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.

# # #

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?

# # #

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.

# # #

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.

# # #

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.

# # #

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.

# # #

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.

# # #

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.

======================================

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.

# # #

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.

# # #

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.

# # #

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.

# # #

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.

# # #

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.

# # #

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?

# # #

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.

# # #

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.

# # #

Fear is not an option

Perusing today's news is enough to make any reasonably minded business person gag.

Two New York Times pieces, in particular, about how media are tempering what they say http://www.nytimes.com/2008/09/22/business/media/22press.html?ref=business and how advertisers are trying to decide whether to ramp up advertising http://www.nytimes.com/2008/09/22/business/media/22adcol.html?ref=business in the wake of last week's, uh, negative turn of events.

No wonder the public has tuned out media and no longer trusts government. Both institutions continue to fail on providing clear cut solutions -- much less well thought out ways to even find a solution.

Message to business leaders: Don't rush to judgment. Remove obstacles where you can. Take the appropriate actions to protect and help key constituencies in your business. That means serving customer need, being clear and up front to employees and investors and aligning strategy and execution with the appropriate systems, capabilities and people.

This message may not be sexy enough for public consumption, but it's what matters. Difficult times require steady hands, not a bunch of flailing motions that simply reinforce existing anxiety.

# # #

Clarification

Evidently, some readers thought Tuesday's "Where was the Lehman board?" post was a copycat of a much better rendition that was originally posted Monday on the Wall Street Journal's Deals blog.

Go to http://blogs.wsj.com/deals/2008/09/15/where-was-lehmans-board if you would like to review a copy. You also can read the same exact copy that appeared online Monday in today's print edition. Odd repetition but part and parcel of this brave new world.

It was never our intention to steal someone else's idea. Or in this case, a professional journalist at a reputable publication who we like to read when there's time. Chalk up the oversight to not reviewing as many web blogs as possible. "The Garlington Report" is not our full-time job either. But that's beside the point.

To avoid future oversights, we will leave the Wall Street meltdown to the legions of reporters currently on the case. They're the pros. We're just an niche observer who likes to underscore points relevant to our audience.

# # #

Where was the Lehman board?

What do a theatrical producer, retired Rear Admiral and the long ago retired CEO of IBM have in common? It's not a trick question. But you might mistake the answer for the punch line of a bad joke.

The answer is they're all now former members of the Lehman Brothers board of directors.

The entire cast counts four retired hands, two private investor/advisory types and one self named independent investment consultant who serves as the Chairman of the Finance and Risk Committee. Ok, the latter is well known name and respected investor, Henry Kaufman. But still. Where was Mr. Kaufman on the risk that obviously did this firm in? Does anyone know?

Taken together, the list (http://www.lehman.com/who/bios/board_directors.htm) looks more like the casting call for the movie, Cocoon, than a robust slate of active directors looking out for shareholder interest. Fuld is a dead man walking so we'll give him a pass on governance.

As to the others, well, good luck with getting new directorships. You probably won't have any problem, seeing that the old boys network likes to recycle the same old bodies into the same old chairs. It's a mystery that remains unsolved for now. But the day of directorship reckoning is coming. Keep screwing up at this level, and the secret is bound to get out.

We remain completely mystified that nothing seems to have been learned or applied since the collapse of Enron.

# # #

Memo to Ken Lewis

"Overnight, the shotgun merger will transform Bank of America into the nation’s largest player in wealth management." -- New York Times, September 15, 2008

"Acquiring one of the premier wealth management, capital markets, and advisory companies is a great opportunity for our shareholders," Mr. Lewis said in a statement. "Together, our companies are more valuable because of the synergies in our businesses." -- Wall Street Journal, September 15, 2008

Asked by an analyst if he had a desire to pursue a deal with Bear Stearns, Mr. Lewis shot back: “I’ve had all the fun I can stand in investment banking.” -- Wire services, September 2007.

============================
To: Ken Lewis
From: Jeremy Garlington

While you're soaking up status as Wall Street's newest darling, we thought we would offer up a sobering reminder that seems lost every time a big deal comes calling.

More than half of all mergers and acquisitions fail (percentage higher -- verify with consulting and strategy advisory firms who publish endlessly on this subject) due to what's commonly known as culture clash.

We highly recommend you throw out the scripts and platitudes about "synergies and scale." It's time to get real. Here's a primer:

*For all those valuable existing wealth managers under the U.S. Trust umbrella that you purchased from Charles Schwab, what does the absorption of Merrill Lynch's wealth management unit mean to them? What can they expect to gain or lose?

*Will the collective businesses under the Bank of America be compensated in identical fashion? Or will there be different scales for different folks? More specifically, will a loan officer in Crawford, Texas (not named Bush) be incentivized to do his job the same way a wealth manager gets paid in Cleveland?

*How do the assets and liabilities of Countrywide and Merrill Lynch intersect? Are there economies of scale or redundant debt vehicles that need to be written down? Better yet, is there a vehicle that you can ride between them before they go at each other's throats?

*Who is going to lead the combined operations of the combined entities? You? Someone new? Better yet, who is qualified to do so? A bunch of retail bankers who previously lost their shirts in investment banking, or new whiz kid managers and leaders from other industries?

