Month: May 2014

Time to break out the brass knuckles on public executives

Posted on by j.giglio

A rash of preventable deaths has put the Department of Veteran Affairs under intense scrutiny. The tragedy highlights the need to do better by veterans by revamping outdated federal personnel policies.

The VA has an annual budget of about $154 billion and more than 340,000 employees, including roughly 360 senior executives. It serves some 8.3 million veterans enrolled in the largest integrated health care system in North America, with 1,700 hospitals, nearly 1,400 community-based outpatient clinics, community living centers, nursing homes, and other facilities. In recent years, the VA has seen its customer base grow at an unprecedented pace, with a new wave of injured and disabled veterans returning from wars in Iraq and Afghanistan.

The VA is engulfed by a growing controversy over allegations that perhaps more than 40 veterans allegedly died while awaiting medical care in a Phoenix, AZ facility arid that government employees falsified data and created secret waiting lists to hide the long delays. Equally serious is the charge that the VA was aware of the delays but did little to address the problem.

Government agency heads operate under handicaps largely unknown in the private sector. For example, onerous rules governing procurement, budgeting and personnel that were originally adopted to prevent public sector wrongdoing have created workplaces that are often inflexible.

Recent scandals have further undermined Americans’ confidence in government. When these institutions fail, the breach of trust is devastating, especially when government staggers from one disaster and mistake to another.

When Hurricane Katrina struck New Orleans in 2005, it overwhelmed the levees protecting the city and left nearly 1,000 people dead.. Eighty percent of the city flooded, whole neighborhoods were devastated, producing a repair bill at least 1,000 times larger than it would have cost to provide the kind of levees that would have prevented such a disaster.

The 911 Commission found that a year before the terrorist attacks, poor communications, poor coordination, and competition between multiple agencies contributed to the government’s inability to anticipate and respond to attacks.

More recently, Americans witnessed the botched rollout of healthcare.gov and the Benghazi attack in which four Americans died in an assault on the American consulate, which took place on the anniversary of 9/11 despite prior warnings.

Then there was the IRS targeting of conservative organizations. These are stark examples of the price of government’s failure to perform as it should and then not being held accountable for its failures. Antiquated civil service rules mean there is little threat of anyone being fired. Many public servants perform heroically, but these ghastly events dramatize the need for better performance from government agencies that deal with life-and-death situations.

It’s no secret that many public-sector employees feel a sense of entitlement when it comes to their jobs. Why shouldn’t they? They have virtually guaranteed lifetime employment followed by generous pension benefits from agencies that almost never go out of existence.

There is little incentive to focus on the taxpayer as a customer and mediocrity becomes institutionalized, creating a culture of complacency. Transforming a civil service mind-set to focus on the customer is profoundly difficult.

Now the uproar over VA treatment delays is triggering heated debate in Congress about whether it is too difficult to fire senior federal executives. Current law allows those who report directly to presidential appointees to be disciplined and fired, but the process can drag on for years.

The House of Representatives has passed legislation giving the secretary of the Department of Veterans Affairs authority to remove senior executives whose performance warrants firing. Given the recent history of government mismanagement, it is time to break out the brass knuckles.

The average American does not have guaranteed lifetime employment and has witnessed massive private-sector layoffs, pay cuts and benefit reductions.

Meanwhile, all the usual suspects made the obligatory Memorial Day visits to Arlington National Cemetery. They expressed outrage at the treatment of veterans and pontificated about honoring the families of those who made the ultimate sacrifice to protect our freedoms.

originally published: May 30, 2014

Corporations, integrity and dead customers

Posted on by j.giglio

These days, saying that no one much likes captains of industry is to exaggerate very little. It is as American as pizza, unwed mothers, cheating on your taxes and hating the Yankees.

But the actions of one corporate titan more than 30 years ago stand out from the crowd and prove that it doesn’t need to be that way.

On Sept. 29, 1982, Johnson & Johnson executives learned that seven people from the Chicago-area died after swallowing Tylenol capsules laced with cyanide. Nothing of this sort had ever happened in the industry.

That summer, J&J’s Tylenol pain medication was by far the country’s leading analgesic with a 35 percent market share. The brand seemed unstoppable, until the unimaginable happened.

J&J’s handling of the crisis was a textbook example of doing the right thing and putting the customer first. The firm took immediate steps to recall and destroy the 31 million bottles on American shelves and it developed the first tamper-resistant packaging. The moves cost over $100 million, and that doesn’t include the effects of plummeting sales in the wake of the recall.

But the firm was ultimately rewarded for putting customer safety first. A year later, Tylenol was once again the nation’s top-selling analgesic. After two years. Tylenol was back to capturing 33 percent of the analgesic market.

Acting to protect customers in the earliest stages of the crisis was consistent with the first stanza of J&J’s corporate statement of purpose: “We believe that our first responsibility is to the doctors, nurses , and patients , to mothers and all others who use our products and services.” Senior managers understood that you protect the brand by protecting the customer. If you put the customer first, employees, stockholders and other stakeholders all do better in the long run; it’s about customer trust.

