Winning: The Answers: Confronting 74 of the Toughest Questions in Business Today (12 page)

H
urricane Katrina was, sadly, the perfect storm, in that several terrible things went wrong all at once. Nature delivered a devastating blow, and several government agencies that should have helped (and could have) did very little. It’s unfortunate, but for years to come, people will likely be sorting out all the “owners” of the Katrina crisis.

Even now, however, it is clear that one of those owners will be FEMA, the Federal Emergency Management Agency, which technically had über-responsibility for the governmental response to Hurricane Katrina. As everyone now knows, FEMA basically fell apart during the storm in a frenzy of bureaucratic hand-wringing and buck-passing.

It’s easy to get frustrated, or worse, by FEMA’s performance during Hurricane Katrina. But at the same time, FEMA offers us a perfect example of a completely common organizational dynamic: what happens when one part of an organization is an orphan, neglected and pushed out of sight. In business, the divisions, teams, or departments that are orphans usually get sold or closed. In New Orleans, the consequences of orphanhood were much more tragic.

FEMA was an organizational orphan if ever there was one. For decades, it was a relatively small, independent federal entity with a clear mission to protect life and property during natural disasters. In that capacity, FEMA performed quite well. In 2003, however, FEMA was tucked into the Department of Homeland Security, a sprawling federal entity with a clear mission to protect Americans from
un
natural disasters, i.e., terrorist attacks.

Talk about losing your relevance! The bosses at Homeland Security were understandably worried about train bombings like those in Madrid and subway bombings as in London, not to mention planes plowing into buildings and chemical warfare. The real life-and-death stuff. FEMA was worried about wind and rain, earthquakes and tornados. It was miles away from mission critical. Orphans always are.

And so when orphans shout for help, the mission critical leadership usually doesn’t jump. They don’t even hear the calls. We don’t know for sure, but in the case of Katrina, that appears to be what happened.

The lesson for organizations is to never let orphans develop or reorient them if they do. If a team, department, or entire division seems peripheral to the large organization’s mission, put it someplace in the company where it is closer to the core strategy or sell it. Because if you let orphans hang around, you can be certain that eventually no good will come of it. Think of what happened to Frigidaire, the appliance-manufacturing unit of General Motors, which was a pioneer in the industry and held on to a strong market leadership position for decades. Household appliances were hardly mission critical for GM—as the case would be at any car company—and Frigidaire never got the people and resources it needed from headquarters. By the time it was sold off in 1979 to White Consolidated Industries, it had lost much of its market share and was in a significantly weakened competitive position.

There were plenty of orphans at GE; most big companies have them. While loads of money and attention were showered on high-powered engines, the small-engine business was relegated to a state of not-so-benign neglect. It would have completely missed the burgeoning market for commuter jet engines had it not been for one of its senior managers, who demanded to be taken seriously. He proved how and why small engines serving the new commuter jet business could be mission critical to GE, and eventually the division got the resources it deserved and needed in order to grow.

That was a story with a happy ending. The facts are that the stories of many orphans over the years at GE had plots that sound a lot more like Frigidaire.

A major lesson, then, of Hurricane Katrina is one that business has to relearn all the time. Letting one part of an organization remain an orphan, muddling though life in a place far away from mission critical, can have dire consequences.

It’s not a matter of if. It’s a matter of when.

T
he easy answer to your question is that the corporate world is fundamentally sexist. The men in charge don’t want women to succeed, and they conspire to make it so by not promoting women or underpaying them or both. This is basically the “men are Neanderthals” explanation for the underrepresentation of women in business, and sadly, in some countries and companies, it’s the status quo. Mainly due to cultural traditions or ingrained biases, there are men who simply think women don’t belong in corporate settings, and they band together to create work environments where women can’t move up, even if they try like crazy. This banding together, by the way, is usually subtle and surreptitious. Sometimes men themselves don’t even realize they are doing it. Regardless, they are, and women pay the price.

There is a second, less easy answer to your question, and we say less easy because every time we mention it in speeches, it provokes a real gasp of discomfort from the audience. That answer is “biology.” There are very few women CEOs and a disproportionately small number of women senior executives because women have babies. And despite what some earnest but misguided social pundits might tell you, that matters. Because when professional women decide to have children, they often decide to cut back their hours at work or travel less. Some women change jobs entirely, to staff positions with more flexibility but much lower visibility. Still more women actually leave the workforce entirely. In fact, a 2002 survey conducted by Harvard Business School of its alumnae from the classes of 1981, 1986, and 1991 showed that 62 percent had left the professional world. That’s right—out of all the women who graduated in those classes, many of them immediately going on to jobs in consulting, finance, and line management, only 38 percent were still working full-time some ten, fifteen, and twenty years out. (The research showed that some of the women who described themselves as “at home,” were actually working part-time or doing work on a freelance basis.)

The career choices women make when they have children are completely personal and absolutely OK—of course they are!—but they have ramifications. Most notably, these choices tend to slow down career advancement.

Is that bad? We don’t think so. It’s life. Every choice has a consequence. As a working mother, if you decide to take time off, work fewer hours, or travel less, you gain something of immeasurable value: more time with your children. You also give up something: a spot on the fast track. In business—where bosses are paid to win, with shareholders cheering them on—those spots usually go to the people with the most availability and commitment.

