Colonel Mustard. With the lead pipe. In the Boardroom.

A few months back, Steve Neiderhauser posted 8 Simple Rules, a la UT-Dallas B-school's Bob Prosen...

Prosen talks of a survey that he created -- 64 top Dallas-Fort Worth executives responded to questions about leadership. Then he surveyed their employees. The results?

The two groups are on different pages, maybe on different books.

Among the most serious disconnects: 70 percent of the executives felt they clearly communicated their top business objectives. But more than half of the employees couldn't articulate them.

"When you walk the cubicles and ask employees what are the company's top two or three objectives, many say, 'I don't know,' or possibly 'I don't care,' which is a bigger systemic issue of culture and morale," Mr. Prosen says.

But wait: McKinsey has now generated a report giving us the other half of a stale structural sandwich... [subscription. free.]

McKinsey Quarterly: Developing the right perspective on the balance between short- and long-term performance is important. The board of one leading North American industrial company, for instance, focused on its excellent quarterly financial figures. The company's performance appeared to be strong: its margins and return on capital were rising and costs were falling. Yet capital investment was falling as well, the value of the company's brands was eroding, a major product recall was under way, and the morale of employees had sunk so low that 20 percent of them acknowledged getting treatment for stress. Had the board and management focused on longer-term health indicators, these uncomfortable facts would have received scrutiny.

Well, yeahh. Very on. Who could disagree? Certainly not Alan Hevesi...

NYT: A landmark agreement by former WorldCom directors to pay millions of their own money to settle with investors was revived yesterday about six weeks after it was scuttled by objections from other defendants in the case.

Under the terms of the settlement, which was reached early yesterday evening, 11 former WorldCom directors will pay $20 million out of their own pockets to settle with Alan G. Hevesi, comptroller of New York and trustee of the state's Common Retirement Fund. Mr. Hevesi is lead plaintiff in the civil suit representing hundreds of thousands of investors who held WorldCom stock and bonds in the years immediately before its bankruptcy filing in 2002.

If the settlement is approved by the court, it will bring to $6.057 billion the total amount recovered from defendants by Mr. Hevesi in the case.

The initial deal between the directors and Mr. Hevesi was announced in January and was viewed as a rare case of investors holding directors accountable for problems occurring on their watch. But the agreement fell apart in early February, when the judge overseeing the case ruled that an aspect of the deal was illegal because it would have limited the directors' potential liability and exposed other defendants in the case to larger damages....

The amounts being paid will differ for each director. The precise amounts for each director were not disclosed, but the payments will account for roughly 20 percent of the directors' aggregate net worth, not counting their primary residences and retirement accounts.

In so many words, the judge said: let the ducks eat them. Oh, the humanity.

Okay, Sarbox is a blunt instrument. But hell hath no fury like a comptroller or pension fund manager scorned. And the thing about having big rusty nails poking out all over the place and, well, poking people, is that you eventually get an Alan Hevesi. Or a Spitzer. Or an army of them. It's nature's law. Get slaphappy and people push back. Take their money and they'll get medieval on you. They'll go to the hardware store for one of these.

Isn't it beautiful? An Estwing. It put me through college. The 25oz job with the milled, meat-tenderizer face that grabs hard, even at off-angles, and drives a 16d nail in one stroke. Or it renders clumsy, inattentive digits into hamburger. Kinda like Sarbox. And also, gee, kinda like markets.

Alright, enough "good" esthetic, back to the depressing McKinsey Quarterly.

More than 75 percent of the directors say that they want to spend more time on strategy and risk. This refocusing seems to reflect three forces at work among boards: a shortfall of knowledge about the current and future strategy of their companies, a certain lack of confidence in management, and a desire to assume a more active overall role.

Surprisingly, more than a quarter of the directors have, at best, a limited understanding of the current strategy of their companies (Exhibit 4). Only 11 percent claim to have a complete understanding. More than half say that they have a limited or no clear sense of their companies' prospects five to ten years down the road. Only 4 percent say that they fully understand their companies' long-term position. More than half indicate that they have little or no understanding of the five to ten key initiatives that their companies need in order to secure the long-term future.

