Tag Archives: resilience

Customers First, Investors Last: What were they thinking?

For years now, my colleagues and I here at BoardBench, have been saying that Wall Street has it backwards.  In the boardroom, directors have been fed, with a very large spoon, the mantra that they are beholden to the shareholder, that their purpose is to “maximize shareholder value.”  If you asked a large group of directors if this is true, you’d see a lot of bobbleheads in the room.  Many believe this is a legal requirement and in line with good business sense and good corporate governance.  Unfortunately, the concept of “shareholder primacy” is a relatively recent phenomenon.  It is also simplistic (shareholders’ wants are not homogeneous), has no legal basis anywhere (go ahead, try to prove me wrong), and, as many are now pointing out, usually damaging to companies, and the economy as a whole.

What we believe is real, and will eventually be proven again as real to the Street, is that customers, and employees are the two key drivers of corporate success.  When I say “again” I’m referring to Peter Drucker’s famous quote from decades ago: “the purpose of a business is to create and keep customers.”  So many seem to have forgotten this, or have never even heard of it.

But the basic premise is this: if you take care of your customers, and have great employees who are well supported and appreciated for being curious and excited about what they do such that they will ensure that customers love the products and services that the company offers, the company and shareholders will reap the rewards, too.  Of course other things come into play, like managing R&D investments (with the customer in mind), operations, and supporting a corporate culture that has strong values and morals.  The basic premise may be slightly oversimplified, but it applies, and should resonate with the board.

It appears that I’m finally not standing alone on this either.  In a recent interview, Jack Ma, the world’s newest CEO darling, made two bold public statements.  He basically shunned the current thinking of the Street by stating, on national TV, that “our customers come first, ouJack.jpgr employees second, and our shareholders third.”   He continued: “We aim to be larger than Wal-Mart by 2016, or sooner.”  If – no, when – Jack succeeds, and executes flawlessly on his statement, that customers and employees take a front seat over shareholders/investors, then he’s got an excellent chance of passing Wal-Mart as the world’s largest retailer.  Note, Wal-Mart just slapped some of its employees, who have the most direct relationship with their customers, by cutting their insurance benefits. This was probably done to cut costs, but it will probably also have a long-term impact on their customer relationships, too. But, I digress.

It seems that too many directors, CEOs, and business leaders, have become obsessed with what Wall Street, its analysts, and shareholders think.  Many have learned to play these groups exceptionally well, too. Countless analysts and shareholders have been taken in by companies’ projections, quarterly earnings estimates, and highly creative financial management and reporting.  Don’t get me wrong, the importance of the exchanges and the markets cannot be downplayed, but a balance is needed.  Focusing on Main Street is just as important, if not more so.

If you follow Main Street, you know about big box discount stores. Costco Wholesale Club, founded by Jim Sinegal and Jeffrey Brotman, believe in serving the customer first, and that if employees are treated properly, they will work with, and treat the customer well too.  Jim, the public face, is a “hands on guy” who is known for visiting each individual Costco store.  Jim is also outspoken about his views on Wall Street.  He’s been known to say that he puts his customers and employee needs above “pleasing shareholders.”  This philosophy must be working: Costco’s five year return is +116.73%.  If you bought the stock earlier, your return would be closer to 354%.

American Express is another company known for taking good care of its customer/members.  Personally I’ve been a fan of the company’s customer service representatives over the years, and tell them that every time I’ve called for help.  Don’t get me wrong, working at this company must be tough: when I was younger, AmEx employees were nicknamed The Dragons.  Perhaps because they were seehat2.jpgn as willing to fight for the company and their customers nearly to the end.  By the way, if you invested in American Express five years ago, your return on investment would be up 149.46%.

