WHARTON LEADERSHIP DIGEST 

June, 2004, Volume 8, Number 9

CONTENTS

Leadership Under Duress:  ImClone, MCI, Tyco, and the FDNY
No Change:  The Society for the Status Quo
Tilt the Field in Your Direction:  Finding Advantage by Setting the Rules
 

Leadership Under Duress:  ImClone, MCI, Tyco, and the FDNY 

By Tom Ward, Wharton Club of New York 

Bankruptcy, fraud, indictment, regulatory rejection.  WorldCom, Tyco, ImClone.  And beyond these familiar business crises, the unprecedented catastrophe faced by New York firefighters on September 11, 2001, and in its aftermath.   

These were the extreme challenges faced by four senior executives who shared their experiences, as well as the solutions they implemented and the lessons they learned at a panel with the Wharton Club of New York in May.  They are:  

Victoria Harker, Senior Vice President at MCI, who took over as CFO after her predecessor’s departure, directing a financial restructuring and stabilizing a finance function racked by the WorldCom scandal.  MCI recently emerged from bankruptcy. 

Michael Howerton, CFO of ImClone, which had suffered the indictment of its founding CEO as well as FDA rejection of its most promising drug, Erbitux.  ImClone has regained its status as a premier experimental drug company and Erbitux won final FDA approval. 

Eric Pillmore, Senior Vice President of Corporate Governance at Tyco International and the new CEO’s first hire, charged with a complete replacement of the existing board and establishment of governance best practices across the company, which contributed to Tyco’s business and reputational recovery.  

Frank P. Cruthers, Chief of Department, Fire Department, City of New York.  Chief Cruthers is the senior uniformed officer of the FDNY, and took command the morning of September 11, 2001, after the second tower collapsed and his predecessor had been killed.  In addition to operational command on that and the following days and weeks, Chief Cruthers faced the task of rebuilding a department that had experienced overwhelming loss of life among both the leadership and rank-and-file firefighters.  

Mr. Pillmore of Tyco faced a liquidity crisis, a plunging share price, a district attorney about to prosecute the firm’s CFO, and a mandate from the new CEO for a complete change of management and the board.  Unfazed by the challenge, Mr. Pillmore reflected wryly, “There’s a lot of upside when you’re in trouble.” 

Mr. Howerton, the ImClone CFO, stressed the need to stay focused and limit objectives.  It is essential to over-communicate to employees but to under-communicate to everyone else, such as the media.  To succeed, it was often necessary to “overcome the anger.”  He pointed to the advantage of very low turnover during the crisis, which he attributed to a decision by employees “to validate and vindicate the company.” 

Ms. Harker of MCI faced, in WorldCom (as the firm was then known), the largest financial scandal in U.S. corporate history.  Her mission was to resuscitate a company that she had been with from the beginning.  As an asset, she had a core of company veterans who been through congressional hearings and special investigations even as they tried to continue to run a business.  An example of the scope of the problem was that eleven million lines of accounting code had to be redone.  Furthermore, since there had been no transparency during the WorldCom takeover of MCI, she and her colleagues had no idea of what they might yet encounter.  Accordingly, she arranged for debtor-in-possession (“DIP”) bankruptcy financing that in the end went unused – but was there if necessary.  Ms. Harker characterized the experience as “life-changing.”      

FDNY Chief Cruthers noted that “leadership under duress” is what a firefighter does every day, pointing out – with sincerity and not a hint of bravado – that “follow me” is the spirit of the Department.  But he frankly acknowledged that the FDNY had experienced a crisis of confidence even before September 11, and that there was a “tremendous lack of trust in almost every direction.”  Then came the day of catastrophe.  He took command at a scene of unimaginable destruction and death, including then-unknown numbers of firefighters dead or missing.  The first tasks were to restore a command structure following the loss of many senior officers, and to call for outside help.  The latter, he noted, was a “major adjustment” – the FDNY is “not used to asking for help.” 

Apart from firefighting, and rescue and then recovery efforts, came tough managerial decisions.  Chief Cruthers and his colleagues quickly realized they were treating the disaster as just another fire, which was wrong.  With the acting Chief, Mr. Cruthers split the Department in half, so that teams could work together with continuity.  And the needed outside help came, not only from other uniformed services, but also from military reservists, Federal disaster teams, and from volunteers with expertise from all over the country.   

The four were asked, “What you got you through it?” 

Mr. Pillmore of Tyco said he and his colleagues created a vision for what they wanted Tyco to look like down the road.  The focus was not on the crisis, but rather on the vision.  A constant challenge for both Mr. Pillmore and Mr. Howerton was to convert anger into hope.  Mr. Howerton of ImClone knew that the hoped-for vindication of his company could take as long as two years, and cited a colorful management mantra best paraphrased as:  all stink, all the time.         