General Motors is the latest example of bad corporate behavior. We recently learned that GM waited over a decade to recall 1.6 million compact cars with faulty ignition switches that contributed to more than a dozen deaths across the country. When they finally did act, it was by sending technical service bulletins to dealers instead of immediately recalling cars. GM’s current CEO Mary Barra called the firm’s slow response an “extraordinary” situation and said she didn’t know why it took so long to fix the ignition.

To make matters worse, this comes just five years after the federal government became the de facto owner of General Motors when it invested more than $100 billion in taxpayer money to bail out the troubled automaker. The feds of course swear on a stack of bibles that the bailout was a rousing success, resulting in more than a million jobs being saved and GM again becoming the number one automaker in the world.

Barra must have felt something go dead inside her as she realized she was saying so little and saying it so late. After all, this is the new GM, a far different company today than before bankruptcy. We know this because GM keeps telling us, even though there’s no evidence to back it up. One can only assume if they say it often enough, it will be true.

GM remains unwilling to admit the company made mistakes. The automaker recently filed a motion asking a federal bankruptcy court to enforce a provision that shields the “new GM” from liability for incidents that took place before it emerged from its whirlwind Chapter 11 bankruptcy in July 2009.

GM could have learned a thing or two from J&J, whose response to the 1982 Tylenol poisonings did justice to the company’s stakeholders. Though the person or persons responsible for tampering with the pills has never been found, J&J’s reputation wasn’t lost.

It is not surprising that in the weeks and months following the crisis, J&J was praised in the court of public opinion for demonstrating that doing the right thing matters and that making the customer the first priority is good business. It’s a lesson GM’s top executives never learned.

originally published: May 10, 2014

‘Too big to fail’ GM already has

Posted on by j.giglio

General Motors waited more than a decade to recall 1.6 million defective Chevy Cobalts, Saturns and Pontiac G-Ss with faulty ignition switches that could cut off engine power and electrical systems, disabling the air bag and leaving occupants vulnerable to serious injury. Thus far, the defect has been linked to 13 deaths.

GM’s corporate delinquency and callous disregard for persistent quality control problems are so disturbing that many find it difficult to reconcile them with company leaders’ constant claims that the company has a different organizational culture than the one that was in place when these lapses occurred. GM has reinvented itself, the story goes, and now builds the safest and best cars in the world.

The coming months will tell us a lot about whether those claims are just talking points or if new CEO Mary T. Barra, a 33-year veteran of the company, has truly transformed GM.

Last month Barra told a congressional hearing about the overhaul of GM’s corporate culture. These days, “creating a new culture” is one of the phrases CEOs need to wield to make their way in corporate America. The new CEO is going to push middle management and old timers to think and act differently, shedding its hidebound culture and putting the customer first.

After dominating the U.S. car market for most of the 20th century, the glory days of GM and the American auto industry began to unravel in the early 1970s. GM, for example, had a majority of the U.S. market in 1962 and was the undisputed leader in global car sales between 1931 and 2008. By 2009, this great American icon’s market share had fallen to less than 20 percent.

One reason GM and other American automakers lost their way is because senior management built strategies around the flawed assumptions that oil would be readily available and cheap, and American drivers would continue to buy large vehicles. Given their inflated cost structures, these were the only vehicles American car manufacturers could sell at a profit. On average, GM spent about $1,600 per car more than their foreign counterparts on pension, health, life insurance and other worker and retiree benefits.

The 2008 financial crisis hit the industry hard. U.S. auto sales declined by 18 percent from 16.1 million units in 2007 to 13.2 million units in 2008. Meanwhile, the price of a gallon of gas rose to over $4 in the summer of2008, up from about $2 in 2005. In 2009, the credit crisis, coupled with an already-declining market share, redundant product offerings, huge legacy costs and customer perceptions of poor quality pushed GM into bankruptcy court protection.

By handing GM close to $58 billion under the Troubled Asset Relief Program, the feds became the company’s de facto owner. Washington provided additional help by waiving the payment of $45.4  billion in taxes on future company profits, offering a $7,500 tax credit to consumers who bought the Chevy Volt, the Cash for Clunkers program, and an exemption from product liability on cars sold before the bailout.

In November 2010, GM returned to private ownership by launching a successful initial public offering.

But just as people have distinct personalities, so too do organizations. Transformation takes time.  Culture is the product of the firm’s organizational structure, the system used to reward senior management and motivate and shape employee behavior. Old loyalties, behaviors and identities are hard to change. They produce a massive amount of inertia which has to be overcome.

Does Mary Barra’s long tenure at GM doom her to repeat past strategies and traditions such as the slow response to safety issues? Can a company lifer drive the kind of major change Ford saw after it recruited Alan Mulally from Boeing in 2006 and he pulled the company back from the brink of collapse just two years later?

General Motors again faces the risk of years of costly litigation and a significant loss of brand equity and market share. Hey, no problem. GM is too big to fail.

originally published: May 3, 2014