Business Blog: Hoover’s Business Insight Zone

Here’s a sampling of press coverage of Conrad Black’s sentencing in a Chicago federal court on charges of mail fraud and obstruction of justice:

Bloomberg: Black Gets 6 1/2 Years in Prison for Hollinger Fraud [Start here for a good recap of the entire affair.]

Black was charged in November 2005. On July 13, a jury found him and three former subordinates guilty of fraud stemming from $6.1 million in checks paid to three defendants in exchange for sham non-competition agreements involving Hollinger. Black was convicted of obstruction of justice for removing 13 boxes of documents sought by regulators from his Toronto office in 2005.

New York Times: Black Given Prison Term Over Fraud

Mr. Black, who once declared he would “not re-enact the French Revolutionary renunciation of the rights of the nobility” when criticized for using shareholder money to pay for a vacation to Bora Bora, and charged a lavish birthday party for his wife at La Grenouille restaurant in New York to his company, was acquitted of charges stemming from those incidents.

FORTUNE: Conrad Black’s shabby downfall

Indeed, after all the hullabaloo surrounding Lord Black of Crossharbour’s downfall, he was ultimately convicted of stealing $6.1 million from his company and obstructing justice by lugging some boxes out of his Toronto office - in plain view of security cameras - after being warned not to do so. All of this went on at a time when, on paper at least, Black was worth close to $300 million and was leading a life among the jet-setting glitterati.

Comparisons to Richard Nixon — who would have won the 1972 election without the slightest help from his “plumbers” — are inevitable, especially since Black recently published a mammoth biography on the disgraced president. Indeed, Black is quite a writer: he produced a similarly long — and well-reviewed — biography of Franklin Roosevelt.

But his own perception of himself is a long way from the sordid realities uncovered during his trial. Possibly the most perceptive character study comes in this column from James Bone of The Times of London:

Conrad Black, the romantic hero whose dramatic plots have fizzled out

In his heyday, Lord Black of Crossharbour strutted the world stage as press baron, confidant of statesmen and biographer of American presidents.

The Canadian-born peer, as head of a global newspaper empire that included the Telegraph titles and Spectator magazine, held London in his thrall with parties for journalists, academics and politicians at his double-fronted house in Cottesmore Gardens, Kensington, with Barbara Amiel, his glamorous columnist-wife.

Yesterday the self-regarding former Telegraph chairman, who once famously dressed up as Cardinal Richelieu for a costume party at Kensington Palace (with his wife on his arm as Marie Antoinette), confronted the humiliating prospect of donning an orange prison jumpsuit instead.

“He wanted to be the hero, but for some reason he has always wanted to be the dying hero. He has this very melancholy view,” said George Tombs, the author of a new Canadian biography entitled Robber Baron: Lord Black of Crossharbour. . . .

Lord Black himself bristles at suggestions that his spectacular downfall was provoked by a fatal flaw in his character. . . .

Black peremptorily dismisses such colourful explanations for his troubles. “This theory that it’s all a great ‘rise and fall’ story or some sort of Shakespearean or Greek tragedy and that I was misled by my wife and lived to extravagance, that is all nonsense,” he told the BBC Radio 4 Today programme last month in his only British media interview since the guilty verdict in July.

When John Humphrys described his predicament as a “fall from grace”, Black quickly contradicted him, calling it “persecution” instead.

“He is still trying to maintain that narcissistic bubble he has been in, even now. He is casting himself as a romantic hero who has been victimised by the American justice system and the overzealous missionaries of corporate justice,” Mr Tombs said.

There’s a part of me that relishes the downfall of the likes of Black, ex-Tyco chief Dennis Kozlowski, and ex-Enron chief Jeff Skilling, not because they were rich and powerful — I’m a big fan of capitalism — but becaused they wilfully abused the systems that made them rich, and then clung to their hubris even in defeat.

