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WHARTON
LEADERSHIP DIGEST
April,
2003, Volume 7, Number 7
A subscription milestone: The
number of direct subscribers to the Wharton Leadership Digest has
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CONTENTS
Leading
with Integrity: Wharton
Leadership Conference on June 4, 2003
A
Breakdown of Leadership: Mimi Swartz and Sherron Watkins’ Power Failure
Diversity
Leadership: Developing
Leaders for a Diverse Workforce at UPS
Legendary
Leadership: Sir Edmund
Hillary
Leaders
We Would Like to Meet: Wildland
Firefighter Paul Gleason
CEO
Succession Planning: Investors
Reward It
LEADING
WITH INTEGRITY: Wharton
Leadership Conference on June 4, 2003
The
Wharton Annual Leadership Conference – focused this year on
"Leading with Integrity" – will be held in Wharton’s
Huntsman Hall in Philadelphia from 7:30 am to 5:30 pm on June 4, 2003.
Speakers include the
chief executive officers of Lucent Technologies, Tyco, and Vanguard Group;
former CEO of Medtronics; former Enron finance VP Sherron Watkins; Wharton
ethics professor Tom Donaldson; the University of Pennsylvania’s
president and executive vice president; two professional firefighters; and
an editorial director of Fortune magazine and producer and anchor
of Wall $treet Week with Fortune.
An
overview of a book co-authored by former Enron finance VP Sherron Watkins
-- Power Failure: The Inside Story of the Collapse of Enron –
appears in this issue of the Wharton Leadership Digest.
An
article by one of the professional firefighters –
James Cook, Training Projects Coordinator for the U.S. Forest
Service at the National Interagency Fire Center – is also included in
this issue of the digest.
Additional
information on the conference can be found here,
and online registration is available here.
A
Breakdown of Leadership:
Mimi Swartz and Sherron Watkins’ Power Failure: The
Inside Story of the Collapse of Enron
By
Kate Faber, Coordinator, Wharton Leadership Center
 The
word “catastrophe” is typically limited to the aftermath of tornadoes,
the collapse of a country’s economy, or an industrial accident. Catastrophes
are usually the result of human ignorance, human negligence, or an act of
God. Should we also apply the term to a company debacle that was
the result of deliberate, informed acts?
More time will be needed to gain a full perspective
on the Enron implosion. At
this point, however, it is clear that a company that started with
admirable goals evolved into an organization willing to risk everything
for money and power. The new
book by Mimi Swartz and Sherron Watkins, Power Failure: The Inside
Story of the Collapse of Enron, offers a compelling account of the
human factors that caused the company’s demise.
A Texas Monthly editor, Mimi Swartz combined
with former Enron vice president Sherron Watkins to chronicle Enron’s
birth, culture, and collapse. Difficult
to put down, Power Failure makes
no excuses for any of the involved parties, including Watkins herself, who
enjoyed plenty of perquisites before she finally decided to confront
chairman and chief executive Kenneth Lay.
Sherron Watkins came to Enron from a post at the
accounting firm of Arthur Andersen. She
made the move even though it initially entailed a significant decrease in
salary and the loss of a vice-presidential title. She
worked in several sectors of Enron and made significant contributions to
the company’s growth, but she also had the unfortunate experience of
working directly for Enron’s chief financial officer, Andrew Fastow,
where she came to see directly the company’s unprincipled financial
actions.
When chief executive Jeffrey Skilling abruptly
resigned on August 14, 2001, Sherron Watkins immediately sent Kenneth Lay,
who resumed his role as CEO upon Skilling’s departure, an anonymous memo
and then met with him on August 22. Among
her chief concerns was that Fastow
not succeed Skilling as CEO.
During Skilling’s reign, a “love it or leave
it” attitude had developed among the employees, and it was thus not easy
for Watkins to come forward to warn Lay about the accounting malfeasance
inside the company.
“Watkins felt as if the wind was knocked out of her
when she heard Jeff Skilling was gone,” Power Failure offers.
“Yes, there had always been jokes about Enron being on the brink
of disaster – Rick Buy once began a talk at Enron’s credit conference
with a slide of the Titanic. But
people made these jokes because they knew that whatever happened, Jeff
would save them. He was
Enron’s ultimate hedge. And
now, suddenly, Jeff had removed himself from the scene. Late
at night, or in the early-morning hours when sleep remained elusive,
Sherron lay in bed, stared at the ceiling, and tried to predict the
future. She couldn’t get the image of a sinking ocean liner out of
her mind, one that lurched and listed through rough seas. The
frightened passengers were howling, and the captain had just commandeered
a cigarette boat and was speeding safely toward shore.”