Now, I'm not gonna swing my little hammer but so much. BoDs govern, managers manage. Always a tough job. But we seem to be experiencing from McKinsey and from headlines and, let's face it, from practical personal experience that Governors and Managers are doing something other than governing and managing well. Why is that?

Henry Kravis of KKR thinks he knows:

If you examine all the major corporate scandals of the last 25 years, none of them occurred where a private equity firm was involved. Businesses have failed under our ownership and that happens. But to my knowledge there has been no systematic fraud or management abuse in our industry. Why? Because I believe that as general partners we are vigilant in our role as owners and we protect shareholder value. The private equity industry should be proud of this record.

After the recent corporate scandals, the Government stepped up to protect the shareholders from Enron situations by introducing Sarbanes Oxley. I believe that Sarbanes Oxley is a positive development for shareholders. Today, directors are taking their responsibilities to shareholders more seriously and this is good. One consequence, however, is that they are also being more conservative and risk averse. An enormous time is spent on legal process by the board, rather than pushing innovative ideas. Sometimes this is to the long-term detriment of the business. It is easier to say “no” to risk and play it safe than it is to examine the risk closely to determine if it is the right decision for the business. To the extent that Sarbanes Oxley causes public companies to be less competitive, there is an opportunity for the private equity industry in taking these businesses private and putting some energy back into growing them.

Now, in that speech to The Private Equity Analyst Conference last September, Kravis also said that Managers needed to be owners and he pointed out an example of Union Texas Petroleum. His premise was they were being slap-happy with shareholder money until they were reminded that, as 10% equity holders, $10 million of management's "optimistic" $100 million exploration budget was their money. Suddenly, Kravis says, they found common sense. (Ed.: fear mated to greed more like.) The budget was cut in half, and their eyes trained on improving efficiency at existing wells and drillheads.

That's a lovely story. But Henry's wrong about how things work in mahoganyville isn't he? Kravis mixes and matches and forgets this little snafu from UTP's Due Diligence period before being acquired by Arco then BP:

According to a Business Wire story dated August 3, 1998, the Complaint alleges that the company issued false and misleading information in conjunction with a document prepared for distribution to shareholders. Specifically, the company [Union Texas Petroleum] allegedly misrepresented assets and prospective revenues and recommended acceptance of the tender offer made by ARCO in spite of unstated unfavorable terms.

Goodness me, why would this be? (Hey, I made a rhyme!)

Simple. A Golden Trampoline did Kubla Khan decree. Warrants, options and the like are offered with the often fantastical anti-gravity clause. Price goes up? We'll make you whole, Mr Chief Executive. Price goes down? We'll make you whole, Mr Chief Executive. Forgot to exercise those options? We'll give you some more. Need a loan to buy them? No problem. Can't pay off the loan? Don't worry, we'll catch you on the rebound. We will make you whole, Mr Chief Executive. Keep up the good work.

Kravis is right about General partnership to a certain degree. The difference between involvement and commitment is like a bacon and egg sandwich: The chicken was involved but the pig was committed.

Commitment?

How do the guys who love to say Root out the innefficiency! We're problem solvers! Think ahead! We're the Pro's from Dover! find themselves redfaced with pants around ankles? Steve Neiderhauser's 8 Simple rules post linked above contains this nugget:

Prosen... cites an analysis by Booz Allen Hamilton -- Management ineptness, over the past five years, has cost shareholders seven times the lost equity value from corporate scandals.

Wow. That's an amazing statement. Seven times. Seven. Times. One wonders whether that's supposed to dampen our anger at fiduciary malfeasance or pump it up over generic stupidity and lax.

Now, here's where I often find myself wondering, professionally, "what are our priorities, here?" (Disclaimer: I'm a paid-irritant; minister of enthusiasm, drill instructor, and smassionist.)

So, we have a corporate sandwich. Mangagement, supposedly in the middle, blanketed by two pieces of bread called shareholders and board. About this entree, the survey also highlighted a lack of confidence in executives. Only 8 percent of the directors feel that management fully understands the key initiatives required by strategies for the future, while 38 percent say that it has, at most, a limited understanding. McKinsey again...