Good luck with getting to the bottom of these questions, the key to being in the ballpark of successful integration. This challenge obviously will require all the collective ability you can muster. We will be watching closely for an outcome that demonstrates reality-based leadership.

Oh, and one last thing: Are you sure your board, or is your board sure, that this deal is in the best long-term interests of shareholders? Paying 70 percent above market value begs an answer.

# # #

Life after Linked In?

Here's a link to a conference we're taking part in this week: http://www.onrec.com/conferences/090908/schedule.html

Our session, scheduled as the conference's final panel discussion, is titled, "Recruiting and Social Media...Interactive dialogue with the experts." This probably should be re-named, "The Business of Social Media: What's Worked vs. What Hasn't and Why." But we digress.

The only real clear takeaway is the widespread use of Linked In, the networking tool that a majority of business people over 30 and under 50 now use.

If Linked In represents social media's first generation, then blogs and micro blogs, such as Twitter, represent the second generation. Of course, that assumes blogs don't blow up based on the backlash being created in the presidential race and micro blogs such as Twitter don't find the dot.com ditch.

It's still not clear yet who will shape a third or next generation. Here's hoping other panelists and audience members can offer up an answer.

# # #

In one door, out another

On the surface, the two don't appear to be connected. Lou Gerstner's decision to step down as chairman of The Carlyle Group comes as little surprise, while serial private equity executive Greg Brennerman's move to a smaller fund leaves even less suspense.

Do they know something we don't? It's likely that they do but don't tell them that. We can't take anymore hubris than what already exists.

With private equity deal flow down, premium on proven niche has increased. So has getting back to what business is about vs. what some PEGs have tried to dictate.

Business leadership is about finding ways to grow, and if that can't be done right way, getting into future position to do so. Private equity investors' role is to squeeze every dime or nickel out of a business -- often to the point where it's impossible to invest in what needs to be invested in to grow. They often want quick fixes, such as big name talent, when building an organization is the best solution.

We're not suggesting that every PEG has this philosophy or that some don't strike a balance. Certainly there are fund investors taking a longer view.

The larger net effect, however, has produced an adverse impact on the marketplace. It's transactions at all costs, or in this case, fewer costs and fewer deals. Relationships and building for tomorrow have been replaced by greed and squeezing margins for short-term ownership reward. Some may say that's the name of the business game. But we're not buying it and suspect others who have led businesses through ups and downs aren't buying it either.

Maybe Gerstner will treat us to his views on private equity sometime soon. "Who Says Elephants Can't Dance?" remains must reading for any aspiring leader.

# # #

Public apology, take seventeen

John Edwards' mea culpa should lock the door shut on a 24-7 culture phenomena otherwise known as the public apology spectacle, take seventeen.

We're a nation of many things, but empty apologists, we are not. In Edwards' case, his attempt to come clean came after years of lies, millions of dollars in hush money and potential violations of federal election law. Sorry, dude, but the time to apologize came and went awhile ago. What's really scary here is how this same individual came close to becoming vice president and that his wife, a lawyer in remission with cancer, felt compelled to defend her husband's latest indiscretions. Truly amazing. We have now arrived at full scale public delusion.

Some private sector leaders probably look at John Edwards and say to themselves, "oh, he's in the public eye, that's why he got caught." While that may be technically true, it's misguided rationalization that needs no projection. YouTube will gladly show what you think no one else is watching -- no matter whether you're a CEO of a publicly traded company or leader of a small town school system. If that doesn't make the case, then maybe a passage from the New Testament will: Nothing is hidden that will not be revealed, and nothing is secret that will not be known and come out into the open. (Luke 8:17)

Leaders, if you do something that requires saying you're sorry, please do so privately and then exit the stage gracefully without further word. "This is a private matter" has a much better ring these days than "I'm sorry, but let me tell you what really happened."

# # #

Failing Up

There's a bad rash spreading right now in leadership circles. It's called "Failing Up." Beware. Unfortunately, or fortunately depending on your view, there's nothing to keep the rash from spreading.

Our top aggravator is Erin Callan, the maligned former CFO of Lehman, who last week joined Credit Suisse where she'll be in charge of hedge fund operations. Now there's a transition to write home about. "Look Ma, one bank fired me but another just hired me. Ain't life grand?"

Next is the entire enterprise called Citigroup or Citibank or whatever it operates as now (Citi-Sovereign?) You know you're living right when you report a $2.3 billion loss and somehow that leads to a market bump because performance came in above expectations. Yes, these are tough times on Wall Street. We get it. But why does the bar keep dropping lower and lower? Oh, that's right. No real bottom to the market has formed yet.

