal & Constitution? Oh, that's right. They've re-designed and folded business coverage into another section -- not to mentioned launched a sexy new ad campaign. Wish we could say that's going to lead to more vigilance on shenanigans like what's been laid out here.

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Back to sleep

So Bank of America has stripped the Chairman title from CEO Ken Lewis. What an important news cycle story that means...very little. If they really wanted change, then they would have named Lewis chairman and appointed someone new as CEO. There's real default going on here, and as the TGR posted on Monday, it's getting stranger by the day. Newly appointed Chairman and long-time board member Walter Massey isn't a change agent by any measure. They've retained lead director Temple Sloan -- at least for now. Until investor Hugh McColl pipes up with something different then this one remains officially on snooze. Keep hitting the button, folks. It's not worth keeping our eyes open.

Lewis, meanwhile, continues to take actions and speak publicly as if he's the bank's most valuable employee. Here's the latest gem (Wall Street Journal, April 30th): Referring to the deal with Merrill, Mr. Lewis said, "My decision and the board's to go ahead with the merger was not about a selfish desire to keep our jobs," adding, "Every member of this board, including me, would be all right if we had to leave the company."

Someone needs to shake a few screws loose and remind him that he represents the bank's owners and customers. There's a big difference between punching the clock all your life inside an institution and acting in its best interests. But the difference seems lost on CEO ears right now.

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The Public's Bank of America?

Complete insanity is nearing on the subject of the nation's largest bank, Bank of America Corp., and its merger with Merrill Lynch. While Rome continues to burn, we're treated to endless coverage about whether Chairman and CEO Ken Lewis should be canned when the real question should be: Will the combination of Merrill Lynch with BofA produce any combined business value minus the recent earnings Merrill generated on its own? We know it's produced losses in the billions, but realistically, is there any reason why this dysfunctional marriage should last through the honeymoon period?

Answers seem either too obvious to report or foregone to matter. Here are a few reasons why the marriage shouldn't last. Sooner investors and owners (yes, that means you, too, Mr. TreasuryFed) agree on a separation, the better.

1.) Permanently disparate cultures whose rift has only widened to ravine-like status. For crying out loud, when two companies lie to themselves, much less each other, isn't that a good sign they're not supposed to be combined? We won't even go there on bonuses or compensation structure and the lack of required change to address this issue from the outset. The government needs to step up here and finish its own dirty work. If Merrill can't stand on its own then let it fail. Life goes on. Here's a memo to Ken Lewis highlighting the cultural point, which was published late last year: http://povblogger.blogspot.com/2008/09/memo-to-ken-lewis_16.html.

2.) Zero leadership. According to first-hand accounts, Lewis took one for the country by agreeing to the Merrill Lynch deal. Why he didn't fess up to investors sooner will have to be vetted through regulatory and legal channels, which rarely if ever produce a clear, honest answer. The fact that the agency that regulates the SEC said you can't discuss anything publicly must have weighed heavily in the decision. Yet even taking this into account while holding the opposite view -- Lewis didn't want to do the deal but was forced to by the government -- doesn't hold up to his fiduciary responsibility as Chairman and CEO to the board. Particularly not after gobbling up Countrywide. Lewis' primary responsibility is to the owners and customers of Bank of America, not the country's financial system. We won't even attempt to counter-balance this latest string with the forced hand on TARP money. It simply can't all wash one way in the end. And if it does then it's time to rename the company, "The Public's Bank of America."

3.) Anyone seen the BofA board? Investors want Temple Sloan's head when they should be more concerned with abolishing the lead director structure and retaining the Chairman's role with someone who can actually help lead the ship. Lead directors are another monikor for empty suits, especially in situations such as this one when the CEO and Chairman holds such discriminate power. When the structure is wrong, the whole thing is wrong -- no white knight of world leading talent can provide a fix. Not even (Ret.) Army General Tommy Franks (pictured to the left, courtesy of http://www.tommyfranks.com/) who sits on the board with other mere mortals: http://investor.bankofamerica.com/phoenix.zhtml?c=71595&p=irol-govboard.

Finally, who would have thought that a merger between Wells Fargo and Wachovia would turn out better than a combination of BofA and Merrill Lynch? Strange days, indeed. Stay tuned. It's about to get a lot stranger.

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Make that Four Boards to watch in full

In early January, we listed five boards to watch in full. See post: http://povblogger.blogspot.com/2009/01/5-boards-to-watch-in-full.html

Now that one of them, GM, has been involuntarily forced to replace their CEO, we're down to four.

