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We need D.A.R.E. for CEOs

July 24, 2009

D.A.R.E. is a great program teaching children how not just to avoid drugs, but other life-changing bad decisions as well.  My kids went to through the program and all I can say is, “thanks for a job well done”.    This morning’s business news included an interesting article – after having followed his ego, the former CEO of Porsche is stepping down to allow the merger of this once great standalone car company into Volkswagen (and not the exact opposite as was once planned.  Well, sort of planned.  Well, sort of dreamt but with a bunch of debt to buy shares which ate all Porsche’s cash.).  It’s time for D.A.R.E. for CEOs.

The Porsche and Volkswagen story goes back to Hitler era Germany, where Dr. Porsche was asked by a certain Austrian failed artist to create the people’s car, a ‘Volkswagen’.  Thus came the Beetle and after the war, the family came to odds, with one branch controlling VW and the other restarting Porsche Automobil.  Funny story here – after WWII, the British offered VW to Ford, who refused, no doubt thinking a Europe bombed back to the Stone Age would be happy returning to ox carts instead of cars.  Enzio Ferrari who? But we digress.  So this love-hate relationship within a family fueled Porsche’s CEO to try to take over a company with 16X+ the revenues and 36X the employees, not to mention about 9 more major brands.  How were they going to pay for this?  Porsche took on $13,000,000,000 in complex financial derivatives just as their 2008 sales were down in the U.S by  25 percent compared to 2007 and to-date, 2009 sales are running 30% below even that number.  Worldwide, the number isn’t much different since the US is Porsche’s largest market.  It was a race between them and GM as to who would go belly up first which Porsche lost by about 30 days, allowing GM to use the new tagline ‘we’re faster than a Porsche’. As this leadership team which is brilliant at cars was thinking through corporate finance (obviously not a core strength), where was that kind and friendly D.A.R.E. officer saying “don’t do anything stupid kids, ego-addiction is still addiction”.

Here in the States, we’ve seen our Financial sector meltdown because, again, the D.A.R.E. officer couldn’t get past Lobby security in time to tell the CEOs to watch out.  Be it 30X Balance Sheet leverage, or a bunch of crazies in London writing paper no one really understood, we needed the D.A.R.E. officer on the job.  Even now, with Financial firms announcing potentially record bonuses, that D.A.R.E. officer is needed so we don’t enable their ego-addiction.  GM and Chrysler both failed for numerous reasons, but a bunch of really dumb decisions could have been avoided if they had attended those D.A.R.E. meetings along with their kids.

But isn’t the Board supposed to be the D.A.R.E. officer?  Didn’t they have to approve Porsche’s buying over 50% of VW on margin?  Didn’t they understand too much debt eats cash and in a bad economy, cash flow is depressed?  Didn’t they know from experience how perfect storms are the rule and not the 100 year event?

It’s obvious we need D.A.R.E. for CEOs and D.A.R.E. for Boards, just like there is D.A.R.E. for kids and High Schoolers.  As this program teaches kids not to do drugs and join gangs, our form of D.A.R.E. should tell CEOs not to join the herd and not to let their ego-addiction and ‘vision’ be as intoxicating as any of the DEA’s Schedule I controlled substances. Our older kid version of D.A.R.E. for Boards should deal with the words ‘debt and synergy’ just like my kids were taught to resist peer pressure and “try it just once”. Just like they know to walk away, a Board must walk away from any merger based on synergy, which usually means “the other guys couldn’t make it work, but my ego says I can”.  And when they hear of debt levels above reasonable projections of cash to service same, they should not even reply and just keep on walking.

Here’s my question – if the Board isn’t the D.A.R.E. officer, who is?  Shareholders, in all operating reality, have about as much influence as a North Korean dissident, so it isn’t them.  The SEC?  No, they have to learn to monitor their regs and rules, and after what they recently allowed to get by, maybe they need a D.A.R.E. officer as well.  Since all the usual suspects are in need of their own adult supervision, it looks like the inner voice and a tweak to executive coaching may be the only way to get own personal D.A.R.E. officer.

When you’re about to take a risk, or as the ego-addicted like to call “a bold move”, ask yourself a simple question – if your arch competitor (not company competitor but personal competitor) were to announce this decision, would you be thrilled because they just blew themselves up or would you be nervous because they could take you out?   Your inner voice is trying to tell you something, so just listen.  No inner voice?  Maybe the Board shouldn’t employ sociopathic leaders.  As for executive coaches, most are extremely good at personal growth and behavior modification, but they should also be changed to include financial and operating expertise and deliver advice and counsel as a Trusted Advisor. In fact, an independent Trusted Advisor should be a required input, like an outside Auditor, and not treated as a perk.

If this doesn’t seem to work, society can go to my kid’s D.A.R.E. officer.  He always made a ton of sense and had infinite patience exploring and answering even the strangest suggestions.  Maybe we should go to him first.

Rich Eichen is a Managing Principal of Return on Efficiency, LLC, who’s website is www.growroe.com and is one of their senior turnaround leaders/CROs, Program and Interim Executives with over 25 years experience reshaping companies, Operations and key initiatives. He can be reached at rich.eichen@growroe.com

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