Out in the, ahem, Real World (somewhere between Wall Street and Main Street), Failing Up features a raft of characters trying to paddle their way through the current mess. These include but aren't limited to:

• Rick Wagoner, CEO, GM. Is it just us, or this guy so toast that no one will state the obvious?
• Lanty Smith, Chairman, Wachovia. While some may say this selection is unfair, here's what needs to be answered but rarely ever is. Who was guiding the board when all the bad decision-making was taking place that led to the current huge losses? Who was supposed to hold management accountable to their actions? Why did it take so long to see the obvious, which is now playing out like another bad movie that we've already seen? Find some answers and you, too, can fill in the "Failing Up" puzzle.
• Patricia Russo, Alcatel-Lucent. Now here's an example of how to fail up and stay there for awhile. This tenure is downright amazing by modern CEO performance standards. Full disclosure: Russo is the only survivor from a previous installment of TGR's "Watch to Oust" list. Congratulations!
• Any and all so called leader that is either currently or formerly associated with Fannie Mae, Freddie Mac, Sallie Mae and Smelly Hay. Ok, sorry, that last entity was fake for comic relief. To understand scope of the mortgage mess and the government's implicit role in propping up lenders requires suspension of free market beliefs. Currently proposed congressional legislation is beyond fleecing; it's more like robbing the last guy standing, Us!
  

Anyone who would like to challenge this last point or any of other content is welcome to do so in the comments section. We always welcome counterpoints.

In the meantime, watch for signs of a bottom in the leadership market. That's right. The key word is "watch." Much like what's going on in the financial markets, we're not saying one has formed yet or has even shown signs (unlike another CEO who thinks one is "close." Whatever.)

When a bottom does form, look for boards to start accelerating their change and succession plans.

# # #

Three Cheers for Steenland!

It's a rare moment when a corporate CEO shows public conviction of his or her beliefs. So we're delighted to recognize Northwest CEO Doug Steenland and his testimony on oil prices held this week on Capitol Hill. To quote directly from today's Wall Street Journal, A-4 for you old school print readers:

...Steenland endorsed banning pension funds and other institutional investors from future exchanges, and he urged lawmakers to close loopholes that allow traders to dodge regulation by trading on foreign exchanges or over the counter.

"Addressing excessive speculation is the most immediate remedy Congress could deliver," Mr. Steenland said.

Amen, brother. That move and a little more spine directed at our OPEC friends would go a long way in helping Joe and Shirley Six-Pack. Too bad it takes the courage of a business leader to bring this issue to light among our so called elected representatives. We won't even go there on the two remaining candidates for president.

In fairness, however, Steenland is somewhat of a lame duck having sold the Northwest farm to Delta. He and the airline business also are being hit particularly hard on this issue, while other commodity producers such Monsanto reap profits from higher grain prices.

But it's still significant to note these rare public leadership moments from CEOs. Particularly on an issue as complex as energy.

Thank you, Mr. Steenland, for going where no one else seemed able to go.

# # #

The Big Brown Rule

According to an anonymous source, Wachovia Corp. will select privately held search firm Spencer Stuart to lead an external CEO search. The bank cited the firm's strong credentials in banking and current track record helping other stalwarts such as Delta and Yahoo.*

"The Garlington Report" also has learned that this move will not only produce a slate of eminently qualified candidates, but it will also do absolutely nothing to improve the bank's lack of leadership and broken culture. Not to mention complete inability to transfer new or even old ideas into new practices.

Here's why:

• Insular board won't address what needs to be addressed. Instead they will try to anoint a Messiah that doesn't exist, thanks to a willing Search firm eager to collect a fee.
• Down market environments that haven't bottomed yet aren't the time to make change. Particularly ones where bad acquisitions have impaired ability to see straight, much less drive.
• No one is going to spin-off AG Edwards and let them operate independently like they should have been all along. As to all that sub-prime junk, well, live and learn.
• Nothing ever changes inside banks where change is a foreign concept. Always has been, always will be.

Whether Wachovia selects a search firm or which firm it is has nothing to do with the core issue. Same old shoes lining up in the same old closets. Just move the chairs around, guys. Save yourselves some time.

Look at this way: If you don't have effective leadership heading into a fire, chances are you're going to burn for a long time -- or at least until the flames get doused. Even after the fire burns out it generally takes a long time to see anything new.

# # #

*Note: The lead graph can neither be confirmed nor denied. Simply blogging conjecture. Its content doesn't matter anyway so consider it a play on the horse race that so many others seem consumed by.

We're tagging it "The Big Brown rule" for lack of a better connection. This refers to the Triple Crown contender who didn't want to run last Saturday in the Belmont Stakes after winning the Preakness and Kentucky Derby. Wachovia wishes they were that lucky.

HD: Where's the real fix?

'Dark night of change.' 'End is near when memories outlive dreams.' 'Best of times, worst of times.'

Shall we continue or has the cliche meter clicked loudly enough already? For more passive business news readers, all of the previous phrases have now been offered by Home Depot's executive brass so far this summer.

Sorry, but cute little quotables have a way of obfuscating a larger issue.

Someone needs to step up and answer two main questions: When the housing market bottoms, which it will, where will the company be? What are the number one, number two and number three things that you're doing to make sure equity value returns to the bottom line?

Time to turn the page, folks. Present a real vision. Quit blaming the market. Leadership is about the future, not the past. Getting back to "the Home Depot culture" is impossible.

Or to use a jingle from an old preamble: Yesterday is gone forever; tomorrow is yet to be. But where are you going to be? Fully mature, trying to find original DNA or re-positioned to win the do-it-yourself market at all costs?

