The Credit Crisis and the Confidence of Gen Y

As I write, it is constantly being stated that there is a crisis of confidence in our markets.  The global financial system is in tatters, our currency is dropping like the proverbial fly, and consumer confidence is progressively sliding.

So much of our society, and indeed our daily lives, depends on confidence.  We have justifiable confidence that our vehicles will take us safely to work and justifiable confidence that our assets are safely protected by our insurance policies if we arrive home and find our homes ransacked.  Until now, we’ve had confidence that our jobs will be safe into the future and, if not, that we can find a new position quickly if push really comes to shove.

We’ve got to possess this confidence if we are to continue moving onwards and upwards, whatever the situation.

Yet, we live in a world where many have yet to face the crisis of self-confidence that inevitably arises when the foundations of our lives are radically unsettled.

Generation Ys (born between 1977 and 1995), now aged 13 to 31, have not yet faced global economic turmoil of the kind confronting us now.  Gen Ys have yet to experienced widespread job loss and the subsequent impacts of long-term unemployment, nor have they been threatened with the loss of their cash or their homes.  In addition, they have been raised in an era in which the creation of self-esteem has been as vital an element of the educational curriculum as has reading and writing.

This may not be a bad thing.  If high levels of self-esteem turn out to buffer Gen Ys against the negative shocks of career or lifestyle changes, it will be viewed as a powerful response to the anti-esteem philosophies that dominated the lives of their generational predecessors.

If, on the other hand, self-esteem turns out to be a very different cognitive dimension than resilience, its very brittleness will be quickly exposed as we enter a more challenging era.

In recent years, I have been amazed at the self-confidence and faith in the future of my MBA students.  I have long been amazed, and also puzzled, by the self-confidence of the Gen Ys as they have exited the boardrooms of Donald Trump’s or Alan Sugar’s The Apprentice, whether in the USA or the UK.  Time and time again, young executives first humiliated and then eliminated have expressed an incredibly high level of confidence in themselves as they sit in the taxi and ride home.  Rarely is any regret expressed for mistakes made on the show.  The most often-expressed sentiment verbalised is, to summarise, that Mr Trump (or Mr Sugar) would have hired me but for (excuse listed here) ……. OR I was still the best candidate, Mr Trump (or Sugar, or my colleagues) just didn’t recognise it.

Until now, I’ve thought these folks totally delusional.  An alternative view, and one which may or may not play out in practice, is that the escalation of one’s own commitment to oneself may provide the armour from which the vagaries of the future may simply rebound as harmless arrows.

Which is it?  I think that too much self-confidence is a significant liability.  We can, unless careful, escalate our degree of commitment to ourselves and our worldviews to such an extent that it is only a matter of time before such hubris pops our bubbles.  Indeed, Donald Trump’s failure and near bankruptcy in the early 1990s owed as much to his extreme narcissism and success-fuelled perceptions of self-infallibility as it did to the global economic slowdown of the time.  Trump’s reflection on this period is that we would all do well to stay focused, maintain our momentum, and keep grounded in the changes demanded by our changing environments.

This is good advice.  I remember feeling on top of the world in 1990, about the same time at which Mr Trump hit the deck.  I was newly married, had a new home, and a great job.  Within moments, I was made redundant and faced the loss of our new home as interest rates of 18% made mortgage payments virtually impossible. 

We survived through three responses.  The first, from me, was to take part-time work wherever I could find it, whether mowing lawns or teaching part-time at the local college, alongside my wife’s employment as a teacher.  The second was that we cut our cloth to suit our budget, scrimping and saving where we could to keep the coins in our our pockets. 

The third arose when close friends, seeing our struggle, lent us sufficient funds to help us over our financial hurdles.  It was this generosity, more than anything, that now leaves me with the faith that Gen Ys will see their way through current and future crises.  They are more relationship-driven than any other generation.  They are tribal, relying on their friendships with other Gen Ys as fixed points of life while the marriages of their parents came and went and as the pace of life and of technological and cultural change accelerated.

Relationships are really a key success factor in surviving crises, alongside having sufficient self-confidence to own our personal circumstances and then responding to our situations in positive and healthy ways. 

Gen Ys are thus ready for anything that life throws their way, today or tomorrow.  More power to them.

Peter Thompson Quote

“Dr Dave is full of passion and enthusiasm which, combined with his knowledge and insights, are a great recipe for engaging and enthusing audiences and learners alike.  I love how he pricks the bubble of pretension that goes with so much of the academic jargon on leadership.”
- Peter Thompson, Presenter, Talking Heads, ABC Television; Author, Secrets of the World’s Great Communicators.