When and where will the next shoe drop? Stay tuned. While currently flat, high profile turnover will increase in the months ahead. If it doesn't, well then we're looking at newer heights to the status quo. Or lows, depending on your point of view.

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Undeniable truth

Following is reprinted from our client newsletter, "The Pointe." Based on the high direct response rate, we're posting a copy to share more widely. Thanks for continuing to read, JG.

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Lost within the AIG bonus and big banking mess lies an undeniable truth. You can't dictate proper behavior.

Rules don't create an incentive to do things. Penalties provide a deterrent but only when enforced, which hasn't been the case for a while now. Rules or laws create boundaries, which lead to limits, which have been extended now more than ever by a system that many believe to be gamed to benefit the rich and powerful. When those limits cross the highly discretionary line of good vs. bad, well, you get outrage -- followed by dust-ups -- followed by settling -- followed by more of the same with the cycle repeating over and over.

More often than not, rules create a set of unintended consequences that fall so far outside the lines that we're left scratching our heads as to why. Enter the highly charged pinata issue called executive pay. Whether it's a deified CEO or his/her underlings, outrage over excessive compensation has no limit. Yet every time the government offers up a new rule or reform, you can almost see bands of brothers heading underground to devise new ways around the rules.

Compounding this situation are so called leaders who feel the need to impose their will on others vs. doing the hard work that they should be doing: Aligning beliefs and values of diverse constituencies to create better modes of behavior. We could throw the whole lot of politicians and their appointees in this pool and try to drown them, but that seems a little over the top. They think more laws and regulations are the fix when history shows that approach rarely works. Dov Seidman, author of "How", sums it up this way: "Laws tell you what you can do. Values inspire in you what you should do."

Back to Earth, or Main Street. It's a leadership responsibility to model proper behavior within our companies and organizations. Simple enough, right? Well, not exactly. But it's generally where the buck starts and stops -- not whether another policy can be jammed down people's throats.

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Revamp to Nowhere

So Citigroup is revamping its board under the direction of change agent, Chairman Richard Parsons. Yawn. Stretch. Rub those eyes.

Here's our slate of nominees, which we thoroughly researched and arrived at after careful contemplation. Or as much as Spencer Stuart will likely do over the next six months while they collect a handsome fee talking to the same old recycled hands. In fairness to Spencer Stuart, any of the other old line firms would be handling the search in the same way.

We don't the buy the idea that no one will want to serve on this board despite the potential pitfalls. Mainly due to what a Search master always says, "we never have trouble finding candidates for major CEO and board positions."

Paula Rosput Reynolds -- Fresh off her AIG and Delta stints, there is no one more primed and ready for for more board responsibility when it comes to potential turnarounds, sales and/or bankruptcies.
Bob Nardelli -- Proven bag carrier for private equity, strong operations experience and can ask for the loan/sale, a competency which Citi's board will need. And while he's a sitting CEO, Nardelli isn't exactly leading explosive growth right now so he should have plenty of time to lend expertise to a national cause.
Jeffrey Immelt -- Why not? After overseeing GE Capital's debacle, he ought to know how to avoid future mine fields. For those who say he has hands full right now, well, not for long if that stock continues its decline into value meal territory.
Pete Correll -- Last great company CEO to take a large operation private without losing their shirt (Georgia-Pacific Corp. sold to Koch Industries in 2006)
Ken Chenault -- Primed and ready after steering the ship quietly away from ice bergs at American Express, a proven financial services company. They're always Open, right?
Paul O'Neil -- former Treasury Secretary under George W. Bush and retired CEO of Alcoa. Government will need someone who knows all the pitfalls -- besides, it's time to throw the Republicans a bone in the spirit of partisanship.

Alternates: Assuming some members of the above slate aren't available, we also would like to suggest John Snow based on the svelte handling of the Cerebrus/Chrysler bailout and Dick Grasso for his expertise on lucrative pay packages awarded right under the nose of compensation committees.

Throw in a few of the previously publicly named suspects from the banking industry, and voila, you have a whole new slate ready to steer Citi back to...who knows. Either they're going away, will live to another day or be run as a quasi-private enterprise by the government. Here's what we do know: No one really knows. Or if they do, nobody is telling the public.

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Stop! Read before you resume.