Message to the board: If you can't answer these questions publicly or find leaders who can, then it's time to evaluate whether you're headed in the right direction. Plain and simple.

Or keeping with the subject's affinity to quip, "Toto, we're not in Kansas anymore."

# # #

Where's the weather chief?

Editorial

Crises have a way of revealing character, and the current firestorm over sexual harrassment at The Weather Channel is no exception.

We are now in Day Two of the story, which you can gather from other other reporting sources, such as http://www.ajc.com/metro/content/metro/stories/2008/05/07/channel_0508.html?cxntlid=homepage_tab_newstab. And still we have not heard from the company's top leader, Debra Wilson. Instead a range of muted responses have been offered through lower ranking employees.

Darts for a lack of visible leadership at the top. The Weather Channel is arguably Atlanta's, ahem, hottest cable brand (ok, sorry for the weather reference.) As they pursue a sale, it's clear that the so called corporate police have shuttered any attempts to calm their constituencies, including the thousands of female employees who must be wondering where the company's female CEO stands on what is now a heated public issue. Speaking of heat, we are often treated to their founder's views on global warming only to be left wondering where the company stands. We sincerely hope a pattern isn't forming here.

Does anyone else see the irony here? Where is the CEO? Granted this type of situaton is far too common with fear of reprisal on everyone's mind. It's a scene that repeatedly gets played out by large companies trying to shill themselves out to potential suitors. Little do they realize how much is lost every time a credible voice fails to step and lead on issues that people care about.

# # #

Should We Blog?

Pardon the interruption from the usual topics. But we've been repeatedly asked to speak to an issue that seemed worth addressing via this channel.

"Should We Blog?" speaks to the challenge of incorporating social new media into the standard flow. Here's a starter course:

• Set aside new vs. old media for a few seconds and ask a three-part question: What's the core issue or topic from an audience point of view? What's our message? And what do we want an intended audience to do as a result of receiving that message?
• As attractive as blogs may seem, keep in mind that web logs are highly specific and generally offer a deeper, richer experience than traditional media. Just spouting off the usual run of the mill "stuff" will not cut it.
• The blogosphere is not for the faint at heart. Nor is it ideally suited for big monolithic organizations who haven't figured out what their audience wants down to the nth degree.
• If something that has been said is untrue and you feel compelled to quelch the rumor, remember this axiom that any professional pyschologist will confirm: The more you repeat something that's incorrect, the more others will believe it's correct.
• You can't market the same old way to Generation Y, or those young, valuable buyers that everyone covets. Anything that smacks of contrived marketing will get its due. Just ask Oberlin College, which has seen its share of student backlash after coining a new slogan, "We are Oberlin. Fearless."

For individuals or small businesses, an answer to "Should We Blog?" is clear: No, unless what you're bringing offers specific, helpful insight to those already connected to what you provide.

Isn't that the whole point of effective communication in the first place?

# # #

Which came first: Performance or Credibility?

Editorial

That headline isn't a trick question. Or at least it shouldn't be for the original three GE Amigos, all of whom presently find themselves in challenging stages.

Messrs. McNerney, Nardelli and Immelt might want to plan a summer reunion to share war stories. Sans their former boss turned CNBC talking head, Neutron Jack, who is known for a quick word or two. While each CEO made his mark via performance (or lack of), the current challenge is all about credibility. Forming it, keeping it and yes, even losing it -- only to hope it returns later.

Jeffrey Immelt proved this in one fell swoop earlier this month, blindsiding his hallowed constituencies with with an earnings report that led to GE's worst daily stock price loss in more than 20 years. But the core of the issue wasn't lack of performance. It was disbelief that the company could blow something that badly without forewarning. Put in simpler terms, it's never the infraction and always the cover-up or lack of disclosure that gets people worked up.

Second on the original GE succession list is James "Jim" McNerney, who is now having to step things up at Boeing after delay of their long awaited 787 Dreamliner, the closest thing to innovation the airline industry has seen since, well...TVs behind seats. While Boeing remains profitable, the stock's slide combined with a key product delay has pushed credibility to the fore.

Last but never least is the poster boy of everything that could go governance wrong, Robert "Bob" Nardelli, who now steers Chrysler after leading Home Depot into relative ruin. The recent Fortune magazine slick with Nardelli, Press and LaSorda dressed in black was enough to make any serious business reader gag. But thankfully they're now on record with a turnaround. We'll see what the credibility meter has to say about those vows down the line sometime.

Interesting to note: Unlike Immelt, McNerney and Nardelli are now on their second tour of duty after being passed over for the top GE job. Their mobility supports the widely published CEO turnover average of five to seven years, which now seems to be slowing down a bit.

Here's a key takeaway for all aspiring hot shots. Performance and luck might be what gets you the top job. But to keep it, it's about remaining credible. Lose that and you're generally toast. Unless you're already a brand name leader or have a great recruiter willing to line up the next gig.

Lesser mortal leaders who haven't become major CEOs yet tend to dismiss the importance of credibility only to realize its value after the (*&^ hits the fan. That's too late -- much like everything less that travels down the chicken and egg path of performance vs. credibility.

