Category Archives: Leadership

A Failure of Leadership

A beach after an oil spill.
Image via Wikipedia

The BP oil disaster in the Gulf of Mexico has highlighted many problems – problems with the technology for drilling at depths where the water pressure is around a ton per square inch; problems with BP not being transparent from the outset as to the extent of the spill; problems with oil companies putting short-term profits ahead of ensuring that these issues cannot happen; problems with the US Regulators who seemingly have been extremely lax in applying the regulations and have been granting waivers freely to the oil industry; problems with our ability to clean up oil spills even 21 years after Exxon Valdez (what’s happened to Kevin Costner’s centrifuge-based cleaner?)…

But for me, one of the most surprising things to emerge from this has been the failure of leadership. BP’s leadership issues are, to an extent, understandable – although not excusable – in that they have been focused on protecting shareholder value by trying to downplay the size, scope and likely cost of the problem. This doesn’t excuse the behaviour, as I’ve said, but one can understand it, so it’s not too surprising.

No, the leadership failure I’m referring to has been that of President Obama.

I realise that this statement might cause something of a firestorm from some readers of this blog, but bear with me on this for there are lessons to be learnt and actions to be taken – so it’s not (yet) too late.

We need to recognise that when running for office, then-Senator Barack Obama focused on the need for change – a need that the US population clearly believed in, given the fact that it propelled a largely-unknown junior Senator to the office of President. Central to this theme was his strong belief that things could best be accomplished by working together on the issues with all concerned parties – no matter on which side of the fence they stood.

This, of course, has not been a great success in the Congress and Senate as the divisions have, in many cases, simply been too deep to facilitate working together. The oil spill, though, is a different matter – for there is no question that everyone has a common goal: to stop the leak and clean up the mess as quickly as possible and with as little damage to the environment as is possible.

However, apart from being slow off the mark in terms of visiting the Gulf Coast, President Obama has spent most of his time publicly berating BP rather than being seen to work with them to address the issue in the most comprehensive way. Perhaps he was trying to cover up the shortcomings in his own administration – those regulatory bodies that were not doing their job properly – given the looming mid-term elections, or perhaps his anger simply clouded his judgement. Either way, instead of seeking to work shoulder-to-shoulder with BP and for them to jointly marshal the considerable forces that could be at their disposal if they, and other oil companies, worked together, the situation has become one of adversity. And an adversarial relationship never produces the best overall result.

It’s time for President Obama to put personal feelings and party politics aside on this problem; to work with all stakeholders – oil companies, state and local government (of all political persuasions), and anyone else that can play a positive role. He needs to remember his campaign promise to change the way things are done in Washington, and to work for the best result regardless of personal feelings, of politics and of attribution of blame. There’s plenty of time for all that after the mess is cleaned up.

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The Perils of ‘Quarteritis’

FT ringing the Closing Bell at the NYSE

FT ringing the Closing Bell at the NYSE (Photo credit: Financial Times photos)

It appears that one potentially good thing to emerge from the global economic meltdown is a return to sensible business planning and cycles.

One of the scourges of many businesses – this started in the US and spread out from there – is ‘Quarteritis.’ Not strictly speaking a disease, but something that has probably resulted in a lot more suffering than most diseases, ‘Quarteritis’ is about an overarching focus on ensuring each quarter’s financial results are significantly better than those of the quarters that went before.

While we all want to be part of, and invest in, businesses that have good growth, the fact is that business, like most things in life, moves in cycles and the best long-term businesses are those that plan for the long-term, not just the next quarter. A short-term focus leads to rash decisions, decisions that might be good to “save this quarter” but disastrous in the medium term.

To illustrate: in the IT industry two popular results of this are distributors being forced to take huge amounts of excess inventory in a quarter (“channel stuffing”), or new distributors/resellers appointed suddenly to get a new stock order into the current cycle.

Both of these have similar results over succeeding quarters – reduced profitability for all concerned, stretched payment terms, credit limit issues meaning needed products cannot be ordered and, potentially, delays in releasing new products while excess inventory is moved out of the channel.

By taking the longer-term approach to ensuring that all parties in the channel can grow profitably, vendors may not grow as quickly in the short-term but will ensure happier customers – at all levels in the supply chain – and so more loyalty and a more sustainable growth well into the future.

Wasn’t it this short-term focus – albeit in the financial markets this time – that ultimately caused the current crash? Executives and others were induced by means of massive bonuses to find ways to grow well above the market average and so started giving mortgages to those that could never afford them, and repackaging these as “high quality” loans. Frankly, this would have been considered fraudulent in many places – it’s certainly ethically very bad anywhere – and it was only a matter of time before implosion happened.

However, those involved had already taken their money and run… Isn’t it this short-term bonus-driven culture that’s behind the trend to shorter and shorter tenure by CEOs of public companies? Can CEOs really be effective when they’re only in place for a few years?

It’s time we started looking at the longer term sustainability of business, and rewarding people in ways that encourage this and I, for one, am pleased to see a number of governments leaning in this direction. Authorities and shareholders should claw back bonuses paid for fraudulent practice, especially when taxpayers have to bail out the companies as a result. CEOs, and other officers, should be rewarded, and lauded, for long tenure and sustained growth.

Business needs to get back to a solid footing and good practice – we should support those that are trying to move in this direction.

Amazon

Amazon (Photo credit: topgold)

This blog piece was first published in Sep 2009, so it’s good to see that there’s growing acceptance of the need to look longer-term as this video from INSEAD clearly points out – Prof. Javier Gimeno talking about how “short-termism” undermines a company’s long-term competitiveness.