But, you may be asking, what about talent? Doesn’t talent matter? Fortunately, the answer is yes, and talent is often the saving grace for women who want to have families and career advancement at the same time. Because if you’re a working mother who is really good at your job and you really deliver results, most bosses will give you the flexibility you want and need for your children’s sake. But you have to earn that flexibility first—with performance. That takes time, in fact, it could take years, which is too long for many mothers to endure.

And so they drop out, shrinking the pool of promotable women, which is yet another reason why women advance more slowly than men.

Perhaps someday, the nature of work will change in a way that makes it possible for men and women to populate the corporate senior ranks in more equal numbers. Companies can’t ever stop trying to make that happen by supporting women with training and opportunities and making sure any gender biases are wiped from the system. Many good companies today have already made enormous strides in creating work environments where women can forge creative part-time working solutions to hold on to their careers while their children are young.

But as long as professional advancement is based to a considerable degree on availability and commitment, and as long as mothers want to spend time with their children, women’s careers will always have a different, more circuitous path than men’s careers. And believe it or not, lots of working mothers wouldn’t have it any other way.

Y
ou’re not alone, but just make sure you aim your anger in the right direction—and that might not be at the CEOs getting the huge payouts. All they did was say, “Yes, thank you,” when offered a big package. Greedy? Maybe. But more often, they are simply the beneficiaries of a common and disturbing dynamic that starts in the boardroom.

Which brings us to the real culprits here: company directors. They’re behind many severance pay debacles for one main reason. They messed up succession planning.

Yes, succession planning. It has a lot to do with severance pay. Why? Because many of the “obscene” payout deals that bother you so much weren’t created when the errant CEO was fired. They were designed long before, when the new CEO was
hired
from the outside because the board failed, over the course of several years, to develop a pool of internal talent.

Now, internally promoted CEOs don’t come cheap. The typical insider tapped for the top job will get a substantial pay increase, hefty rewards tied to performance, a slew of new perks, and a bigger office. But the deal gets much richer when a white knight has to be enticed to gallop in to save the company from itself. The rescuer gets everything an insider gets—plus the guarantee of a big consolation prize even if he or she blows it. And indeed, that last part is usually why the deal gets sealed; without back-end protection, no outsider would touch most of these risky positions.

Not all severance messes are related to outsider CEOs, of course. Sometimes insider CEOs fail and get sent on their way with more money than they appear to deserve. That can be galling too, but the dynamic we’re talking about is different. It starts when a board needs a new CEO and looking inward, realizes, oops, we forgot to plan for that. They then contact a headhunter, whose lust for a successful placement is second only to the board’s level of panic. The dynamic is complete when a seemingly perfect candidate is located—usually in a wonderful, secure job that he or she has no intention of leaving. Unless, of course, the deal is right.

Case in point is what happened at Hewlett-Packard. Back in 1999, when the board decided to change out its CEO, the lack of internal candidates launched headhunters on a national search. Soon enough, they found Carly Fiorina successfully toiling away at Lucent Technologies. She was hired amid great fanfare, pried away from her comfortable position with, needless to say, an offer she couldn’t refuse.

But as everyone knows, Carly’s six-year tenure at HP was fraught with board dissension, so much so that you would think when she was fired, her farewell gift would be modest. At about $40 million, it wasn’t, sparking widespread hue and cry, much of it aimed at Carly. But what about HP’s board? Without doubt,
they
negotiated the severance payout—and they did so as Carly was walking in the door with trumpets blaring, not as it was slamming behind her with a clunk.

The HP case is hardly unique, although sometimes the ending is happier. Take Ed Breen and Tyco. In 2002, Tyco was hit by a disastrous accounting scandal, and its CEO was removed. Again, the board turned to headhunters, who quickly set their sights on Ed, a respected executive at Motorola.

But Ed wasn’t going to quit a thriving career at an unsullied company to clean up the chaos at Tyco for a standard-issue deal. No wonder the board felt obligated to back up a Brink’s truck (metaphorically, of course) to unload a new compensation package at his doorstep. That package had a big performance component to it, but you can be sure that to make the risk of running Tyco worth Ed’s while, it also contained plenty of protection in the event things didn’t work out. Fortunately, Ed is doing a good job at Tyco, so the terms of his severance package are a moot point.

So, to get back to your question of what we think of obscene severance packages—look, we think they’re terrible. But they’re not solely the fault of the CEOs carrying them to the bank. In many cases, they were recruited to risky job situations on terms set by the hiring party.

But too bad they had to be bought in the first place. Too bad boards didn’t spend enough energy developing internal candidates. They really have only one job more important than that; coaching and supporting the current CEO.

Unfortunately, this problem will probably only get worse going forward. The reason: the Sarbanes-Oxley Act has driven many boards into a state of frenzied micromanagement of activities outside their purview. Today, many boards are more concerned with accounting minutiae than people development, including succession planning. What a shame. Boards can’t do the work of management. They can only make sure the right management is in place, now and in the future.

So, we’re with you on this one. We can’t blame you for wanting to scream. The big severance packages awarded to failed CEOs make you question the whole capitalistic system. But should you ever decide to really let it rip, just make sure that if the CEO was an outside recruit, you aim your invective where it belongs—not at the easy target, but the right one.