# # #

Delta-Northwest -- Time to go east

Here's our latest published view:
http://www.btobmagazine.com/Articles/2008/April/garlington.html

This marks the end of following Delta -- or at least until one of their top executives leaves the building. Bound to happen sooner or later.

Thanks for reading,

JG

Bear Stearns, JP Morgan, credit crunch, etc.

Confession: This topic was too rich to resist. Thanks to Business to Business magazine for allowing a wider audience to share in the content. What a great example of how easy it is to get caught up in the news cycle only to discover later that things aren't always what they appear to be. We'll stop there and allow you to form your own conclusions on the attached link:

http://www.btobmagazine.com/Articles/2008/March/garlington1.html

Ethics in the Blogosphere

Okay, so we're studying up in advance of next week's panel discussion, which is being joint sponsored by the Atlanta Press Club and Georgia State University's Center for Ethics and Corporate Responsibility. Please join us if your in-town schedule allows. Should be a lively event. Here's a link with more details on registeration:

http://www.atlantapressclub.org/events/event.php?id=113

In the News

http://www.bloomberg.com/apps/news?pid=20601109&sid=aMJLU7lbllbI&refer=home

Mr. Non-Fix it?

Editorial

Home Depot CEO Frank Blake will likely retain his role while the company continues to reach for a growth trajectory. Whether he should or not, however, remains open to debate.

The nation's largest home improvement retailer needs Blake’s trusted, reliable style and ability to “stick his fingers in the dikes,” according to an individual close to the situation.

What’s less certain is whether Blake is the guy to lead the company back to growth, something that investors have been clamoring for since the original founders left the building.

The answer is clearly “no” looking at things on paper. Blake is a Nardelli (as in former CEO Bob) disciple, has no contract and is a lawyer by training. So far his tenure has gotten above average marks -- even despite the previous facts, which rarely define big company leadership. At a simpler level, ask a long-time Home Depot shareholder about what their stock is worth today vs. 10 years ago. Watch out. You'll get an earful.

Let’s be clear. Unlike the analyst of the day on CNBC, we’re not calling for Blake’s scalp. That’s silly. Our main interest is determining when a board should ask the interim guy to turn the keys over to a more growth-oriented leader.

What won’t continue to wash indefinitely is the following line. Blake is a breath of fresh air following his predecessor. Duh! -- as any teenager would snap. Fresh air aside, sentiment needs to be future-oriented with a feeling of trust and confidence. It’s more about what a forward-looking strategy feels and looks like, and whether three years down the road, the current CEO will be driving strategy through effective execution.

One thing is for sure. Turnaround CEOs rarely make growth-oriented leaders. The landscape is littered with casualties. Recently ousted Citigroup CEO Charles Prince is one, but there are countless others.

So the question now becomes: When will the board act and who will they get? Stay tuned.

Conventional wisdom says nothing will be done until the markets bottom and growth can be more readily forecast. But that’s not how these situations generally play out. If the board decides it needs to make a change, recessions have little to no impact on their decision. Until then, they have to keep asking the relevant questions.

# # #

Coast to Coast

To blog or not to blog? is the question. Actually, that's not the question at all. The real question is: Who reads, or better yet, what do they do with what they read? For at least one day this year, we have an answer. See the attached, which presents a much better capsule of a presidential candidate-CEO pairing posted last week. Found Read is a Silicon Valley web log followed by IT and developer types occupying the normal Silicon Valley places. Thanks to them, we've added more capacity for readership without lifting a finger ourselves. Isn't that the whole point?

http://foundread.com/2008/01/11/mccain-welch-have-guts-clinton-is-a-gerstner-who-is-obama/

Can We Have This Dance?

It's the season of political dance. The Republicans look a bit lost with their normal waltz, while the Democrats are doing the three-step. The only absolute is the current narrative will change -- over and over and over again.

In the spirit of don't bite the fund raising hand that feeds you, we would like to issue a candidate-CEO pairing. Consider it two parts "Dancing with the Stars" and one part instructional for mere mortals.

Let's start with the Elephants, or Republicans. Mitt Romney (first picture below) talks endlessly about "his experience in the private sector" and "changing Washington." We would suggest pairing him with General Electric CEO Jeffrey Immelt, who despite popularity and innovation talk, has led during an era when the company's equity has remained virtually flat. Key takeaway: Beware of the platitudes.


New Hampshire winner and Comeback Adult John McCain is similar to Immelt's predecessor, Jack Welch, who ushered in much of business' preoccupation with leadership. Welch and McCain have published a litany of tomes, and their views seem to strengthen and resonate with time. The McCain-Welch pairing stands for experience, which has been unfairly overshadowed by change in the current cycle. If anyone thinks change is anything beyond good campaign rhetoric, then they need to take a couple aspirin and call their history doctor in the morning.

CEOs to pair with the Huckaboo and Mayor Giuliani don't leap to mind. These two are highly communicative, entertaining, funny and as energetic as the best used car salesmen. But that probably sells them too short.

Then there's actor/Senator turned candidate, Fred Thompson, who looks like he would rather be telling dirty jokes out back than running for high office. Chairman and now former CEO Jimmy Cayne at Bear Stearns may strike the greatest resemblance. This pairing desperately needs a week's supply of Red Bull and more hands-on execution.