There's a lot of conventional wisdom swirling around in the career management category. Which means it's time to insert a dose of reality -- no matter how awful the market may be. We'll be the first to admit: We've probably unintentionally contributed to the situation. But that doesn't mean buying into the same old drumbeats. Here's more:

1.) Dump the career aspiration blah-blah and focus on The Job. What do you do really well that others may need right now -- sales, marketing, operations? If demand is low for what you do or have done, then consider retraining or more education. Careers and "work with passion" are great when the economy is growing but hold little sway when things are contracting. The only exception is when you've decided to become an entrepreneur. Then it's a whole different ball game. And it's not one to play just because nothing else in your job search is working.

2.) Suspend the how to tools, on-line resume builders and social media. On-line should only take about an hour or two each day max. Find the potential buyers (hint: they're human with voices and generally live closer than you think) then craft the proposition with their needs first, your competencies second. Find a way to create ongoing conversation. And no, the resume and cover letter don't always come first even though a majority cling to these tools like a security blanket.

3.) Differentiation doesn't always mean being different. It's more about bringing an advantage to bear that someone else has been unable to. Example: "Highly experienced attorney with 35 years experience" means very little when stacked against "Proven litigator specializing in Fortune 1000 employment law."

4.) Chances are you are not a brand and won't become one anytime soon even despite what the personal branding whizzes and certified strategists have to say. At the core, branding is about cutting through the clutter to identify why what you offer is valuable and then making sure whatever that is resonates with potential buyers. It doesn't depend on clippings and other self serving nonsense. The process is not the product either. We've seen our share of empty stares on this topic. Bottom line: We're not all bars of soap or laundry detergent. So get a move on. Risk being yourself.

5.) If You Inc. isn't your cup of tea, then become a teacher, government worker or hospital employee. No one in a business-driven environment should be incapable of standing on their own. Through a series of intended and unintended actions, we have created a system where lack of accountability rules the day. Layoffs rippling through the economy have claimed their share of performers. But the cuts also have claimed a few pretenders. And while it's painful in the short run, the adjustment makes us stronger in the long run. So the economists say. We'll stay tuned and report back on how this lullaby plays out.

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Live blogging: Banking bigs testify

So today is the day when the large bank heads face Congress. Here's hoping it's not the day the banking music died. While we're only in the introductory portion, did it ever occur to these guys that it's not all about them? More to the point, how the overall environment can be addressed and how their small piece fits into a larger picture? Mack is the only one that's shown any emotional intelligence so far. Pandit is the only one expressing a sense of urgency while acknowledging the public first, his bank second (cynics will say that's because he has the worst balance sheet to defend.) Pandit also is taking personal responsibility, which is a refreshing change. The rest have waxed on about themselves at the expense of providing any real solutions for where we go from here. That's not exactly leadership from the private sector, which is in desperately short supply. Set the self serving prepared texts aside, please. It's time to figure out how you and your banks find a solution -- preferably before government assumes more control than they already have.

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5-boards to watch in full

Recent firings kick off a new year of CEO turnover, which will trend higher in 2009.

What the high profile examples nearly always overlook is how these decisions are made and where they're made. How is debatable but usually boils down to an essential: trust and confidence, or lack thereof. Once a CEO loses this essential, he or she generally is fired. Where is at the board level, which remains a largely misunderstood world despite clamors for better governance that never really produce more transparency. We're not even going there on the ratings agencies.

To help illustrate these points further, we decided to pull out five major brand names from the Fortune 500: GM, GE, Apple, Dow Chemical and Home Depot. Here's a rundown:

GM (General Motors) remains the most obvious example mired in the mud. Either the company finds a way to make it through, or it's time to call it a Ch. 11 day and start over by shaking up the slate, starting with current CEO Rick Wagoner. Six months ago, the GM board led by retired Kodak Chairman George Fisher appeared a lot more transparent than they do now. Then again consider government bailouts and who currently fills the board: Six retired hands (counting former Coke CEO Neville Isdell who, note to web guru, turned over the day-to-day reins at Coke last year), nine "chairmen" (some count both ways) and two higher education figures, Erskine Bowles and Erroll Davis. Only two members are listed as active CEOs. Here's the line-up: http://www.gm.com/corporate/investor_information/corp_gov/board.jsp. Note: Board members Katen and Codina also serve on Home Depot's board.