For MCI’s Ms. Harker, a key management decision was to bring aboard the former CEO of Compaq.  When it came to executing the recovery plan, an effective tactic was to do it in “hundred-day chunks,” which preserved a sense of incremental achievement and progress.  For a spirit of team building and morale, she herself completed a triathlon with colleagues.   

What got Chief Cruthers and the FDNY through was “the inspiration of the people who had died.”  He and his fellow firefighters “had to live up to the standard that had been set.”  Were there doubts at times?  “Absolutely.”  With 343 firefighters and fire officers lost, and massive retirements afterwards, the Department was much younger and in dire need of leadership and training to fill a tremendous organizational void.  In addition to the leadership and support of Fire Commissioner Nicholas Scoppetta, Chief Cruthers cited training facilities donated by a local university and especially the benefit of leadership programs from General Electric.  This enabled him to respond to “Look at what we’ve lost,” by saying that “The only Fire Department that was more experienced and had more expertise than we were now, was the one we had on September 10th.” 

By way of summary of their commentary, 1) keep a focus on the few important things, 2) stress people and team-building, 3) start with a hundred-day plan, 4) get in there yourself and do everything, and 5) over-communicate on the inside.  To which one might add that the successful leader under duress must work to convert anger, even despair, into hope. 

Note: Tom Ward can be contacted at tgward718@aol.com.  
 

No Change:  The Society for the Status Quo

By Randy Kesterson, The Society for Leadership of Change  

We are proud to announce the creation of The Society for the Status Quo (SSQ), a new organization which provides a forum for individuals who are sick and tired of trying to keep up with all the new change techniques and best practice buzzwords.  We give up!   

                                                                                        No change is good change

Six Sigma?  Phooey!  Lean Enterprise?  What a waste!  Link the change initiatives to the strategic plan?  No way!  Involve your people?  Nonsense! 

We are in direct opposition to The Society for Leadership of Change (www.theSLC.org), which offers its members direct access to leadership experts, as well as the opportunity to contribute their own insights into the emerging area of change leadership (including Six Sigma, Lean Enterprise, Benchmarking, Supply Chain Management, etc).  We, instead, offer our members plenty of excuses why they should just keep doing things the way they've always been done.  Seriously, why let better get in the way of good enough?  Start enjoying extended lunch breaks and learn to accept that mediocre three or four sigma level of quality.  Besides, who does that poor customer service, lousy data quality, wasted time and money, and long waiting time hurt anyway?  And, if we streamline and speed up processes, won't that just mean more work for all of us?  You bet!  Down with change for the sake of improvement!  And, while were at it, let's bring back the telephone with a cord! 

The SSQ's vision is to build a community for sharing your examples of maintaining the status quo.  Members will obtain realistic ideas for avoiding real work created by all those leaders of change management.   

Note:  Randy Kesterson, founder of both The Society for Leadership of Change and (with tongue-in-cheek) The Society for the Status Quo, can be reached at KestersonRK@theslc.org.

Information on The Society for Leadership of Change is available at www.theSLC.org, and on The Society for the Status Quo at www.theSSQ.com. 


Tilt the Field in Your Direction:  Finding Advantage by Setting the Rules 

By Jim Pawlak, Editor, Biz Books    

In a capitalistic system, there is no such thing as a level playing field.  Richard G. Shell Make the Rules or Your Rivals Will shows that the field isn’t always tilted toward the biggest firms.  It tilts toward smart firms and creative firms, too.  Make the Rules is about being first to market, too, and how to turn “first” into sustainable competitive advantage – think Microsoft.  On the legal downside, you have to know when it’s in your best interests to settle – think Napster. 

The first half of the book deals with real-company legal and public relations “Make the rules, make the money” strategies to protect their interests and promote their brand.  You’ll find strategies that worked (Ford Motor did not infringe on an engine patent) and some that didn’t (Coke couldn’t restrict Pepsi, or any other company from using “cola” in its name.) 

The book made me think of three situations where Harley-Davidson (H-D) used legal tactics to re-launch and extend its brand.  First, in the mid-80s, H-D took legal action against Japan’s motorcycle manufacturer’s alleging that they were selling motorcycles cheaper in the US than in Japan.  This process was known as dumping.  H-D won, and a heavy tariff imposed on Japanese motorcycles.  H-D was on equal price footing. 

Second, H-D began to protect its brand through strict licensing agreements that often extended to quality control covering the licensed product.  Licensing didn’t just protect the brand; it extended it. 

Third, H-D tried to patent its rumbling, throaty exhaust note.  It failed but not before every major media outlet ran the story.  The PR windfall created by the brand-uniqueness patent application was well worth the legal expenses. 

The second half of the book discusses the impact of rivals, customer, suppliers, substitutes and new entrants to the market on a firm’s ability to keep the playing field tilted in its direction.  The best learning in this section deals with Intel’s litigation tactics involving intellectual property, copyright and trade secret arguments that kept other chip makers well behind its learning curve. 

Note:  For information on direct distribution of Jim Pawlak's Biz Books reviews, he can be reached at bizbooks@hotmail.com.