If you’ve worked with the general retail public, as I did during my college years, then you know just how tough this can be.  Sadly, not everyone who enters a store, calls a helpline, or dines in a restaurant is a kind and thoughtful customer.  Amazon deals with all sorts of customers from nearly every continent in the world, and I’m sure they have some interesting stories to share.  However, the company is noted for being one of the best customer service organizations in the world.  Amazon has more than one customer base, as many do: retail members, and consumers.  Jeff Bezos clearly divided the customer’s connection to Amazon into two categories: the experience and the service.  At this level, he notes that customer service is part of the full customer experience.  If it’s unpleasant, it’s a negative customer experience.  He supports the idea that a positive customer experience creates greater loyalty with Amazon.  If you’ve ever dealt with an Amazon Customer Service rep, you know that they work quickly to resolve your issue, they get the job done for you, and you are nearly always satisfied and left feeling good about your relationship with Amazon.  And, if you invested in Amazon five year ago, your return on investment is now up 236.64%.

While it’s much more pleasant to focus on the “good guys,” there are dark clouds.  Some companies are noted for their poor customer service.  Some survive because there are few alternatives: think of phone companies and cable providers, and some you can name on your own (take a look at their five-year ROIs).  However, when it comes to poor customer experience these days, I think sadly of that American icon Sears.  Whenever I bring them up these days, all I hear is: “Oh my gosh, I could tell you about the time when…”  Sears is a sad story101.jpg about the decline of a once great and loved retail giant.  Many years ago, the Sears catalog used to be called a “wish book.”  Families would anxiously wait for it to arrive in the mail.  It was nearly 5 inches thick. Moms, dads, sisters, and brothers would argue over whose turn it was to browse through and select from among the items they wanted for birthdays, holidays, special occasions and more.  Some people even bought their homes out of the Sears catalog.  But, it has lost its way, and it’s touch with its customers and has already begun its drop down that magical slide once pictured in its own catalog.  The entire company and its hopes for the future look pretty dismal: sell off of units and real estate, store closings, etc.  Sadly, if you invested in Sear’s five years ago, your return on investment would be -58.50% and it’s still falling today.

To sum up and put things into even sharper perspective, I recently spoke with the General Counsel of one of the largest, most recognized corporations in the world.  He told me, succinctly, that the biggest problem with their board is that not one director had any understanding of who their customers were and are or what they want.  I can also assume that they don’t understand their employees either.  So I will watch how this company slides in the next few years (Note: their record has been negative for some time), and report back with an update, unless, that is, they somehow figure it out and turn it around.

Do you need to focus on board improvement: composition, strategy, direction, execution, oversight?  Boards are our specialty. Give us a call.

Nancy May

From “what can I do” to creating your own work

Creating work for yourself is easy. Creating work that pays you regularly, on the other hand, requires a little more effort.

I recall sitting in a roundtable of CEOs — I was the only one, other than the facilitator, there who wasn’t currently running a small to mid-sized company. (I had been a CEO, and was consulting to smaller businesses at the time, and the facilitator invited me to join the group to add my “insights” [such as they were] to the discussion.)

Each of the other players at the table was quite sure that I, who was teaching, consulting, writing, volunteering, etc. (a typical portfolio of things underway) was wrong. “Find one thing and stick to it.” “Follow your passion.”

Passion isn’t enough, although it’s the number one word thrown out there by those advising potential entrepreneurs (remember, starting a not-for-profit or social organization is just as entrepreneurial as is starting a for-profit, “going to take over the world” one — not that any of those CEOs saw any value in the not-for-profit route, either).

What does the market need? — Who’s going to buy it and why? — Do I care enough about this to make it work?

The last of these is passion. All three are required to have an enterprise. (Answer all three and you have a business plan, or at least the key elements of it. Business plans are less about the numbers — the forecasts — and more about the problems, opportunities, etc. of the situation.)

I also recall, earlier in my career, working in a sales organization as a systems engineer. There came one of those afternoons where an account executive came running into the office to announce a big deal he’d just closed. “Party on, dudes!”