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Related Hoover’s records:

• Hollinger Inc.
• Sun-Times Media Group

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Bill Miller’s* message to Citigroup: Don’t bring in a new CEO to launch a new strategy. Bring in someone who can simplify and execute instead — like Mark Hurd has done at Hewlett-Packard.

Bill Miller’s simple plan for Citi

. . . He said the bank should find someone who has a similar management style to Hewlett-Packard CEO Mark Hurd. Hurd replaced Carly Fiorina in 2005 and has led a dramatic turnaround at HP, mainly by cutting costs and focusing the computer company on what it does best.

In other words, Miller said he does not want to see Citigroup bring in someone who would have a radically different vision for the company, even though it has been hit hard by the subprime mortgage crisis.

“I would like someone to run Citi like the way that Hurd saw HP - someone to come in and simplify the processes. That’s key. Someone who would approach Citi that way would be great,” he said. “Citi doesn’t need a major strategic overhaul.” . . .

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Related posts:

• How good was Carly Fiorina at Hewlett-Packard?
• Putting out fires versus fireproofing.
• Floyd Norris and Chuck Prince: a follow-up.
• The importance of execution.

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* Miller is a rock-star fund manager for Legg Mason.

As a follow-up to Friday’s post, here’s Eddie Lampert’s rebuttal of criticisms of Sears Holdings and its performance:

Sears’ Lampert takes media, Street to task

CHICAGO, Nov 30 (Reuters) - Sears Holdings Corp Chairman Edward Lampert on Friday took the media and analysts to task for underestimating the company, saying the retailer is being criticized for the same practices that elicit praise when used by its competitors.

“When other companies manage expenses carefully, it is often characterized as a sign of good management and prudence. In the case of Sears Holdings, meanwhile, expense controls are often cited as a root cause of poor performance,” he said.

Link.

You could be forgiven for forgetting Morgan Stanley these days, what with all the hubbub surrounding other financial players like Citigroup, Bear Stearns, and Merrill Lynch. But Morgan Stanley made headlines this week when it fired Zoe Cruz, a 25-year veteran of the firm who was the head of its trading operations — and who was one of the highest-placed women on Wall Street.

This Wall Street Journal story gives the inside-baseball account. Note the lowlights of Cruz’s combative management style:

How Zoe Cruz
Lost Her Job
On Wall Street

Zoe Cruz appeared to be surviving the credit crisis that has roiled Wall Street. But the Morgan Stanley co-president’s response in the aftermath of the firm’s $3.7 billion in losses helped fuel her ultimate fall.

The 52-year-old executive didn’t take personal responsibility for the losses at Morgan Stanley, according to people familiar with the firm, and instead lashed out at fellow employees in a series of meetings about the losses, raising questions about her management style.

As a result, Morgan Stanley Chief Executive John Mack lost confidence in Ms. Cruz, whom he had repeatedly backed in the face of opposition from senior executives, these people say.

Among other criticisms leveled at Ms. Cruz: She didn’t have a good handle on the risks the firm took in its mammoth bond division, a business she had grown up in and built over the years, and she frequently clashed with well-liked veteran investment banker Robert Scully, often publicly correcting him at employee presentations.

. . .

Even before the mortgage-trading losses surfaced, Ms. Cruz’s leadership style was an issue. Some bankers and traders still resented her support for former CEO Philip Purcell, who was ousted in 2005 after a campaign against him by a group of Morgan Stanley alumni.

After Mr. Mack backed Ms. Cruz upon his return to the firm, he thought he could help Ms. Cruz improve her management style, and a personal coach was retained to work with her, people familiar with the firm said. But she didn’t always display harmonious team work with her co-president, Mr. Scully, sometimes contradicting him in presentations.

This puts me in mind of two things:

1. The very best performers, in my experience, are always ready to take responsibility for what happens around them. Good CEOs do it. Harry Truman did it when he said “The buck stops here.” Jerry West and Michael Jordan did it on the basketball court. And we could proliferate examples beyond that. What all of these exemplars display is the same mindset that drives Fernando Flores, a remarkable business consultant who refuses to accept excuses from himself or anyone else. I encourage you to read this Fast Company profile on Flores, written nearly a decade ago.