GE (General Electric) is a classic representation of lost trust and confidence that hasn't found a place to land yet. Due to a host of complexities, current Chairman and CEO Jeffrey Immelt gets a long leash while the company attempts to right the course. Yes, the share price continues to lag and quarters have been blown. But worse than actual results has been an inability to convince investors that what is being done will ultimately reverse the trajectory. 2009 will be a make or break year for Immelt. Or else the GE handbooks on leadership and succession will need to be burned. They're a performance culture first. "Imagination at work" or whatever the latest branding says won't cut it unless the numbers improve. Plain and simple. Even the CNBC apologists can't change this reality. Following is GE's board of directors: http://www.ge.com/company/leadership/directors.html.Note: Avon CEO Andrea Jung serves on both GE and Apple boards.

It's a little better in iPod land from a performance point of view. But not necessarily at the board level. Apple has been forced out publicly recently with the hormone imbalance admission by Steve Jobs, which hardly quelled speculation that he will need to be replaced. For a board filled with high powered names such as Gore, Wexler, Jung and Schmidt, Apple's slate leaves a lot to be desired in the area of succession, which is arguably a board's first or second largest responsibility. Yes, we know Jobs is an icon and only he (or God) will decide his ultimate fate. But that doesn't negate a stronger need to show investors what the post-Jobs era will resemble. For every day that they obfuscate this issue, the board loses credibility and founder's syndrome takes deeper hold. Here's their latest attempt to quell speculation: http://www.apple.com/pr/library/2009/01/05bod.html.

Similar to Apple, Dow Chemical's leadership is making headlines these days via a bet the farm growth strategy during a time when everything is up in the air. Including what supposedly was going to be a cash infusion from a joint venture originating in Kuwait. This follows deep cuts to operations including headcount reduction and various plant closings late last year. Current Dow CEO Andrew Liveris has some explaining to do on the company's next conference call with investors. Look for the call script to be perfect, board support to remain steadfast and the company to then take a nose dive, assuming the strategy doesn't pay off. These also are the same guys, by the way, who had to stop an attempted power play among two subordinate executives, which tried to negotiate a merger without telling anyone. Current JP Morgan Chase CEO Jamie Dimon was reportedly in on those talks but gets a pass. At least for now. Last fall's credit crisis can only provide cover for so long. That was then, this is now. For a listing of Dow's slate, go to http://www.dow.com/corpgov/leader/board.htm.

Finally there's home improvement category killer, Home Depot, which finds itself in a tough, go it alone spot. They've cut costs, gotten a lot of credit (the goodwill variety) for doing so yet still face probably the worst market in company history. Current CEO Frank Blake receives unanimously high marks for his yeoman work managing the downturn. But he's not the guy to lead the next era of growth. The minute any bottom is found in housing and the company's financials improve, there will be clamor for a more growth oriented CEO. We may be a bit older by the time that happens but it will happen. Look for a new management regime either by year's end or when the market turns. Whichever comes first. This decision will not come easily nor publicly. Last year's departure of Ken Langone leaves a major influential void on the company's board. For a listing of current directors go to: http://ir.homedepot.com/directors.cfm. Directors Katen and Codina also serve on the GM board.

Note to Home Depot PR who may now be reading more closely: We have been consistent with this view since last year -- see http://povblogger.blogspot.com/2008/02/mr-non-fix-it.html. But thanks for checking in. We always welcome new readers.

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From the publisher: We apologize if any of these links "time out," creating inaccessible pages. Companies are starting to employ this tactic for reasons not worth elaborating upon here.

Sailing against headwinds

We've been told that we're contrarian. A good friend recently said: "As a contrarian, now is the time for you to sail against the headwinds." We couldn't agree more, assuming there's a strong outboard motor on board. Here are three sets of issues and corresponding views to consider:

1.) Change. President-elect Barack Obama epitomizes change by whom he is and what he has accomplished. We're personally in awe of the achievement but that doesn't mean we're sold on "change we can believe in" as a lasting message. Especially not when it looks as though he's going to staff key positions with a bunch of retreads from former administrations. Why no one has pointed out this reality speaks volumes about how much the status quo remains the status quo. Change trumps experience was the main literal takeaway from the election. The real question is whether political change will lead business, societal and generational change. And whether one individual representing a movement can marshal in new governmental systems and capabilities that actually work. Obviously it's going to take some time. We remain hopeful until proven otherwise. Things can only go up from here, right?

2.) TARP. For the acronym deficient, this stands for Troubled Assets Relief Program (TARP), which represents the largest infusion of government money into the banking system since...well, ever. Large banks lapped up the favorable terms like thirsty dogs, while smaller regional and community players are trying to figure out the pros and cons of program enrollment. Take the money and you're deemed desperate. Refuse the infusion and risk being branded as risky. Poor buggers. What a no win situation. Here's a common sense suggestion that seems lost in the debate: Turn the money down if you don't need it. Take it if you do. Then be prepared to explain your position in clear terms.

