Effective Leadership & Chrysler's Nardelli On "The Business"
"There are a lot of industries that need fixing." -- Wilbur Ross
Leadership - The ability to inspire others in a shared vision. Leaders have clear visions and they communicate these visions to their employees. They foster an environment within their companies that encourages risk taking, recognition and rewards, and empowerment allowing other leaders to emerge.
Why does Wilbur Ross state that a lot of industries need fixing? Ineffective leadership. It's likely no secret to many who read this blog that I believe we are experiencing a systemic crisis in leadership. Not just in business but in society. How many people in national or business leadership positions come to mind when you read the above definition of leadership? We all see the polls as it pertains to political leadership regardless of party affiliation. But, there are also polls regarding business and they are overwhelmingly negative regarding leadership. Anecdotally, most people probably sense this. The reality is people are really quite accurate in their instincts.
There are many factors that have contributed to a crisis in leadership but that's for another day. That said, trends never last forever. And, I am completely confident this trend is over. I have a post that I believe will be very interesting on this very topic. But, I have a hard time keeping up with posting ideas because I have a limit to the amount of time I spend writing on here. We are entering a defining moment of history where great leadership will emerge. Not this very instant but over the coming years. Someone is going to fill the vacuums that exist today. Maybe that someone will be you or someone you know.
I've commented on the state of Chrysler's business a few times this past year. Now we have a chance to listen to their CEO Bob Nardelli in the video below. But first I'd like to make a few additional comments.
It's ironic that Nardelli remarked a handful of months ago that Chrysler was effectively bankrupt. Yet, in this video he talks about beating financial forecasts. Well, which is it? We are bankrupt but beating forecasts? Is doublespeak one of the benefits of being private? I later read his remarks about bankruptcy were meant to motivate Chrysler's employees. Some time ago I had outlined a post focused on effective leadership using the original comment about being bankrupt but decided not to develop it. So, now let me do the cliff notes version.
Anyone who understands effective leadership knows motivation can be provided by positive or negative stimuli. Anyone who understands psychology and effective leadership knows negative motivation has a limited and temporary effect. And there are typically unintended and unmeasured consequences of lost productivity, lost talent, quality of work, morale, etc. Arguably the most important skill of any leader is the power of positive persuasion, inspiration or the human factors element.
To use a worst case example of negative stimuli or motivation, look at the consequences of men and women attempting to stay alive in a war zone. There is plenty of motivation to succeed and plenty of negative consequences. Additionally, look at children whose parents are emotionally unsupportive versus a child that grows up in a supportive and inspirational family and you will see the difference between night and day. People may pay hundreds of thousands of dollars for an education but great leadership was well understood before we even had the concept of formal education. Books, seminars, expensive degrees, gimmicks and gurus aside, the human factors element of great leadership are timeless and they can be had for free. While these are extreme examples, the reality is people don't respond well to negative motivation or stimuli over long periods of time. So, if someone is going to use negative motivation, they need to realize its effects, consequences and its decling time value. It can often be effective in specific situations but creating a pervasive and lasting environment or culture around it is very damaging. Having a frank discussion that our company is in crisis and we need to come together as a team to overcome the challenges we face and, if we work together, we have a high probability of success is much different than using 'we are bankrupt' as motivation.
Command and control leadership is best left on the battlefield. There may be certain times when it may be needed to manage a short term crisis but in general, it is not an effective management style. In fact, my experience is that those using such tactics most often do so because they don't have the developed leadership tools necessary to lead effectively. In other words, it's a clear sign of poorly developed leadership skills. It's also a tactic not embraced by a great CEO I wrote of a few weeks ago - Herb Kelleher. Regardless of whether this is the situation at Chrysler or whether Bob Nardelli is a strong leader, the points I'm talking about are applicable to leadership in any business or, for that matter, society.
In closing, I find some of the interview remarks to be rather inconsistent and unusual. First off this appears less of an interview and more like shagging fly balls on the practice field. Nardelli doesn't answer many of the questions. This isn't really unusual because the business press has become far too lazy. Serious journalism by the mainstream media might have alerted society to some of the crises we are now dealing with well before they gained critical mass. Nardelli says he doesn't have to worry about PE being private? If you are a CEO of a publicly traded company and you are focused on PE ratios, you aren't doing your job. And what does a PE ratio have to do with being able to determine the cash position of a company? If you can't determine a cash position of any company, be it public or private, you must be Ed Zander at Motorola. If a CEO or the CFO can't easily tell me the cash position of any company they have a serious problem. The comments about being able to monetize nonperforming assets in a private environment are also quite odd. Selling below book value is easier in a private environment? I wouldn't be too happy if I were a Cerberus investor. Selling something for less than its worth generally isn't considered to the benefit of the seller where I come from. Of course shareholders of a public company would not be supportive of such a strategy any more than you would sell your personal assets for less than they are worth. That is, unless your ultimate goal was to go bankrupt or there were some really extenuating circumstances such as a lack of liquidity. The concept of selling nonperforming assets in a publicly traded company generally would be greeted with enthusiasm as long as shareholders had confidence in the management team and a sound business plan. And, as long as the assets were sold for a value benefiting the shareholder.