Turning to the field of Donkeys, or Democrats...

We don't have a current CEO match for O'Bama (closest may have been Stanley O'Neal coming of age as Merrill Lynch's leader back when he first got the job.) Not having a CEO pairing is to O'Bama's advantage -- at least for right now while's new. Think media savvy, charismatic and thin on experience, which we saw our fair share of back during the rock star CEO era.

Clinton resembled former HP CEO Carly Fiorina right up until last night's come from behind win in New Hampshire. Pivoting off a comeback, candidate Clinton has newfound energy to run even the greatest turnaround. Perhaps Andrea Jung at Avon deserves this dance, or better yet, Lou Gerstner, the last notable guy who actually turned a large corporation around?

John Edwards strikes us the quintessential hedge fund trader turned Huck Finn who made all his profits during the last market turn and has simply been re-investing since then. In real life, he was heavily vested with Fortress so this depiction isn't entirely off the mark. The raised up by bootstraps turned multi-millionaire story is inspiring -- especially with John Mellencamp ballads playing in the background. But it all seems a bit hollow when measured against his belongings and thin political track record.

As to Bill Richardson, who arguably has the deepest resume of the entire field, we don't have an adequate CEO pairing for him, either. But he is the king of thoughtful personal views and one-liners (LOL: "I've been in hostage negotiations that were more civil.") That's a rare combination in CEO circles. Maybe John Chambers at Cisco before his second cup of coffee?

# # #

Delta's Drama Kings

Sometimes things aren't what they appear to be.

In an official announcement yesterday, Delta Airlines said that current President Ed Bastian will retain the CFO title, which effectively cancels previous plans to hire a new CFO. That was the official line along with some corporate speak about "seamlessly maintaining relationships and momentum..." Whatever.

Here's another take based on a leadership truth that often gets shoved aside.

According to sources familiar with the situation, Bastian and CEO Richard Anderson have developed a strong personal dislike of one another. No big surprise there, taking into account the original chain of events that led to Anderson's hiring. But since the personal dislike factor can't be applied specifically to a news context it gets dismissed as normal vagaries of the executive suite.

Anyone following this company would be wise to watch closely how this personal riff plays out with personnel and business decisions. We often learn a lot more from human behavior managing a company than events perceived as materially consequential to the business. Then there's the irony, which every rich story contains. CEO Anderson is reportedly more operations inclined while the "brain" and main strategist from the original team, Jim Whitehurst, left the building awhile back. Whitehurst is rumored to be the next CEO of RedHat in Raleigh, N.C., but we can't confirm that to be true. Look for Bastian to leave early next year if things don't improve.

As to rumors of a Northwest merger, well, it doesn't make a lot of business sense. But according to our own stated rule, that probably doesn't mean much in the high stakes deal making world. The board is clearly consolidating its view around what comes next. Guess we'll just have to stay tuned for now.

# # #

Merger of Two Unequal?

A little rationale sense would go a long way in explaining the current carnage at Citigroup and Merrill Lynch. So would some humor. Unfortunately neither is in current supply.

Before we try to insert any, here's an idea: Merge the two unequal on their way down. Or better yet, invite Bank of America to make bids on Merrill and then merge the combined entity with Citigroup. Mother Merrill always wanted to be the world's largest bank so why not give them their chance? If the supermarket approach to banking can really work, then this chain of events would quickly reveal the strategy's viability. Otherwise it's time for an alternative preferably one without interim CEOs or what http://www.breakingviews.com/ calls "need for a plumber." Sorry, but the last time that term was used in such a high profile story was when a few rogues were breaking into Watergate.

What we don't know or can't seem to figure out is why Merrill and Citigroup would act so rashly without a clear successor or even candidates in waiting to take over from O'Neal and Prince, respectively. It's not entirely explainable by lack of succession planning although that's clearly a rationale reason worth reporting.

So is the involvement of former Treasury Secretary, newly installed Chairman Robert Rubin who will now lead an effort to find a new CEO at Citi. There's only one slight problem. He fully endorsed Prince's strategy and doesn't seem to think anything is wrong about the current direction. Okay, fine. But then why push Prince to resign? To satisfy a few investment crazies mad about sub-prime? Aren't boards supposed to stand up to pressure and present continuity vs. desperation?

If anyone thinks Rubin is the type of guy who will roll up his sleeves to get a solution in place, then they need to go back and read Ken Auletta's list of works more closely. But wait. It gets better. According to The Wall Street Journal, the only other person on the Citi board with banking experience is Dick Parsons, current head of Time Warner who used to run a small investment firm earlier in his career. Sorry, but we don't think the Cable Guy qualifies as a handpicker of talent to rescue a structured investment mess. Not to mention the overseer of his own semi-failed strategy. Where's Carl Icahn when you need him?

Meanwhile, the Merrill board is probably letting out some cigar air somewhere praying that they'll stay out of the fray. But that's wishful thinking. Their board is even more in-bred and will have a hard time convincing anyone qualified for the CEO position that they'll step aside for the right person.

Both of these major institutions have dropped the ball. And since it's football and CEO turnover season, it's a safe bet that their fumble will stay live on the ground for awhile.