Talk all you want to, Flores says, but if you want to act powerfully, you need to master “speech acts”: language rituals that build trust between colleagues and customers, word practices that open your eyes to new possibilities. Speech acts are powerful because most of the actions that people engage in — in business, in marriage, in parenting — are carried out through conversation. But most people speak without intention; they simply say whatever comes to mind. Speak with intention, and your actions take on new purpose. Speak with power, and you act with power.

Cruz would have benefited from that kind of high-integrity, high-trust approach with her colleagues — and with herself.

2. It’s amazing how people — especially high-performing ones like Cruz — can’t see their own weaknesses, or can’t see how to get around them. The tippy-top performers I was just talking about? They figure out how to correct for their weaknesses, how to eliminate them or, even better, simply take them off the table. You would think that someone as unquestionably smart as Cruz would come to realize that, simply on the level of personal politics, she would be better served to bite her tongue than to lash out at colleagues. I’m not even talking about coming around to a truly empathic appreciation of other people (although I certainly would recommend that to anyone). I mean that, from a strictly selfish viewpoint, Cruz would have been better served to do a better job of keeping up appearances.

Citadel chief Ken Griffin has emerged as a major financial player in the past few years. He’s a math whiz, and he’s well known for his hard-charging ways. So there’s something vaguely comical when you find out that this financial “barbarian” sits in his office reading management books about building emotional intelligence and connecting on a personal level with his employees. But at least you can credit him for trying, becuase he’s self-critical enough to understand that for Citadel to grow like he wants it to, he has to open up some cracks of humanity in his hard-shell personality.

Maybe Cruz will get a chance to do that in the next phase of her career. But if she’s like most of us, she’ll continue not to take responsibility for what happened to her at Morgan Stanley.

The talk of the football world this week is the murder of Sean Taylor, a Pro Bowl safety for the Washington Redskins. Although the circumstances of Taylor’s death are shocking — chilling, really — football teams at least prepare for all sorts of eventualities when they assemble their rosters: injuries, suspensions, trades, mixing different skill sets, the emergence of young players, the decline of veterans, and so on.

To help them in this, football teams prepare formal depth charts. So while the Redskins will have to grapple with all the sadness and pain surrounding Taylor’s death — not to mention enormous media attention during the homestretch of the NFL season — they already have solid ideas about who will play safety in Taylor’s place this Sunday — because they have a depth chart.

No corporation expects a CEO (or anyone else) to be a victim of murder, any more than NFL teams expect to lose players that way. But the age of CEOs and the vagaries of life leave the door open for many kinds of exits: setting aside the fact that your CEO might be hired away by a bigger company or fired, he or she might drop dead of a heart attack, fall ill from cancer, go down in a plane crash, get hit by a drunk driver. You name it — accidents happen.

If you’ve read this blog much, you’ll see where I’m headed: smart companies have an executive depth chart. They know who will step in if the CEO departs, expectedly or unexpectedly, but it goes deeper than that. They also know who will step in for the CFO, the CTO, the division chiefs, the controller, and on down the line. Sometimes this knowledge is implicit: everyone agrees without saying so that if the general counsel is struck by lightning, the deputy counsel will step in.

But for lesser companies, arrangements are unspoken not because they’re implicit but because there is no agreement on them. People don’t know where they stand. The board doesn’t know who will succeed the CEO in event of emergency. It’s not agreed upon that deputy counsel will succeed the general counsel, or that the general counsel will succeed the CFO if needed, or that the CFO will succeed the CEO if needed. If it’s the CFO who contracts cancer and retires early, the trouble is muted, because the CEO can make a forceful decision on a successor. But when the CEO departs abruptly . . . you need a depth chart.

