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Such things are common in business. The old plodding way of doing business after WWII cried for new ideas and innovation. As companies grew into corporations and corporations grew in size, corporate management became more complex and required new ideas and innovations. Many changes succeeded, many did not. In the late '60s the Harvard Business School was at its zenith, top dog in the business administration field, academically. This was largely based on the case study method that became the hot button of the day. The premise was that business management could be reduced to an exact science by studying examples of successful business and reproducing those examples. Harvard cranked out 1000's of Harvard MBAs, the hot title of the 70's. Their bible was the case studies they had learned were the blueprint for success. No need to join the business world in "entry level" positions. The new formula transcended the need for experience. There was no need to know success and failure to temper planning and judgment. It did not make any difference whether you were selling toothpaste, heavy equipment or pharmaceuticals, the case studies would provide the only and exact formula needed to achieve double digit increases in sales and profits. Of course, that crop of Harvard MBAs expected a corner office and a "V.P" within two years while still in their early twenties. But there was a problem. The case study concept was not a bad one as a concept. However, the essence of the idea was to learn the processes by which strategies, planning, and execution led to cases worth studying. The cases were not valid as a step-by-step blueprint to be duplicated and applied to toothpaste or heavy equipment or pharmaceuticals. There are just too many variables in each and every business. Such generalities of applied science when executed in the business world led to failure after failure of the applied case study methods. The Harvard Business School lost its luster. The U. of Chicago, Stanford, and others took over the lead position after taking a more realistic and relevant approach to business management. But a lot of damage was done to a lot of companies and a lot of lessons learned. My company was no exception and that had a profound effect on my career. The new, member-of-the-family president of the company was a product of Harvard. That methodology was used to try to make us a global operation. The federal government wanted to encourage investment in Puerto Rico and encouraged US companies to build manufacturing facilities there. This was back in the 60's. One of the incentives was a tax credit, as I recall 7%ish, which was significant to us at a time when productions costs at home were getting out of hand. We could establish a Puerto Rican subsidiary to manufacture our products and sell them to us stateside at a favorable price to keep us competitive and profitable. The only hitch was that the profits of the Puerto Rican Company could not come back into the US for ten years. So in accord with one of those case studies, we began to purchase/acquire our way into the international market and began buying up all kinds of companies. Unfortunately one of the family cronies who headed up that acquisitions group did not know enough about business analysis to handle the job professionally and select companies that would expand our base in areas where we knew what we were doing and we bought some rather ridiculous companies. What do you call it when incompetent people are put in critical positions because of whom they know? It doesn't have anything to do with ethics, but poor management is a small step toward a climate in which good business ethics can be compromised. More on that later. Well, we had enough cash in Puerto Rico to sink the island so what the hell? Our acquisitions people didn't have to worry too much. They were not responsible for profitability. Eventually our US economy changed drastically, and we saw interest rates soar to double digits. We were saving 7% but money cost us 12%. That road led us some real problems. So there we were, following a plan that did not apply to the business situation we were in, led by people whose qualifications were less than needed in positions of power and glory and high salaries and expenses. What to do! While all this was going on, our pharmaceutical division, the backbone of the corporation lost those key players I spoke of earlier. All three of my mentors, the people who were responsible for luring me back to the home office from California had left. They had the foresight to leave a problem they knew they could not change and move to significant positions in other companies in our industry. At this time we were trying to bring to market our most significant research product in a quarter century, a highly technical cardiovascular product. I was given the assignment over many senior product management people. I had the more extensive technical background and had exhibited a bent for detail. The core of the marketing operation was a highly trained staff of product managers and group directors. We had total profit and loss responsibility for the products assigned to us. That meant we were responsible for the integrated activity of every department involved with our assigned products even medical research and production. Even though we were responsible for the performance of others we had no authority over them. We had gain complete cooperation of others by the weight of our planning and strategy and our ability to persuade others do follow our detailed plans. If you had a good product plan that covered all bases and answered any arguments that might arise, winning support was not impossible. That kind of total product management could be the subject of another book I once intended to write. While these changes were happening to my company, a company I still perceived to be the ideal one I had joined years before, I was totally immersed in a job that would take me more than four years to accomplish. Eighty-hour weeks were the norm. This was to be one of the most significant product introductions in recent company history and it was up to me. Two problems: 1) I was in an important position and I knew what I was doing so I was left relatively untouched by corporate changes, and 2) I was too occupied to notice and evaluate what was going on around me - not that I would have done anything about it if I had been aware. That is a common situation in the business world. The busy, capable people give the "wheeler-dealers" lots of room to operate. You must keep in mind that I am speaking with the perspective of hindsight, not from what I was perceiving at the time. To fill the vacancy left by a key player in the corporation who went on to greater things, one of my mentors, a man was brought in who had a reputation as an industry "hot shot." Looking back, I now would warn someone, "look at reputations very carefully. It is hard to hit a moving target." As VP Marketing and Sales it did not take the new man very long to bring in cronies from around the industry