Look for the new administration and Congress to rework the bailout terms as they're already doing with AIG. So what if it takes some time. Get things right for a change (no pun intended.)

3.) Economy. The next CEO who uses the terminology, "not since the Great Depression," to describe current economic conditions will have to choose one of the following:
A.) Death by stoning in the public square
B.) Proving that he or she was alive and working during the Great Depression
C.) Called out publicly by the TGR
D.) Combination of the above

We would love to see some leadership on this issue, but unfortunately, true to form, CEOs and boards are hunkered down trying to figure out what comes next in their own little worlds. Free market believer says, "well, that's what they're supposed to do -- protect shareholder interests." The optimistic change agent says it's time to get beyond selfish interest and focus on answering need vs. fear-based protection of assets.

Back to "since the Great Depression" demagoguery for a closing minute. Consider the following fact that wasn't in place during the 1930s. Companies have a combined $1 trillion in cash on their balance sheets. Microsoft, for example, could run for three years without additional revenue. While that's not likely, it's a key statistic that has been grossly overlooked by the sound biters focused on saving companies that may not deserve to be saved.

Which side of these issues are you on? Leaders need to know or at least show a capacity for knowing. We could argue that if this were already the case then the recession would be shorter-lived. But that's not going to fly. For what should be obvious contrary reasons.

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A.I.G.: Code red governance disgrace

See what happens when a board of directors doesn't do their job? According to today's New York Times, New York Attorney General Andrew Cuomo will now review pay packages and expenditures. That's normally a board working alongside management responsibility. See the story if you haven't already, http://www.nytimes.com/2008/10/17/business/17aig.html?ref=business

American International Group (A.I.G.) is now officially a code red governance disgrace. Granted it's an extreme example. But this whole idea that governance is something that happens when no one is watching or listening needs rapid debunking. A little education might help too.

A.I.G. didn't have to be this way. And we're not talking about the implosion of their business that led to government seizure. We're referring to their inability to take the appropriate actions themselves since bailout money was directed their way. It's incredulous that not one leader or manager within the company or board didn't speak up and say, "hey, wait a second. We shouldn't be doing these types of things based on the situation we find ourselves in."

This tragic chapter isn't over. Next week we will learn just how much the insurer's credit default swaps have, well, defaulted. Attention CEO and board: Get out in front of this mess whatever way you can. Appear with Cuomo in public. If you're afraid of mounting lawsuits or shareholders, then you don't deserve to be leading this company. Second thought, maybe A.I.G. isn't a company that deserves to be led?

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Invisible Governance

Go ahead potential Flubbers in Chief. Whale away at "greedy CEOs" and Wall Street corruption. Congress, parade the villains in front of committees so the public can feel better. Or is it you, Congress, who needs to feel better? We can't tell anymore, nor do we care.

The outrage surrounding the financial crisis isn't about compensation. It's not even about incompetence or leadership failure although a good argument could be made on the latter.

The market crash heard around the world has many of the best and brightest looking pretty dumb these days. Cries of "failure in leadership" tend to ring hollow when something called an irrational market continues to destroy more value than a Category Five hurricane.

Don't let the revisionists mislead you. What preceded the eye of the current storm cuts to the issue's core. Invisible governance describes the raft of gutless boards and government regulators who allowed what amounts to stealing to ruin a free market system.

Pick your culprit: Merrill Lynch, Lehman Brothers, WaMu, Wachovia, AIG, Fannie, Freddie, etc. Each firm had an invisible slate of directors, and in Lehman's case, a former theatrical producer rounding out its membership ranks. Look over a few compositions, and you'll pick up on an over-abundance of "retired" or inactive executives. Not to mention a litany of money management and finance types when more value-driven business builders could have inserted more real world reality. But that's hindsight now.

Every day brings new damning revelations of how invisible these boards were leading up to the collapse, including clear evidence that AIG's board stood by while irrational risk was being taken on a complex derivative called credit default swaps (Wall Street Journal, October 11-12.) You don't have to be a Wall Street whiz to understand that credit default swaps are code for unregulated insurance with no required reserve.

Consider the intangibles, which have just as much consequence but rarely generate much debate. Boards, working with management not against it, are responsible for setting and enforcing shared values. The collective bodies that fill these board seats are accountable for firm culture, which has now been shot up more than the Godfather's Sonny Corleone riding through the toll booth.