Perhaps the high heeled boys of Wall Street could take a cue from their burger, fries and shake brethren at McDonald's? Now there's a succession success story. Not even death of a leader could stop this brand from marching onward and upward.

# # #

Merrill Lynch CEO Snooze Fest

In the realm of CEO turnover, the pending dismissal of Merrill Lynch CEO Stanley O'Neal is a real "So What" snooze fest. Here's why:

1.) Nothing will really change from a leadership point of view. ML will get a new guy, maybe BlackRock's Mr. Fink. He'll talk a good game, hire a few new faces, move things around and then proceed to manage the balance sheet like it's the last day of his and the firm's life. But that's about the extent. Leaders don't always translate into leadership. This is proving particularly true on Wall Street these days. If anyone thinks risk as far as the eye can see behavior is going to change, then they're delusional. Case in point: The structured investment vehicle (SIV) bailout and its dwindling list of "debt on top of debt" contributors.

2.) Big banks are all the same. Very little to no differentiation. No real products or services set them apart. Insiders will argue this point vehemently. Here's a test. Go to anyone -- business and/or consumer -- who has an account with Merrill, Bank of America or Citi. Ask them point blank, "what do you get from your bank that you can't get anywhere else?" That's right. NADA, nothing. No wonder O'Neal was interested in Wachovia other than the potential payoff despite the fact he will likely get a similar amount via his separation agreement.

3.) Very little board room or palace intrigue. Unlike the Morgan Stanley drama that played out for months between Purcell, Mack and investors, Merrill Lynch is getting caught relatively flat footed. O'Neal handpicked most of the board, and with the exception of a few lone voices, there's not enough conflict to get any of the usual juices flowing. "Largest ever" loss highly damaging but not all that revealing in a forward looking turnover or succession context. Mainly because the poor judgment was so obvious. About the only thing left worth watching is how high the loss number will go, not who takes the reins.

Looking ahead...How many top people will bail out of Merrill in the coming weeks? That's where the real consequences lie, not how many millions Stanley gets to take home. Someone wake us when this one is over.

# # #

CEO Turnover: From Watch to Oust

Throw out the first ceremonial board pitch. Let the compensation pigskins fly. CEO turnover season is here.

The resignation of Gary Forsee, the now former CEO of Sprint, ushers in that rare time of year when boards conclave to "assess" their CEO leadership. Proxies are being written and rehashed, and for a chosen few, axes are getting polished. If you listen quietly from October to December, that whispering sound is scuttlebutt about who is on the way out and who is on the way in.

Forsee's resignation follows a board decision to put out a public search for new candidates. That's probably not the best way to proceed, but then again, maybe they'll get what they're looking for. No one knows except the board, which now seems to be running the company. That's never good.

Within that same sector, pay careful attention to the line between watch to oust on Ed Zander at Motorola. Different situation than Sprint, but at the core, same dilemma: Can we have trust and confidence that this CEO's leadership will propel the company's growth over the next five years? On the surface, the answer is nearly always no. But it's not the board's role to make snap decisions in a vacuum. They must think outward and long-term vs. inward in their own personal interests.

Other candidates for the Watch to Oust list include: Patricia Russo at Lucent/Alcatel, Stanley O'Neal at Merrill Lynch and Charles Prince at Citigroup. Both O'Neal and Prince have some leadership to do on recent billion dollar losses in the credit markets. Bad risk is bad risk -- we get it. But that shouldn't provide an excuse for poor judgment. They didn't provide accurate pro-active or even reactive guidance, and in Prince's case, simply compounded a string of errors that raise questions of judgment.

And while we love the touch of the Saudi Prince's endorsement of his fellow Prince reported in The Wall Street Journal, it's nearly the equivalent of New York Yankees owner George Steinbrenner coming out and saying, "Joe Torre is our man." Be very weary of public endorsements during a crisis. The outcomes are rarely positive.

# # #

FIRST

Okay, so "The Garlington Report" was the first to call the Delta CEO announcement. That's a fact that a few have noticed.

For the record, however, we were factually incorrect on at least one specific: COO Whitehurst will not resign effective immediately. Timing is beside the point as conveyed to Fortune (go to http://money.cnn.com/2007/08/21/magazines/fortune/delta_boyle.fortune/index.htm?postversion=2007082117.) Talent at that level rarely hangs around for scraps left after the power gets divvied up.

We could be wrong, but in this case, it's nearly impossible to see how a guy who made over a million dollars with Boston Consulting Group prior to joining Delta would hang around in an unclear position. Particularly after what he was able to accomplish. Listen quietly and you'll probably hear the buzz of recruiters ringing through on his BlackBerry.

High achievers want to achieve; it's not always about money. In fact, when you have that much money, it's about higher levels of success, which can include money but that's rarely the only measure.

Oh, and here's a weird nagging detail: They've given the CFO, Ed Bastian, the additional title of President while the "new guy" becomes CEO. Does that have precedence in major companies?

Someone needs to trace the relationship between Bastian and the head of the pilots union more closely. That may be more revealing than what the creditors' influence indicates.