whom he knew and who were loyal to him. Not unusual. These were people riding the left rail of our tracks toward the future, but that rail held all the control cards. Suddenly the character and personality of management changed. In positions of control over highly disciplined employees with a high standard of integrity and ethics in a highly professional and technical industry, the new liberal element brought a very liberal attitude toward the little things. We old timers saw the manipulation of expense accounts become a science. New and better perks for the left rail riders became commonplace. The change in corporate ethics and integrity did not occur overnight. It was gradual but very steady. The separation of the old guard on the right rail and the new regime on the left rail became more pronounced. The left rail needed that steady production of the right. Some of the left, of the simplistic case study mentality, actually thought they knew what they were doing. It was the classic case of they don't know and don't know that they don't know. I was too busy to smell the coffee. I really didn't think all the goings-on would have a permanent effect on my company. I couldn't have been more wrong. How bad did the ethical issue get? I won't go into detail issue by issue, but here is an example that finally brought about their downfall. The year is coming to a close; the fourth quarter looks to be a couple of $ million short. (Doesn't sound like much today, but 25 years ago that was significant, and that is another story.) For the left rail group to make their bonus, they had to make the quarter; if they could, it would be a big bonus. The boss executed a brilliant plan. He loaded up a boxcar with high cost pharmaceuticals - a boxcar full is a lot of $$ - and had it shipped to a west coast wholesaler. Of course it showed up on the sale sheet. While it was on the way, he called the wholesaler: "Gosh, I don't know how it happened, but a shipment was consigned to you by mistake. If you can take it, we'll give you an extra 10%." "No, we can't take it." "OK, just put it on your siding and I'll tell you where to ship it." Wait one week and tell the West coast guy to ship to one of our distributors in Florida. Calls Florida, "Gosh, I don't know how it happened, but a shipment was consigned to you by mistake. If you can take…………." The big bonuses were paid. That car crossed the country for weeks and it was a couple of months before the "return" had to show up in the financials, but show up it did. The perpetrators, and it took many to pull off these kinds of shenanigans, were allowed to repay the bonuses and resign!! Question: Resign or jail? Was it fraud or executive creative accounting? What was the proper action by the company? Is it better to quietly resolve the matter and forego the publicity? What is the ultimate good? Define if you will the following: ethics; fraud; integrity; legality; morality; justice. Do so first, without the use of the dictionary. Then look up a Webster definition. Herein lies the rub, or part of it. One man's fraud is another's strategy. This is more significant that just a difference of opinion over the definition of words. Back in the mid 1930s, Wendel Johnson in his book, "People in Quandaries," advanced the premise that the cause of virtually all neuroses, many of which could in the extreme lead to psychoses, was the imprecise use of language. You describe something as "blue" but I know it to be "aqua," you idiot! I called you an idiot but that is probably not exactly what I meant. As language changes and becomes less precise and specific, as today we have become a nation of headline readers, victims of sound bites and catch-phrase labels, we react to the word and not the thing it describes. Words lose meaning. As a result, we get lost in meaningless arguments over the wrong issues. Furthermore, the ruthless among us, whether it be in politics, advertising, news coverage, or the boardroom can exploit that tendency to their own advantage. The operative words here are exploit and ruthless. We are in a rushed society. Too often we don't have the time or are in too big a hurry to make ourselves perfectly clear. We don't take the time to be certain that we are conveying what we mean. It's a game of projection and perception. I am projecting to the gorgeous blond at the end of the bar that I am a dashing, handsome, debonair, man about town. She perceives me as a dirty old man. The horror is that her perception is correct; that is exactly what she perceives regardless of my intention. The fault is mine, the projector, not hers. If I wish to communicate to someone who speaks only German and I am speaking in English, it is not their fault if they do not understand me. In the boardroom we must understand the make up of everyone we want to influence. Too often we let our emotions get the upper hand and we make haste to project a point, often imprecisely. A ruthless opponent can exploit our sincerity by goading us into a less than precise position. "Give me that in ten words or less." "Let's cut to the chase," (so you don't present too much evidence to influence the others). You've probably been there. Nonetheless, the fault, the responsibility is ours and when we fail we blame the opposition for our frustration. It is a grandiose chess game. I did not know the depth of what was going on at the time or the details. I knew these were not good people but I didn't do anything about it. Knowing what I know now, I'm not sure I would have acted differently. Would I act alone? Would I try to organize a coalition? The piper was ultimately paid. These people were caught, in time, although it seemed that they were winning all the time. It seems that our human nature tends for us to resist discipline; we want things to be a little easier. Once the bar is lowered, even a little bit, the popular reaction is to look for it to lower even more. The same with ethics. If we see unethical behavior rewarded why not participate? Such conduct is insidious, infectious, and relentless. Once established, it is hard to eliminate. What happens when opposing management views are in conflict? |
Part 3 A business fable for modern times, based on a true story. Names of companies, locations and individuals have been changed. Hopefully, this will be enlightening for the reader wrestling with business and ethics Posted with permission of the author. |
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think we agree that change is inevitable and that is not
necessarily a bad thing. Otherwise we'd still be reading by candlelight.
Change can be a multiple edged sword. It can improve and enlarge our world, or it
can make us less sensitive and even reduce our sense of values. The events of 9/11
brought about catastrophic change. Good, or bad, or both? But the subtle changes in
our American society over the last fifty years made the events of 9/11 possible - our
freedoms, protection of civil rights, prosperity, social trust, introversion, enabled our
enemies to find and exploit what we perceived as strengths and they perceived as
weaknesses.