Ethics, Shmethics…James Hardie and Me

When I was a youngster, I loved the name James Hardie.  You see, from 1979 until 1981 I was ballboy for the Parramatta Rugby League Team.  The jerseys of our premiership-winning team of ‘81 proudly bore the names Hardieflex and Hardieplank.  I retain one of these jerseys to this day.

A drive across our cities reveals that Hardies products seem to clad entire suburbs of our nation’s homes.  Their brake linings slowed and stopped cars and trucks thoughout the nation.  Yet, there were dark linings to more than the brakes, for the raw material central to the Hardie product line was the lethal substance asbestos.  In fact, the Hardie headquarters was called “Asbestos House.”  Asbestos, a fibrous silicate, was extremely popular because of the strength of each of its thousands of silica strands.

A significant story in the business pages of today’s Sydney Morning Herald reports on the court case currently brought by the Australian Securities and Investments Commission (ASIC) against several directors and executives of James Hardie Industries.  ASIC claims that the defendents were fully aware that the compensation foundation established by the company to support those who contracted cancer after working with absestos at Hardies would be woefully inadequate yet publicly stated the opposite.  Not only was their leadership approach less than ethical, it was allegedly illegal.

It reminded me of a time several years ago when, as CEO of a major industry association, I met with Hardies executives and had to consider whether to accept James Hardie sponsorship of an international conference of which I was the host. 

Here is what I said at the time:

Today I met with senior executives from a company which has been on the front pages of our newspapers for the last month.  It has achieved infamy for supplying a product which turned out to cause often-fatal serious illnesses to the workers who mined the raw material and manufactured the products using the substance.  While putting aside some money for future claims, these were massively inadequate, and the firm was subsequently and understandably hammered by a government inquiry which brought them kicking and screaming to the negotiating table.  Eventually, it agreed to fund the future costs of compensating those made sick by the substance, however by then the company’s name, image and reputation was damaged, almost beyond repair.

Why would any company wait so long to offer the levels of  compensation and the kind of compassionate response which was always going to be required?  Hadn’t they learnt the lessons of firms around the world who had become tabloid fodder for not doing the very minimally socially responsible thing?  Even companies who were not in the wrong, like Arnotts Biscuits and Herron Phamaceuticals, had shown how to handle negative publicity after their products were tampered with by idiots trying to make some point or other.  Those organisations immediately went into damage control, quickly removing their products from supermarket shelves and providing daily information to consumers and the media about their efforts to resolve the situation.  When the products were reintroduced, these companies launched substantial publicity campaigns to demonstrate their commitment to consumer service and product safety.

 I also wonder about the company’s commitment to its people.  Perhaps an obsessive focus on the bottom line led to its failure to right past wrongs, but surely the lives of the thousands of employees around the world who depend on the company for a living meant something to senior executives and its board of directors.  Then again, perhaps not.

 What I can’t understand is that some executives and their boards, although thankfully small in number, seem to be stuck in some kind of 1960s or 1970s industrial timewarp.  Although I leaned more towards a Milton Friedman style approach to social responsibility  for much of my working life than I did the more activist variety historically favoured by the Anita Roddicks and Richard Bransons of this world, this is really a no-brainer.  No company can afford the exponentially increased forensic focus of a hostile media which occurs when people make indefensible corporate decisions.  No company can sit calmly by while its years of commitment to an industry slide messily down the ethical drain.  Yet, it still occurs, all too regularly.

What can we draw from this?  I’ll go out on a limb on this one.  Since we live in a world of moral relativism, a world characterised by spin and subjectivity, we cannot be surprised when individuals and companies pursue naked self-interest rather than virtue and honour.  Doing the right thing in today’s environment appears to be defined as doing the right thing firstly by oneself, secondly by one’s team and company, thirdly by one’s industry and its culture and, running a distant last, doing the right thing according to the mores and values of the surrounding community which, by the way, sustains the enterprise in the first place. 

Charles Colson once said that we live in a world of “men without chests”, a world in which there is no tempering process between the rational thoughts of the minds of individuals and the potential for darkness and misdeeds which resides in their hearts.  If this is so, it will take a whole lot more than enlightened self-interest to avoid the corporate sins of the future.

In his excellent book, Asbestos House (Scribe, 2006), Gideon Haigh concludes that the sins of the Hardie fathers were far more those of omission than they were of commision.  It was what they didn’t do, but could have, that led to decades of inaction and insensitivity.

One of the upsides of our more-transparent society is that these kinds of dark secrets are exposed for the inexcusable sins that they are.  Ethical leadership demands a style of leadership that keeps no skeletons in the cupboard.  To the contrary, it demands leadership that opens all parts of our organisations to the light, consistently and transparently.

And what of our Hardies sponsorship?  My board took the view that those companies who were without sin should cast the first stone.  Since none were blameless, we should and did accept the funds of this corporate wrongdoer.