Leadership

Most directors, as our survey indicates, want to devote more attention to developing the talents and skills of the people who work for their companies. That interest isn't limited to hiring and developing the CEO; it extends to the top-management team and even to the broader company.

Directors already appear to be taking the lead in CEO successions, to judge by the 41 percent who say that they and their colleagues on the board led the most recent CEO search. That is good news. As former Sara Lee Corporation CEO John Bryan commented, the most significant task for the board is to decide who gets "to run the place." This responsibility is particularly important today: research shows that 71 percent of all US CEOs leave their posts involuntarily. Leaving the succession to the incumbent CEO is therefore a high-risk strategy.

The board's involvement in the process does not, however, guarantee a favorable outcome. In our survey, nearly one-quarter of the directors report that the most recent CEO succession at their companies had failed. When we probed for the reasons, the response was intriguing. According to the directors, CEO successions that work well and those that don't can be explained, in many cases, by the presence or absence of the same things: alignment between the board and the CEO on the company's strategy and future direction; finding a CEO with sufficient drive, energy, and ambition; the CEO's honesty and integrity; and a core skill set that includes investor relations and M&A (Exhibit 5). The absence of appropriate core skills is the most important factor in abortive successions, but their presence is less important in good ones.

Now, I would have bolded the appropriate portions of the above, but it's all, well, so bold already. So simple, yet seemingly so hard. Not a REAL challlenge of time management as much as one of fundamental priorities. Whoa! I feel wavy lines fading in, washing over me, I'm all woozy....

Re-engineering Siblings

The Scene: An American home.

The Players: An 8-year old girl; a 5-year old boy

The Situation: At each other's throats.

The Solution:



Any parents reading this? If so, I'm sure you'll empathize. The key here is Media Placement -- frequency and reach: bedroom door, coming and going. Over bathroom sink and toilet paper holder. Insides of exterior doors so as to catch young eyes leaving for school in the morning. All strategically placed at the eye-level of a 5-year old.

This is actually the re-introduction of previously effective campaign. Our now almost 9-year old daughter was of course, once a 6-year old. One who had issues with her then 3-ish little brother. You know the story, "my toys are my toys, his toys are my toys." Ditto: My tv channel, my french fries, my juice, etc. Also, it seems the little guy was to blame for everything from a family dog covered in motor oil to the Johnsonville Flood. The boy, not being a very developed debater at the time, got the raw end usually. And strangely, he kept coming back for more. (Having grown up with an older brother who made sport of mugging me from time to time, I always thought it would have been "neat" to have a big sister instead. The last 6 years have cured me of that silliness.)

After a month of saturation coverage (pantry, bookbag, miniature versions for "Barbie's Playhouse", a copy taped over the TV screen) we started to note a decline in customer service complaints. The HR department seemed less stressed at the end of the day. The final check against placebo effects came with a call from a strategic alliance: A first grade teacher. It seems that word of mouth had traveled. Our erstwhile Angelica had been posting gains in her citizenship numbers and with her peers and the teacher was curious what the "care, share thing" was.

Victory! We hoped. We crossed our fingers and began slowly phasing out the horizontal media channels but stuck to verticals like bedroom doors and the bathroom mirror.

Result? The 6-year old was allowed to remain in the Fouroboros corporate fold and moved on to become a valued SBU, posting winning gains in core competencies as judged by certified educational regulatory bodies. Additional gains accrued to outreach activities such as swimming and soccer, nicely adding to goodwill and market awareness. She also does her homework and feeds the dog without complaining. Sometimes.

Of course, this is management.

The boy will be 6 in May.

The art for Care-Share 2.0 went to the printers this morning.

4 simple thoughts. Seems infantile doesn't it? Terrible what growing up will do for you, against you.

And that's the problem. I (you) can't sell your simple virtue if you don't have any. And you (I) can't abate your lack of virtue, if you don't have any patience or interest. But, there's an escape clause: humility (however late) divided by ambition = sustainable power. But don't bullshit yourself: fundamental declarations are what it's all about, the rest is tactics that are totally out of your control... "Well-" or "poorly-executed" happen because of your intial choice. Sucks to drive to the bank, eh?