The reality is that without execution in the market place, and Chrysler is failing in the market place, Chrysler will not continue to meet its financial goals or any other goals. The new management team inherited this situation so we need to take this fact into consideration. But what is Chrysler's strategy to turn around their business? Deals to make pickups for and source small cars from Nissan? It's obvious Nissan got the better of that negotiation. Reselling Nissan's cars is not a sustainable strategy. Hoping the Chinese automaker Chery will provide them with an affordable subcompact at some point? Another risky strategy. One the market will likely reject as nationalism builds in a weak economy.
Nardelli and Chrysler need to improve their game. Being private is no tonic for success. If consumers start to see Chrysler's future as opaque and risky, they could easily avoid purchasing Chrysler products because of perceived future risk and personal loss. This was a similar concern at GM and Ford that forced both to increase transparency into future strategies. Similarly Chrysler needs to increase transparency into its future strategies. Automotive media and consumers need to be reassured purchases will be rewarded and supported.
Of course, the alternative perspective may be that Cerberus doesn't have the capital or access to it to invest in Chrysler's around. That they completely miscalculated. And, that rather than invest, they are simply biding time in hopes of an economic turnaround where they can jettison Chrysler. Given a benefit to being public is that companies have greater access to capital, Cerberus might be experiencing their own liquidity problems. Bloomberg had an article recently which potentially supports this grim position. If so, biding time only provides a self-reinforcing downward spiral as new product development lags the competition. Such a strategy nearly guarantees Chrysler will fail as investment is the only strategy that can improve Chrysler's fortune.
Pushing money around Wall Street while waiting for asset price inflation to provide a return to private investors bears no resemblance to the talent required to run a capital-intensive industrial company. Now tell me again, what benefit is there to being private?
Leadership - The ability to inspire others in a shared vision. Leaders have clear visions and they communicate these visions to their employees. They foster an environment within their companies that encourages risk taking, recognition and rewards, and empowerment allowing other leaders to emerge.
Why does Wilbur Ross state that a lot of industries need fixing? Ineffective leadership. It's likely no secret to many who read this blog that I believe we are experiencing a systemic crisis in leadership. Not just in business but in society. How many people in national or business leadership positions come to mind when you read the above definition of leadership? We all see the polls as it pertains to political leadership regardless of party affiliation. But, there are also polls regarding business and they are overwhelmingly negative regarding leadership. Anecdotally, most people probably sense this. The reality is people are really quite accurate in their instincts.
There are many factors that have contributed to a crisis in leadership but that's for another day. That said, trends never last forever. And, I am completely confident this trend is over. I have a post that I believe will be very interesting on this very topic. But, I have a hard time keeping up with posting ideas because I have a limit to the amount of time I spend writing on here. We are entering a defining moment of history where great leadership will emerge. Not this very instant but over the coming years. Someone is going to fill the vacuums that exist today. Maybe that someone will be you or someone you know.
I've commented on the state of Chrysler's business a few times this past year. Now we have a chance to listen to their CEO Bob Nardelli in the video below. But first I'd like to make a few additional comments.
It's ironic that Nardelli remarked a handful of months ago that Chrysler was effectively bankrupt. Yet, in this video he talks about beating financial forecasts. Well, which is it? We are bankrupt but beating forecasts? Is doublespeak one of the benefits of being private? I later read his remarks about bankruptcy were meant to motivate Chrysler's employees. Some time ago I had outlined a post focused on effective leadership using the original comment about being bankrupt but decided not to develop it. So, now let me do the cliff notes version.
Anyone who understands effective leadership knows motivation can be provided by positive or negative stimuli. Anyone who understands psychology and effective leadership knows negative motivation has a limited and temporary effect. And there are typically unintended and unmeasured consequences of lost productivity, lost talent, quality of work, morale, etc. Arguably the most important skill of any leader is the power of positive persuasion, inspiration or the human factors element.