Deserved? Senior Executive Pay Today.

In 2000, Jack Welch earnt more than $150 million during his last year as CEO of GE.  His firm had delivered shareholder returns averaging more than 26% year-on -year for his final 6 years in the role.  GE’s performance placed it in the top 20% of the S&P 500.

Jeff Immelt is Welch’s successor.  In the first 6 years of his reign, the returns to GE shareholders have averaged 0.03%, placing it in the bottom 25% of the S&P 500.  As best as I can tell, Immelt’s remuneration, which includes generous stock options, is in the range of $15 to $25 million a year.

This brings us to the elephant in the room.  Welch has long been called one of the world’s great business leaders.  Nonetheless, he spent his early years as CEO, the “neutron Jack” era, blowing the GE structure to pieces before beginning its recreation.

Writer Rob Walker noted in 2001 that our reliance on shareholder returns as the indicator of leadership success may be highly misleading, since investor confidence across the board significantly blew out US price-to-earnings ratios during the 1990s, adding billions to company values without parallel improvements in the underlying profit-creation capacities of these firms.  Further, a reading of GE’s history over the last century reveals a consistent pattern of excellent returns from one decade to the next.  You can find Rob Walker’s excellent article at http://robwalker.net/html_docs/welch.html  In his own books, Welch is also generous in his praise for his predecessor, Reg Jones, further evidence of the foolishness of the view that, “In the beginning was the Word, and the Word was Jack….”

In Australia, the Macquarie Bank is being increasingly criticised for its approach to executive pay.  The Mac Bank model relies on the purchase of infrastructure assets such as airports and toll roads.  The fees paid by users of these facilities are fed into profit streams in the normal manner, however the infrastructure is sold on to investors via other Mac Bank funds.  Their contributions pay management fees to Mac Bank, thus keeping the bank’s executives in the financial clover.  In my most recent textbook, I noted that the CEO of Mac Bank had received more than $21 million in remuneration in 2005-2006, while the company’s overall salary bill for its 5,700 employees resulted in mean wage of $186,000 per employee (including the assistants and office juniors and mail boys – that’s mean but not so mean!).

Here is my bottom line.  Capitalism depends on the generosity of its stakeholders for its continued existence.  Capitalism’s stakeholders include the punters with mortgages and weekly rent bills who work hard for $15 or $18 or $25 an hour.  Their ability to buy houses and pay rent has rarely been lower than it is today.  Why?  Easy credit, the world tells us.  Why easy credit?  Because bankers being paid ridiculously high amounts of money to return ever-increasing levels of profit invented various houses of cards that were denoted as “derivatives”, “hedge funds”, “securitisation mechanisms”, and “naked short selling”.

The globe’s scarcest resource right now is not credit.  It is virtue. 

Virtuous behaviour is behaviour with a conscience.  It is behaviour that transends today’s short-termism and instead incorporates those values that are forever important and forever relevant….generosity of spirit, generosity of wealth, generosity of both heart and mind.  In summary, generosity within the disciplines of humility and unselfishness.

Truly great leaders, in every industry, possess this generosity in spades.  Jim Collins called them “Level 5 Leaders”, but wondered if there was any means of developing such leaders since those he studied had forged their humility and strong will in the crucibles of personal crises or while at war.

Real leadership of this kind can indeed be developed.  The stories of many of the world’s great comebacks from failure and disappointment (George Foreman, Dion di Mucci, Dave Dravecki) begin with a moment in which we see ourselves for the narcissists we tend to be.   We may need a movement of the spirit, however, to affect real personal change.

While self-confidence is an absolute necessity for corporate success and indeed success, in the world’s terms, in most endeavours, unless this self-confidence is couched in the cradle of humility, it all too easily becomes hubris.

Hubris is the enemy of virtue.  Without virtuous behaviours, however, we are all shot ducks.

It is virtue we need right now, a new “reformation of manners”, to recall a similar movement from English history in the 17th and 18th centuries.

Reformations always begin with individuals.  That’s you, and that’s me.  Virtuous behaviour begins with us.  It’s time to start with ourselves, becoming the exemplar that spreads.

The Twisting Road of Leadership – Welcome to StratLeadership

I hope that you’ve found my website because you think it may not be “just another rah-rah leadership site”.  You know the kind, the sites that make you feel inadequate because no matter how you measure up, you’re just not Jack Welch or Bill Gates or Richard Branson or Gail Kelly.  You’re you. Sure, you try to think positively, move your company in new directions, and find that piece of cheese which someone apparently moved on your behalf.  But you do it in your own style and your own way.

It’s okay to learn about these leaders, to admire and even to learn from them, but you and I are not them and need to also create our own way of doing things.  In fact, it’s critical that we do.
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