In AIG's case, lack of enforcement provided the impetus for managers to take on unprecedented leveraged risk without anyone calling out the obvious. The fact that this type of behavior was allowed going back to the tenure of former AIG Chairman Hank Greenberg is the real culprit, not all the damaging byproducts that have surfaced over the past few weeks (yes, that includes the lavish St. Regis retreat approved after receiving public bailout money.)

Ironically boards also are the ones who set the terms of CEO pay, which is determined by market dynamics, pay consultants and, if anyone was being honest about the process, gamesmanship by recruiters and their firms, which are generally hired by boards to find a CEO. After all, everyone has to get paid their fair share. Recruiters, lawyers, consultants, secretaries, etc. Boards also lead the process known as CEO retention, which seems quaint right now with everyone trying to stem the tide.

What seems to be missing the most is a basic fundamental. It's a board member's primary responsibility to ask tough questions such as, "hey, wait a minute. What happens if risk on these derivatives blows up and we don't have any reserves to cover the investment?" Difficult questions are foregone when profits are going through the roof and only rarely asked during normal times. That's the real crime here, and the situation won't be corrected until more are held accountable for lack of fiduciary responsibility.

The worst part is banks have not been traditionally held to the same governance standards as corporations. We've heard our fair share of experts say, "oh, they're just banks." But that's just rationalization, which leads to denial, which leads to projection. Hence the current mess.

The buck has to stop somewhere, right?

While we're not holding our breath, an overhaul of governance in the banking and financial system will be essential if anyone wants to see real change. It's becoming abundantly clear that the government will be the ones calling the shots, not the smooth water sailors currently occupying their seats. Let's pray that it's not FASB, another stealth culprit in this shadowy systemic mess. There's also bound to be a few shareholder lawsuits aimed against individual board members. Especially at AIG, which has generated the most outrage.

No solution to combat invisible governance will be perfect. The blame game is still in the first quarter. But anyone that tells you the solution can't be found in the problem's root causes either isn't being intellectually honest or is trying to cover their tracks. We simply can't afford anymore disappearing acts at the highest decision-making levels.

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Is political leadership over as we know it?

Let's start at the top on the $700 billion financial bailout or whatever you want to call it:

President Bush. Done. End of story.

Treasury Secretary Henry "Hank" Paulson. A bit better but suffering from an incurable disease: Perceived ties to investors on the street formerly known as Wall, which has destroyed the public interest and pitted small business against big business in ways that haven't been seen since the Great Depression. Ok, sorry for that last phrase. We had to work the cliche in somehow. Paulson, an appointee not an elected official, isn't helping his cause by laying blame on foreclosures and then saying things like "we're doing this for the American taxpayer." That just doesn't wash.

Fed Chairman Ben Bernanke? While understandably difficult to follow Alan Greenspan, the original architect of sub-prime mania, Bernanke looks like he's on the verge of a nervous breakdown every time he visits Capitol Hill. Fully understandable -- just not what anyone wants to see from the guy in charge of cash flow.

Congress? Members of the House and Senate are notorious for appearing to stand up for the folks while the cameras are rolling -- only to cave in later out of fear. That's what feels like is happening now. In political terms, a vote for the bailout may put the 2002 Iraq war vote to shame. We're holding out hope that the counter balance to the conventional wisdom -- do this now or else -- will produce a better outcome.

Where are the nation's "best and brightest" CEOs? Oh, that's right. Hiding away counting up their cash while dialing their hedge fund and private equity buds to see where the next deal may lie. Others are polishing up their resumes with turnover season now in full swing.

The exception always seems to be Warren Buffett who has invested $5 billion into Goldman Sachs. It shouldn't always take a brand name such as Buffett to step up. But thank God he does.

The two presidential candidates? Not even in the park. Both are holding back, making political calculations about what to say and do instead of standing up right now and declaring what they think should be done in definitive terms. If anyone thinks Barack Obama and John McCain are capable leaders in the mold of Teddy Roosevelt, then we have some free beachfront property that's not foreclosed. It's not entirely their fault -- more about this inane way we go about electing the leader of the free world.

Yes, leaders and students of leadership, we are now entering uncharted territory.

No one has shown capability to lead the country right now. Out of fairness to the current slate, maybe a better question is: Can the country even be led in its current state?

If nothing else, the bailout issue gives new meaning to the saying: All politics are local. Former titans (and friends) such as Tip O'Neil and Ronald Reagan may need to be raised from the dead at the current rate.

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