Jeffrey Skilling’s unexpected resignation gave
Sherron Watkins the jolt that she needed to openly challenge Enron’s
misbehavior, but by time she came forward it was almost too late to save
the company unless CEO Kenneth Lay took immediate and far-reaching steps.
Yet he was unprepared or unable to do so.
Enron had been the company of the future, the darling
of Wall Street, the favorite of stock packers, the exemplar of business
journalism. Yet human
mis-judgment, malfeasance, and miscalculation brought it down.
For employees, customers, and investors, it was nothing short of a
catastrophe.
Note: Kate
Faber can be reached at kfaber@wharton.upenn.edu.
The book: Mimi Swartz
and Sherron Watkins, Power Failure: The Inside Story of the Collapse of
Enron (New York: Doubleday/Random House, 2003).
Sherron Watkins is speaking at the
Wharton
Annual Leadership Conference on June 4, 2003.
DIVERSITY LEADERSHIP: Developing
Leaders for a Diverse Workforce at UPS
 By
Cal Darden, Senior Vice President of U.S. Operations, UPS
As the retirements of
an increasing number of baby boomers shrink the overall labor pool during
the next decade, the percentage of minorities in the workforce will
continually expand. For most
organizations, this will create a more diverse workforce in the future.
These imminent
changes make diverse leadership increasingly more compelling every year,
for two key reasons.
One, diversity
leadership can attract investors seeking socially responsible companies.
And two, diverse leadership can develop business leaders who
inspire loyalty in their employees.
While the definition
of social responsibility is broad and still evolving, workforce
initiatives like diversity have key roles to play.
Even now, publicly held companies are being asked to disclose their
community and diversity initiatives to determine whether they are socially
responsible, sustainable enterprises.
In a recent Harris
Interactive/Calvert Group poll, seven of 10 investors said they want to
invest in mutual funds that support socially responsible companies.
In much the same way, shareholder value is also linked to workforce
initiatives. The Watson Wyatt
2002 Human Capital Index Study showed that, over the past five years,
companies with the best human capital strategies had three times greater
return to shareholders than companies without such strategies.
The bottom line: Diversity leadership can benefit businesses.
Knowing that, how do you develop diversity leadership?
At UPS, one way we
develop leaders who can inspire loyalty in our diverse workforce is
through the UPS Community Internship Program, also called CIP.
CIP is an intern
program with a twist. For
beginners, the interns aren’t high school or college students; they are
specially selected UPS managers. From
a pool of approximately 2,400 top-performing mid-level managers, we choose
approximately 50 to be CIP interns each year.
There’s another
twist: Our interns don’t
work at other corporations. Instead,
they are assigned to work with social service agencies for one month.
Last year, interns were sent to one of three locations:
·
The Henry Street Settlement, a social services agency on the
Lower East Side of Manhattan.
·
The immigrant border town of McAllen, Texas.
·
An Appalachian mountain community near Chattanooga, Tennessee
Managers from rural
areas go to New York City, and managers from more urban areas are sent to
the rural locations. The
interns live and eat on-site in Spartan-like accommodations, where they
are immersed in projects for the month-long internship.
The challenging
living conditions initially shock most CIP interns. They live in the midst of communities afflicted with poverty,
homelessness, spousal abuse, drugs and crime.
In short, these are unfamiliar environments for most of our
managers.
The interns may tutor
pre-school Head Start children, orphans, or kids with AIDS.
They may teach prisoners or at-risk teenagers how to write a
resume; serve meals in soup kitchens; add plumbing to a home; or tackle
the crisis of the moment.
In the last 35 years,
more than 1,200 UPS managers have participated in what we believe to be a
unique program. They return
to work with changed perspectives.
The interns view
employee matters in a less rigid, more understanding way after their CIP
experience. An example:
Shortly after Mark Colvard, a manager in California, completed his
CIP internship in McAllen, Texas, a UPS driver told Mark that he needed
time off to help an ailing family member.
Under company rules, the driver wasn’t eligible for the time off.
While he knew other drivers would complain, Mark gave the driver
the time anyway, took the heat, and retained a valuable employee.
Mark said that prior to his CIP internship, he might well have
decided differently.
