Cos Need CEOs To Stop Spinning, Start Thinking
Forget the charisma and the polished speeches. Those may have been the qualities top executives were judged on this past year, when every other chief executive was publishing a book, appearing on prime-time television or socializing on Facebook.com.
But today, with everyone predicting a more volatile year ahead, business executives are going to be graded more heavily on whether the decisions they make on everything from strategy to talent help their companies grow. They have to stop becoming experts on giving a positive spin to economic warnings and start analyzing the data at hand.
This is particularly the case in banking and on Wall Street, as the subprime-mortgage troubles continue to unravel. It's also true in the media and entertainment industries, where the rapid growth of the Internet is upending traditional media; and in pharmaceuticals, where the expiration of patents threatens old giants.
'Successful executives have to be able to discern the really important decisions and get a high percentage of them right,' says Warren Bennis, a professor at the University of Southern California and co-author with Noel Tichy of 'Judgment: How Winning Leaders Make Great Calls.' 'This is the heart of great leadership, especially now when so much is changing so quickly.'
In a bumpy business landscape where there are so many demands on executives' time, leaders must determine what's critical to their companies so they can mobilize their people to take action. And they can't assume that just because a rival is succeeding with a certain strategy, they will, too. That's the mistake many finance executives made in recent months. 'What led to the subprime meltdown was a manic denial of good judgment because there were warning signs everywhere,' says Mr. Bennis.
Not everyone fell into this trap. Richard Kovacevich, chairman of Wells Fargo, and his lieutenants deliberately steered clear of the riskiest sorts of subprime mortgages -- 'stated income' or 'low documentation' loans to borrowers with sketchy credit. They stayed out even though it caused them to lose market share in the short term that would have generated big loan fees.
'We talked about what other [banks, investment firms and mortgage brokers] were doing,' but decided 'it's economically unsound' and 'doesn't make sense,' he says. By making such risky loans to financially stretched borrowers, 'you're basically saying, 'Defraud me,' ' adds Mr. Kovacevich, whose bank has avoided the huge losses incurred at rivals. Giving that kind of loan 'isn't in our DNA.'
They didn't avoid every misstep. In its home-equity loan business, Wells Fargo strayed from sound lending practices, Mr. Kovacevich acknowledges. The bank, the nation's fourth-largest by stock-market value, bought some home-equity loans from brokers instead of sticking only with loans to its own customers. These broker-originated loans are souring at an accelerated rate, and Wells Fargo has announced that it will take a special loan-loss provision in the fourth quarter to cover losses.
'We made a mistake jumping into this market instead of testing it first for six months,' says Mr. Kovacevich. By addressing the problem quickly, however, Wells has minimized damage.
Good decision-making usually reflects an executive's overall business philosophy and management style. Mr. Kovacevich, for example, has long preached the importance of managing risk and cross-selling products to customers. The bank's average retail customer buys more than five products, twice the industry average.
'It's our fault if a customer is unprofitable, because it means we haven't done a good enough job of convincing them to give us all their financial business instead of just a piece,' he tells employees.
In addition, he has resisted following other banks that have cut costs through massive layoffs. 'When you do that, you just end up with low employee morale and customer dissatisfaction,' he adds.
Other executives depend on frank discussions with subordinates to help them make good decisions. At Hewlett-Packard, CEO Mark Hurd and his top nine executive vice presidents have been brainstorming to target growth opportunities next year in emerging markets and in such products as management software.
Donald Washkewicz, CEO of Parker Hannifin, an industrial-products manufacturer in Cleveland, has overhauled his company's pricing strategy. He studied every product, its customers and its pricing, and found a way to finally widen profit margins on many products.
Among other things, he divided the company's hundreds of manufacturing products into different categories, from high volume to low volume, and learned that as many as one-third fell into niches where Parker has few competitors. The result: Customers who can't get the products they need elsewhere don't balk at price increases.
Many economists are predicting an economic slowdown, but Mr. Washkewicz expects his company's revenues will climb.
南加州大学(University of Southern California)教授、与尼尔•迪驰(Noel Tichy)合着《Judgment: How Winning Leaders Make Great Calls》的沃伦•贝尼斯(Warren Bennis)表示：“成功的管理人员必须能甄别出什么是真正重要的决策，并在大多数时候做出正确的选择。这才是伟大领导能力的核心所在，尤其是当前很多事情都在迅速变化的时候。”
并非所有人都栽进了这个陷阱。富国银行(Wells Fargo)董事长理查德•柯瓦希维奇(Richard Kovacevich)和他的手下经过深思熟虑后决定对风险最高的次级抵押贷款退避三舍，后者是为信用度不佳的借款者提供的低门槛贷款。即便这样的决策使得该行的市场占有率在短期内出现下滑，大笔贷款费用收入流失，他们也不为所动。
克利夫兰的工业产品制造商派克汉尼汾公司(Parker Hannifin Corp.)首席执行长唐纳德•沃什科维茨(Donald Washkewicz)审视了公司的定价策略。他研究了每件产品、对应客户群以及定价，并找出方法最终扩大了许多产品的利润空间。