I had my required glass of wine in hand to celebrate, and realized I wasn’t at all excited. That client didn’t need a whole whack of new gear; that client needed someone to go in and help them make what they had already work better. That what they had came from a competitor meant no one from this firm would be doing that: it would be like the Toyota dealer fixing a Ford to avoid selling a new Toyota.

To me, that was a signal to change jobs. I didn’t have the required passion for the business (which was all about selling new gear). I was always happy when a client needed something new and we sold it to them, but not when they didn’t need it.

You need to know yourself well enough to know that you, for instance, can’t sell someone something they don’t need.

Choosing, as many recently unemployed executives do, to throw that leaving whack of cash into a franchise “because there’s money to be made in it”, but hating the product — imagine owning a KFC or McDonald’s and loathing the food! — isn’t how you create your own work. (It is how you create your own nightmare.)

I spent part of yesterday watching a professor tear into a graduate student who was defending his thesis. He’d done work suitable for a consulting practice, and was being shredded because he hadn’t treated it like an IT effort. (The student did pass for all that, but it was unpleasant.)

Is he passionate about the subject matter? Yes. Does he have something that can be bought, and a reason why a client might buy it? Pretty much. Whether the market perceives a need remains an open question — and this is something that I, too, think the market desperately needs to focus on and employ.

But there’s been lots of things in history that filled needs that the response was “meh”. Riding on the sidewalk on your Segway, are you? Flying supersonically across to Europe and back to do same-day meetings, are you? Watching laser disc movies, are you?

Even the public sector has its programs that are announced with fanfare and there’s no line to apply for the money, and there’s been no shortage of community organizations that opened … and shut … because of a lack of interest.

That’s why finding work for yourself is actually easier than it looks at first. Your contribution doesn’t have to break a lot of new ground. It just has to offer something somewhat better than what’s out there.

Maybe you’ve a passion for coffee, and your neighbourhood is already littered with coffee houses. No worry: what’s the niche that everyone missed, and are there enough people like you who miss it? If you get that right, there’s room for one more … or the weakest player will end up leaving the field.

Two “just out of school” types in Etobicoke sat down and said “what is it all the other organizations trying to fight for climate change issues are missing” … and built an enterprise educating youth about the science of climate change and the interrelationships in the economy flowing from it. It doesn’t pay a fortune (yet another reason not to have a pile of student debt hanging over your head when you start out) but it does keep them busy and in money, enough to live on.

The bottom line is this: resiliency (personal) is grounded in constantly asking the three questions of “what’s needed?”, “who’ll buy it and why?”, and “am I passionate about it?” in all sorts of situations whether you’re looking to start something or not. Resiliency (community) is grounded in having many vibrant players doing exactly this: as Nicholas Taleb pointed out in his latest book, Antifragile: things that gain from disorder, for any community, the number of restaurant tables tends to stay pretty constant, even though the restaurants themselves come and go.

In other words, there’s lots of opportunity out there, if you’re willing to come at it with an open, active mind.

The fragile, the robust, the anti-fragile and the resilient

Having just finished reading Nassim Nicholas Taleb’s Antifragile: Things that Gain from Disorder (which I heartily recommend, whether you read his The Black Swan: The Impact of the Highly Improbable or not) I’ve been giving some thought to what this means from the point of view of one’s own career.

Most people go looking for a job when they leave school. Periodically they go looking for a new job. Every so often, on that journey, looking for a new job is forced upon them (through reorganization, merger, or a moment of “let’s cut costs and you belong in this year’s ten per cent”).

This is living in the world of the fragile. A job — any job, from “would you like fries with that?” to Executive Vice-President and above — is secure only so long as events do not take over. Bring on a recession, a tough new competitor, an acquirer with money to burn, a sociopath above you, a major loss in court, or half a hundred other things beyond your control, and all of a sudden the job isn’t there for you any longer.

That’s, by the way, the first part of personal due diligence: keeping a weather eye on approaching events.