By putting them in
someone else’s shoes, CIP touches an emotional chord in our managers.
Many interns report that despite the difficult conditions, they see
the hopefulness of people trying to cope with hardship – and how their
actions can influence that hope. The
result: Leaders who not only see their workforce in a whole new light,
but have the vision to better understand and empathize with them.
Note: As senior vice
president of U.S. operations for UPS, Cal Darden oversees 320,000
employees. He joined UPS as a
part-time package handler in 1971. In
addition to serving on the UPS board of directors, he is on the board of
the National Urban League, and he was ranked eighth on Fortune’s
listing of the 50 Most Powerful Black Executives in America.
Mr. Darden was a CIP intern in 1983.
Legendary
Leadership:
Sir Edmund Hillary
 By
Phillip Gibson, New Zealand Ambassador to Japan
Welcoming
of Sir Edmund Hillary to the United Nations University, Tokyo, April 8,
2003.
It
is a great honor and a privilege to speak to you today, before Sir
Edmund’s address. Yet I also admit to considerable trepidation.
So
many people have written so much about Sir Edmund Hillary and his
achievements that I fear there is little new that I can say.
His
actions speak louder than any sense that words can convey.
So
what I am going to do is to try and express what Sir Edmund has come to
mean to us as New Zealanders. Because
in “Ed Hillary” we see so many of the values and virtues that we want
to be – and I believe are – fundamental to our national character.
I’m
going to personalise this a bit, because I’m old enough to remember when
Sir Ed conquered Mt Everest fifty years ago and what he meant for me as a
young boy.
When
Sir Ed and Sherpa Tenzing achieved the near impossible, they instantly
became household names in New Zealand – and around the world.
But
what I especially remember was the delicious pleasure of knowing that this
hero was a New Zealander. It
was a New Zealander who was the first to reach the roof of the world.
That
pleasure was very special.
For
New Zealand in the 1950s was a much different place to now. We
were still essentially a British country. We
drove British cars, we avidly followed British Royalty, where Britain
stood, we stood.
Second
and third generation New Zealanders still referred to Britain as home and
some affected English accents.
I
think I’m right that when the acting Prime Minister of New Zealand sent
Sir Ed a congratulatory telegram, he noted something to the effect that we
were especially proud that a member of the British race was responsible
for such an achievement.
For
a little boy like me, with my weekly spread of Boys Own Paper, Meccano
Magazine and other British comics with their British heroes, I
desperately wanted a New Zealand hero, and one the world recognised as
such.
And
now we had one, Ed Hillary, a New Zealander and very much so.
For
many of us, he represented the essence of our identity.
I
remember revelling, as I grew a bit older, in Sir Ed’s laconic,
understated observation when he came down the mountain after his momentous
achievement “we knocked the Beggar off” – which is so typically New
Zealand.
Sir
Ed personified the characteristics New Zealanders valued. He looked, acted
and was, craggy, honest, modest and decent but with enormous determination
to get the job done and physical toughness and stamina. He brought quiet, understated wisdom and common sense to
everything that he did.
A
few years after conquering Everest, Sir Ed led an expedition to the South
Pole. It was the stuff of
legend for a young New Zealander like me that he got there, with modified
farm tractors.
I
first met Sir Ed at Christmas 1964. I
vividly remember it. My
family were camping for the Christmas holidays at a place called
Albert-town, near Wanaka in the South Island.
We
heard by chance that Sir Ed was camping nearby. So
my father found an excuse for us to go and visit him. It
was all probably a great nuisance for Sir Ed. But
I well recall the courtesy and kindness with which he treated us.
And
what was so appealing for the New Zealand psyche was that here was a man,
feted by leaders and celebrities around the world, spending Christmas,
like thousands of other ordinary New Zealanders, camping with his family.
What
has also been special for New Zealanders is that Sir Ed did not use his
fame and fortune to personal gain. Rather
he put it to service.
In
the years after conquering Mt Everest, he established the Himalayan Trust.
Over the past four decades he
has worked to raise the funds for and help set up, over thirty schools in
Nepal, two hospitals and twelve medical clinics. He
also raised the funds to build two airstrips to make it easier to bring in
supplies.
Sadly,
Nepal was the site of terrible personal tragedy for Sir Ed. New
Zealanders admired his stoicism in the face of grief that must at times
have been unbearable. But he continued his work and in more recent years,
his Trust has expanded further in scope.
It
is remarkable that even as the years have advanced, he has remained
unstinting in his work and commitment.
