Thursday, 5 September 2013

A Board Game

Few people really understand the complex nature that companies develop and use their boards to run the organization.

A board is typically made up of a dozen-odd individuals....who sometimes have a vast amount of experience in the company's business.....and sometimes are just oddball characters who were looking for a part-time job with executive benefits.  As a board guy.....you get a hefty paycheck....a big office with a view....a secretary or executive assistant...a travel budget....use of some stadium seats....and usually just show up for a dozen hours a month to review the operations and listen to the analyst describe success or failure.

Boards determine the direction of a company.  If they are happy with the CEO....they reward him.  If they are unhappy....they fire him.  A board can screw up a company for years and years, by hiring some dimwit to run the company into the ground.  A board can be brilliant by hiring a virtual unknown guy, and getting tons of positive feedback from within the company over creative innovations and brilliant decisions.

Boards make or break a company.

Zurich Financial is Swiss insurance company of a major concern. Up until the last couple of years....they moved along at a pleasant pace....making a tidy profit....and being noted for four-star analysts and employees.

A couple of years ago, Zurich Financial started to notice they were slipping.  They were being approached continually by other companies, and having Zurich employees jump ship.  The company was having issues in making a noticeable profit.  The board likely sat there....meeting after meeting.....knowing that they were in a bad direction.

Eventually, they made a decision to let their CEO go, and hired a new guy.  This new guy....was a fairly tough individual, who was aggressive and demanding.  As far as the board was concerned....they needed a bold "captain" at the helm of the ship....going in a better direction.

Course, this meant bringing a bold new executive leadership game into Zurich Financial.   This new guy would ask stupid questions....challenge people on decisions....demand accountability.  In short, he wants real results, and wants to be noted for a profit change.  Just being average wasn't enough of a company agenda....they needed to be more.

Somewhere in this mix was the Chief Financial Officer (CFO).  He was a long-term guy for Zurich.  Based on Wall Street Journal reports.....he was competent and very capable.  On the other hand, he probably wasn't used to aggressive management styles, or meetings where frustrated would be dished out across the table.

Months passed in this new environment.  Around two weeks ago.....over a weekend.....the CFO committed suicide.  He left a letter....detailing the downturn, and the frustrations of dealing with the CEO (using his name in the letter).  It was the kind of letter that lays out blame and amounts to "last words" of a guy with no hope left in life.

Last Tuesday, the letter was read by the CEO at an emergency meeting of the board.  The CEO himself read it.  It was not a pleasant experience for him....being noted in the letter in a fairly negative fashion.  The meeting ended simply with a comment that the company needed to stand together as things progressed, and another meeting would be held in twenty-four hours.

By the end of the next day....the CEO had resigned.  No comment on his part....he simply walked out the front door.

The board?  There's little they say....except they are putting things back into some order.  They are hunting for the next CEO and CFO....probably to both be mild and non-aggressive types....going back to the standard order of things as the folks at the Swiss company had been used to.

Blame?  The board is the cog that makes companies like this work or fail.  Their logic to bring the aggressive guy in?  It made sense.  Their involvement in monitoring heated discussions and arguments?  Well....they probably should have been more proactive, but you usually don't worry about events like this....as a board member.  To be honest, you simply sit as an adviser and try to stay out of the way of the company as much as possible.

Over the next year, there will likely be an examination by 500 different companies across the globe at what happened in this case.  Some will ask questions and wonder if they are screwing up.  Some will note that aggressive CEOs are a necessity.  Some will note that you can't be a profitable player in the world market, with a laid-back attitude.

This CEO who resigned?  I don't think you will see much of him anymore.  He will examine his attitude, his success stories, and achievements.  This episode stands out.  There's nothing he can do now.....to undo it.  In the world of lessons learned.....you can't do much with this.  The business world is not a playground, a tidy and organized park, or a sinking ship.

The Imaginary Sword Case

Years ago, I worked with a lady, who was married to a gamer.  Her husband was the number two fire chief on the base, and fairly competent guy.....but he was addicted to video gaming.  One day....she'd logged onto the office internet system and was checking her credit card activity.  There was this one $25 record sticking out....the name wasn't making any sense.....and she just didn't think it was legit.

So she called her husband at the fire department.  I was sitting five feet away and could hear this entire conversation.  Basically, there was a long, long pause.....then you could hear some chat over the phone.  She didn't say much, and then hung up.