Some people are willing to trade for a little more security. They try to find a port in the storm that is robust. Think mighty oak tree instead of sapling.

So they go to work where the place is “too big to fail”, or in the public sector (we’ll always have schools, or universities, or hospitals, or bureaucrats in offices), or in the military, or a host of other places “deemed to be secure”.

There, they may not have the lifestyle of the rich and famous (unless “too big to fail” is a bank) but they have a defined benefit pension, can’t easily be fired, and as long as they can conform to the norms are secure. Besides, no one is buying up universities, or school districts, or armies, are they?

Well, as Greeks, Spaniards, Portuguese, and other southern Europeans have discovered, robust the public institutions may have been, but when the money runs out yes, they do fire tenured professors, civil servants, soldiers and policemen, and a host of other robust institutions. A big enough external event, in other words, can topple an oak tree.

Let’s look the other real alternative to fragility. It’s not robustness, it’s antifragility.

Taleb talks about your neighbourhood’s restaurants. Individually, these businesses are fragile. Food fashion comes and goes: you can be a great Tuscan eatery, and when nothing but Asian fusion will do your tables will empty and you’ll go under. The average run for a restaurant is five years. Yet a neighbourhood tends to have the same number of eateries in it year after year — and chef-owners that close “The Hot Pot” are back in the year with “The Bistro”, and then, on the next cycle “Bean Sprout Gardens”. The restaurant trade, in other words, is antifragile: it survives condo-building tearing down blocks, deep recessions, supply chain disruptions, labour shortages and a host of other issues.

By choosing to work where the structure of the “industry” is antifragile, and learning how to roll with the punches of the ups and downs of the individual parts, truly safe careers are built.

Now some of us are more resilient than others. We know that our own lives must be periodically redecorated (it’s called learning new things) just as the chef-owner who likes his location and wants to stay in business has to periodically redecorate the place, change the menu to fit new tastes, and learn how to cook new food.

We’re doing personal due diligence not from the point of view of avoiding trouble coming at us, but from the point of view of riding the waves.

Now when your children are approaching the take-off point, it’s natural for parents to sit and muse on “what job will they have”. After all, no one wants their child to be adrift in a cruel world.

It’s hard to sit there and not think of jobs, in fact. But it’s necessary.

You see, your child should study what they can be interested in and enjoy. (Picture taking a mathematics degree when you hate math. Really picture that. Now ask yourself why your child should suffer through a degree because “there’s a job at the end of that one, and there isn’t one at the end of what you like”.)

Rather, you have to think about how to turn your child’s interests into an antifragile, resilient future for them. You have to point out all the different places that their chosen subject would apply to. You have to point out what they could do with their life, not just what job and title might lie at the end of the graduation ramp.

It’s easier, of course, if you live a resilient life in an antifragile community already. But any of us can do this. It just takes breaking with our own entrainment from when we were young.

For here’s the reality of tomorrow: following generations will have fewer university graduates than current ones do. That’s because the widespread expansion of universities has created a glut of graduates. It’s why job specifications demand ever more education, but the job doesn’t change. Anything to weed through tens of thousands of résumés!

That which cannot go on, will not go on. It never changes as quickly as it can be seen, but change it will. With that, one of the pillars of robustness will fall, too (there are already far too many people capable of teaching in universities or researching at universities than there are teaching jobs, or research grants to support — add declining enrolment as people realize a degree does not lead to work and the implosion of that oak tree will be mighty indeed).

But no one asks the entrepreneur for his credentials. No one asks the innovator for his paperwork. No one asks the fledgling restauranteur who he studied under.

Instead they judge the work done: is it good? Will I pay for this? Do I want more of it?

Never forget, Bill Gates dropped out of Harvard. Steve Jobs did a half year at university. Does it bother you that your computer was the creation of someone without degrees?

Thought not. But in both cases it was the creation of someone who didn’t want something fragile for themselves.

Think about it. It’s never too late to improve your own resilience.