As
another has described, “from a feat that would have been the crowning
achievement of many careers, he has gone on to become a humanitarian, an
Ambassador and elder statesman.”
Having
met Sir Ed as a teen-ager nearly forty years ago, it was again a special
feeling when, now as an adult and in a professional capacity, I met him
again, while he was serving as New Zealand’s High Commissioner to India.
Sir
Ed’s work has been a source of inspiration to many. A couple of years back, I was fortunate to work with a
Professor Michael Useem, director of the Center for Leadership and Change
at the Wharton Business of the University of Pennsylvania.
Hearing
that I was New Zealander, Mike immediately raised Sir Ed. He
went through the essential qualities of leadership. And that, he said was
Sir Edmund – a leader.
Not
a leader through rhetoric or show, but a leader through integrity,
commitment, example and by always putting the good of others ahead of his
personal interests.
But
if for Professor Useem, Sir Ed is a leader, for me and for so many of our
countrymen, he is first and foremost a New Zealander.
The
New Zealand of today is much different to that of 1953 and my boyhood. We
have evolved – and are still evolving – our own rich blend of
cultures, our own unique identity and nationhood.
Yet
fundamental to this remain the characteristics, values and virtues that
Sir Ed personifies.
We
have defining moments in our history as a nation. One of these was when Sir Ed and Sherpa Tenzing stood at the
top of the world.
Another
and probably more important was when Sir Ed refused to be spoiled by all
the adulation and accolades that the achievement earned him and devoted
his life to the service of others.
Sir
Ed, you have shaped the lives of thousands in countless different ways –
including mine. Thank you – and thank you for always being a New
Zealander.
Note:
Phillip Gibson can be reached at Phillip.Gibson@mfat.govt.nz.
Leaders
We Would Like to Meet:
Wildland Firefighter Paul Gleason
 By
James Cook, Training Projects Coordinator for the U.S. Forest Service at
the National Interagency Fire Center.
Have you ever thought about having the opportunity to
interview a someone you respected and admired as a leader?
To ask them how they handled a critical moment where they had to
make a difficult decision? Or what they think it takes to be an effective leader?
Or who helped them along their path to becoming a leader?
We tend to overlook the leaders in our midst.
How well are we passing
their institutional knowledge on and how well are we identifying role
models for the next generation of leaders?
Most of us, given enough time, can think of one or
more leaders with whom we would like to talk.
Our personal choices would be a diverse collection of the obscure
and the well known, the young and old, and many in between.
One of my first choices is Paul Gleason, a forest wildland
firefighter and professor of wildland fire science.
We interviewed him on February 26, 2003, with the intent of
recognizing good leadership examples and capturing their lessons for
future leaders.
Paul Gleason passed away on February 27, 2003.
Our interview with Paul can be found by clicking here.
Note:
James Cook can be reached at jrcook@fs.fed.us,
and he is speaking at the Wharton
Annual Leadership Conference on June 4, 2003.
CEO
Succession Planning:
Investors Reward It
Researchers Wei Shen and Albert Cannella studied
investor reactions to a company’s public announcement of an heir
apparent for the chief executive officer.
The researchers identified heirs apparent as those
who take the title of president and/or chief operating officer and who are
at least five years younger than the CEO.
They then examined the heirs’ promotion to CEO or exit from the
company between 1988 and 1997 among 400 companies reporting at least $200
million in sales at the start of that period. The
investigators found that investors reacted
o neutrally
when the heir apparent was first appointed
o favorably
when the heir was finally promoted to be chief executive (compared with an
unplanned CEO succession)
o unfavorably
when the heir left the firm before promotion
o most
favorably when the heir was promoted and the firm had been
performing very well
By implication, succession planning is viewed by
shareholders as valuable, but a company’s initial selection of a CEO
heir apparent is on average a non-event.
But later, investors do place a premium on an expected succession,
especially if the company is doing well.
Identifying and mentoring an heir apparent is expected by
stockholders to be good for a company’s performance in the longer run.
If investors are right, it points to the value of good succession
planning, and that may be true for lower positions as well.
Note:
Wei Shen and Albert A. Cannella, Jr., “Will Succession Planning
Increase Shareholder Wealth? Evidence
from Investor Reactions to Relay CEO Succession,” Strategic
Management Journal, 24 (2003), pp. 191-198.
Copyright
© 1996-2003, Wharton Center for Leadership and Change Management
University of Pennsylvania
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