To use a worst case example of negative stimuli or motivation, look at the consequences of men and women attempting to stay alive in a war zone. There is plenty of motivation to succeed and plenty of negative consequences. Additionally, look at children whose parents are emotionally unsupportive versus a child that grows up in a supportive and inspirational family and you will see the difference between night and day. People may pay hundreds of thousands of dollars for an education but great leadership was well understood before we even had the concept of formal education. Books, seminars, expensive degrees, gimmicks and gurus aside, the human factors element of great leadership are timeless and they can be had for free. While these are extreme examples, the reality is people don't respond well to negative motivation or stimuli over long periods of time. So, if someone is going to use negative motivation, they need to realize its effects, consequences and its decling time value. It can often be effective in specific situations but creating a pervasive and lasting environment or culture around it is very damaging. Having a frank discussion that our company is in crisis and we need to come together as a team to overcome the challenges we face and, if we work together, we have a high probability of success is much different than using 'we are bankrupt' as motivation.
Command and control leadership is best left on the battlefield. There may be certain times when it may be needed to manage a short term crisis but in general, it is not an effective management style. In fact, my experience is that those using such tactics most often do so because they don't have the developed leadership tools necessary to lead effectively. In other words, it's a clear sign of poorly developed leadership skills. It's also a tactic not embraced by a great CEO I wrote of a few weeks ago - Herb Kelleher. Regardless of whether this is the situation at Chrysler or whether Bob Nardelli is a strong leader, the points I'm talking about are applicable to leadership in any business or, for that matter, society.
In closing, I find some of the interview remarks to be rather inconsistent and unusual. First off this appears less of an interview and more like shagging fly balls on the practice field. Nardelli doesn't answer many of the questions. This isn't really unusual because the business press has become far too lazy. Serious journalism by the mainstream media might have alerted society to some of the crises we are now dealing with well before they gained critical mass. Nardelli says he doesn't have to worry about PE being private? If you are a CEO of a publicly traded company and you are focused on PE ratios, you aren't doing your job. And what does a PE ratio have to do with being able to determine the cash position of a company? If you can't determine a cash position of any company, be it public or private, you must be Ed Zander at Motorola. If a CEO or the CFO can't easily tell me the cash position of any company they have a serious problem. The comments about being able to monetize nonperforming assets in a private environment are also quite odd. Selling below book value is easier in a private environment? I wouldn't be too happy if I were a Cerberus investor. Selling something for less than its worth generally isn't considered to the benefit of the seller where I come from. Of course shareholders of a public company would not be supportive of such a strategy any more than you would sell your personal assets for less than they are worth. That is, unless your ultimate goal was to go bankrupt or there were some really extenuating circumstances such as a lack of liquidity. The concept of selling nonperforming assets in a publicly traded company generally would be greeted with enthusiasm as long as shareholders had confidence in the management team and a sound business plan. And, as long as the assets were sold for a value benefiting the shareholder.
The reality is that without execution in the market place, and Chrysler is failing in the market place, Chrysler will not continue to meet its financial goals or any other goals. The new management team inherited this situation so we need to take this fact into consideration. But what is Chrysler's strategy to turn around their business? Deals to make pickups for and source small cars from Nissan? It's obvious Nissan got the better of that negotiation. Reselling Nissan's cars is not a sustainable strategy. Hoping the Chinese automaker Chery will provide them with an affordable subcompact at some point? Another risky strategy. One the market will likely reject as nationalism builds in a weak economy.
Nardelli and Chrysler need to improve their game. Being private is no tonic for success. If consumers start to see Chrysler's future as opaque and risky, they could easily avoid purchasing Chrysler products because of perceived future risk and personal loss. This was a similar concern at GM and Ford that forced both to increase transparency into future strategies. Similarly Chrysler needs to increase transparency into its future strategies. Automotive media and consumers need to be reassured purchases will be rewarded and supported.
Of course, the alternative perspective may be that Cerberus doesn't have the capital or access to it to invest in Chrysler's around. That they completely miscalculated. And, that rather than invest, they are simply biding time in hopes of an economic turnaround where they can jettison Chrysler. Given a benefit to being public is that companies have greater access to capital, Cerberus might be experiencing their own liquidity problems. Bloomberg had an article recently which potentially supports this grim position. If so, biding time only provides a self-reinforcing downward spiral as new product development lags the competition. Such a strategy nearly guarantees Chrysler will fail as investment is the only strategy that can improve Chrysler's fortune.
Pushing money around Wall Street while waiting for asset price inflation to provide a return to private investors bears no resemblance to the talent required to run a capital-intensive industrial company. Now tell me again, what benefit is there to being private?
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