The response was.....he'd bought some imaginary sword for $25.  In the mind of my associate....for the next half-hour....this just didn't make any sense.  How could you pay $25 for something that wasn't real?  It's imaginary.  Why couldn't it be for $10?  Why pay at all?

This week, a court episode unfolded, with the Standard & Poor folks, and the US government.  The US government finally decided that this 2011 decision on Standard & Poor's part.....to lower the rating they give bonds....down from AAA status by one step.  Money-wise, it meant a heavy cost for the US government as they tried to sell their federal bonds.  The President and his staff were fairly upset by this, and spent at least a week trying to explain why this was the wrong decision by Standard & Poor.

Roughly eighteen months pass, and I'm guessing that several government lawyers were sitting there and trying to think of some way of making a legit legal episode in court.  It's hard to say how this would all go against Standard & Poor.  The amount that the government wants?  Five BILLION.  Yeah, it'd pretty much dissolve Standard & Poor....if it goes against them.  They might survive, but the odds are heavy.

The issue here....is the imaginary sword dilemma.  The bond ratings stuff.....is not exactly pure and easily to define.  You could ask a hundred financial analysts to examine the US bonds system and assign a rating.  You'd end up with one hundred different comments, with various folks super-positive, some average, and some with extreme marginal feelings.

The judge in this case?  I'd take a guess that this was filed in a region where they think they (the government) have a better case to win.  However, the judge is probably sitting there and wondering how a case that might take two months to unfold....can be explained with enough logic....for him to give the government the 'win'.  Frankly, he might be pro-government, but he doesn't want to look like an idiot at the end of the case.

The government lawyers?  I'd take a guess that they've measured the episode, and know that there's never been a case like this before.  If Standard & Poor had bought the bonds, or manipulated the price.....this would be awful easy.  But Standard & Poor merely read the data and said the bond ratings were too high, the government was not in good standing, and realistic expectations meant to lower the rating.  But again, this is an imaginary sword.  Anyone could say anything, and be legit.

As for coverage by the network news media? Don't expect anything except perhaps a weekly update via the business channels.  If the judge tosses the case out or goes with Standard & Poor....no one will talk about the government's failure in this case.  And the lawyers who handle this?  I'm guessing they really don't have much of a positive feeling on winning this episode.  If they did....they'd be the imaginary sword warriors from this point on.

The SWAT-EPA

The Alaska Dispatch put the story out there.....which most US news media sources probably won't report.

A guy has a mining claim up in a fairly remote area of Alaska.  He has permits, and knows that inspections are occasionally part of the mess with mining.  He wakes up one morning to find that a couple (4-to-8) big husky guys are at the front door of the mining claim.....dressed in SWAT-gear....fully armed....body armor.....POLICE labeling in big bold lettering across their jackets, and demanding entry for an inspection.  Their unit?  That's the curious thing.....the EPA (the fed's).

He felt intimidated.  Most folks would feel that way.  So he complained.  The state guys were at a loss.  So he complained to his congressman and senator.

Well....there was a chat between the senator and the EPA.  The response was that the EPA team in Alaska.....having been told by the Alaskan State Police that Alaska is over-flowing with rampant drug crime and big-time human trafficking....so all of the SWAT-gear is necessary.  The argument by the EPA was not very strong, and it's to say if this EPA boss was really convinced over the wording he was providing to the politician.

Bogus beliefs, which turned into a comical SWAT-gear appearance?   Yeah.  Wannabe cops....pretending to be important, and wasting tons of money on gear they probably will never need.

Two things will likely occur out of this.  I suspect that Alaskans will put up some state law which requires one of the State Troopers to walk hand-in-hand with the EPA guys in the future, and try to prevent stupid acts like this.  The State Troopers will hate this, but folks have a fairly negative view now of the EPA.

Second?  I'm thinking this makes a wonderful script for a reality TV series....."SWAT-EPA".   It's going to be a story about eight mining operations around Alaska, and this bogus EPA team who do environmental inspections.  I'd hire six comedians to play the EPA-SWAT guys....who know mostly nothing about inspections but mostly act fierce and tough for the camera.  Toss in some Alaskan Indians, a nutcase Senator, a couple of hippies, a bartender who explains reality to the audience, and several miners who are half-crazy.  I think Discovery would pick this up and make millions off it.