# # #

Delta to name new CEO later today

ATLANTA (August 21, 2007) -- Delta Airlines will name current board member Richard Anderson CEO in an official company announcement later today, according to undisclosed source close to the company. Ed Bastian, current CFO, will be named president, and current chief operating officer (COO), Jim Whitehurst, will resign effective immediately. Daniel Carp will remain non-executive chairman of the board.

Naming a recently appointed board member raises questions about whether Anderson's candidacy was impartial when he joined the company's board. As The Wall Street Journal first reported earlier this month, Anderson was not present for interviews of internal candidates. This would suggest, at least perceptually, that Anderson was in it for the CEO job all along vs. the organization's long-term strategic interests. The same firm that recruited Anderson, Spencer Stuart, also recruited Carp, whom according to sources, led the search process.

This appointment also means Delta will lose arguably their strongest leadership talent responsible for turning the company around coming out of Chapter 11 bankruptcy. Whitehurst, a former BCG partner, is widely credited with some of the company's improvements in customer service and execution of the successful international expansion strategy. He is perhaps best known for orchestrating the Velvet Rope Tour, an effort to restore confidence among non-union flight attendants.

# # #

Nardelli Hit Parade

It's hard to recall a more galvanizing executive appointment than Bob Nardelli being named CEO of Cerebrus' Chrysler. No lack of opinions or views. Here's mine: http://www.usatoday.com/money/autos/2007-08-06-chrysler-bob-nardelli_N.htm

Not many get that level of second chance, particularly after what he left in his wake at Home Depot. The original tag to this story was, "Failing Upward." The best unpublished comments range from "this type of buffoonery is bad for capitalism" to "what's the (betting) 'over under' on his tenure?"

What to watch: Will Nardelli learn from previous mistakes? Or more importantly, hone his leadership skills? One thing is for sure. He's not going to be successful driving his original love, a Dodge Dart. Eeesh!

# # #

Delta Delay

Delta's search for a new CEO represents another delay. But not the type that leaves you in the Crown Room begging for a way out.

The challenge is two-fold: How to find someone to fill the chief post while keeping operations and the business moving continuously forward away from Chapter 11. The company says a decision isn't likely until at least the end of August when the board re-convenes. No lack of opinions out here on what they should or should not do. Some are informed while others, well...

Here's my personal favorite: "It's a cat fight to the finish between Paula Rosput (a current Delta board member and former CEO of Atlanta-based AGL Resources) and Marce Fuller, who used to run Mirant Corp. The fact that one of them (Fuller) is unemployed and the other semi-retired at a Seattle insuror makes it even more intense. Wake us when it's over."

According to an informal poll of search experts, the most likely option will be identifying a strong Chairman/CEO type along the lines of current CEO Gerald Grinstein. This person would then allow the two top internal candidates, Ed Bastian and Jim Whitehurst, to remain in their existing roles. Two other rumored contenders currently fit the bill but only one has experience operating a large airline. Daniel Carp currently serves as non-executive Chairman.

But that's all conventional wisdom. It's difficult to see how the board will just go with what's so obvious. Prior to Grinstein, there was Leo Mullin, the consummate outsider and McKinsey expert who inherited not only a flawed business model but also was forced to manage through 9/11. Some defend Mullin with great gusto, but we're not among them. It's a credibility thing. The last insider was a Delta original, Ron Allen, which, well, it's not worth turning that far back.

It's our view that the "new Delta" needs a fresh new leader, one that can continue the momentum, remain optimistic but accept a reality that no one else seems willing to: Sustained profitability for a large carrier in the current system is dreaming at best, living a lie at worst.

Would anyone like some peanuts? Okay, sorry, snack mix and complimentary beverage?

# # #

Pay to Patter

'Rahodeb' here. Ok, not really. Anyone still scratching their heads after reading the latest on Whole Foods' CEO? We're moving quickly from the issue of pay to patter. Here are some observations for your own edification:

1.) Patter matters. Ironically, digital communication now has a longer shelf life than print. Emails, IMs, Yahoo chat room postings (who has time?), you name it. All subject to ready search and fast distribution.
2.) To update an old saying, it's never the (crime) indiscretion, always the (cover-up) trail. 'Rahodeb' not alone by any stretch. High time flat footed Baby Boomer executives caught up to the realities of new media. Taking this point a step further...
3.) Digital Dumb doesn't provide a free pass to decline participation in the electronic age. Information is moving too fast for some figures, such as New Jersey Gov. Corzine, to start thinking he can claim privilege and everything will go back to the way it was before. Distinctions between official and personal don't wash publicly.

Before the Whole Foods situation explodes into a Paris-like cable news frenzy, here's the key question that their board needs to answer: When the antitrust comments first surfaced, why did the CEO (or did the CEO) fire back on his own blog? Did he know then the extent of what we all know now? And if so, then does that represent an omission that was voluntary or one endorsed by a privileged source such as a lawyer?

Better yet...Take these questions/answers and then measure against the company's stellar performance and cult-like brand status. Then and only then can the "Fire Mackey?" be deliberately answered.

# # #

Founder's Syndrome

Click here for the perfect summer read: http://www.foundread.com/view/curing-the-founders. Okay, maybe not perfect but entirely true. Take it from a founder who learned the hard way.