Board members of publicly held companies have a duty, I assert, to make sure that at least the rudiments of such a depth chart are in place. Not later, but today — because no one knows when tragedy will strike, even if it’s nothing as gruesome as what happened to Sean Taylor.

After the recent flurry of CEO departures at major firms, we don’t need any more instructive examples. We need consistent good practices far and wide.

Ed Zander’s not really out, he’s just kicked upstairs to the chairman role while MOT long-timer executive* Greg Brown takes over the CEO duties. Two quick thoughts:

1. Yes, given my previous diatribes on this point, I’m pleased that the Motorola board believed that there was someone in the house — someone whose record sure looks like a future CEO’s record — to take over the reins. According to the company’s press release, Brown has “headed four different businesses at Motorola. He also led the $3.9 billion acquisition of Symbol Technologies” — on top of serving as president and COO until this promotion.
2. Ed Zander came into Motorola with a stellar record compiled at Sun Microsystems and as a venture capitalist. So here’s the question: is it that Zander just didn’t have the right answers for what ails Motorola . . . or is it that Motorola is now operating in a telecom market environment so different from before that the answers aren’t there?

Time will tell how Brown does. I’ll be watching with interest.

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* UPDATE: What with all the puffery in the press release, I misremembered Brown’s history with the company. As this post points out, he’s been with MOT only since 2003. Still, it’s better to have a medium-term insider take over the CEO reins than to have to turn to an outsider.

Michael Dell on Apple, 1997:

“What would I do? I’d shut it down and give the money back to the shareholders.”

Apple’s performance for the 2007 quarter just passed:

• Apple Rises to a Record on Macintosh Sales, Outlook
• Apple results top targets, Mac sales strong

Dell’s performance for the 2007 quarter just passed:

• Dell shares fall 10% on poor results
• HP grabs punishing lead over Dell in PC market share

Percy Bysshe Shelley’s commentary on same, 1818:

. . . “My name is Ozymandias, king of kings:
Look on my works, ye mighty, and despair!”
Nothing beside remains: round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away.

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* Not really, of course. Dell’s middle name is actually Saul. Which is no help at all for the writer trying to evoke something poetic about the problems at Dell’s company.

I’ve always been impressed with Eddie Lampert’s smarts.* And he may have big, deep plans for the long run about how the cash generated by Sears Holdings will fuel amazing investment returns. But at some point, doesn’t the company have to perform well on its own terms?

Sears Profit Drops,
Bringing Forecasts
Of a Restructuring

Edward S. Lampert, lionized until recently for his ability to turn a ho-hum retailer into a dazzling financial play, finds himself in a box with Sears Holdings Corp.

Falling sales and sharply weaker earnings could force the Sears chairman to restructure the company at a time when weak credit and real-estate markets will make such a move more difficult.

The Hoffman Estates, Ill., retailer yesterday reported third-quarter profit plummeted 99% on a modest sales decline. It also forecast glum year-end results, noting markdowns on bulging inventories would hurt margins in what is historically the company’s most profitable quarter.

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* A quick search uncovers these posts I’ve written related to Lampert:

• Interesting re Eddie Lampert.
• Just how smart is Eddie Lampert?
• Oooh, I love me some buyout rumors . . .

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We’d all like to have an easy formula for what makes a good leader. “Hard” skills, or “soft” ones? Big vision, or an eye for details? Sending the company in bold new directions, or making the trains run on time? Et cetera.

Yet we can’t even agree on how to assess the past performance of CEOs whose tenures are matters of historical record. Since I also study history, this doesn’t surprise me — smart historians can’t agree on President Polk, much less leaders closer to the present.

A business case in point: Carly Fiorina. When she became HP’s CEO in 1999, she was hailed for bringing a new vision to a staid company. She masterminded the gigantic acquisition of Compaq. Yet she left in ignominy in 2005 . . . which hasn’t kept her from rebounding as an author and speaker.

It also hasn’t kept a diversity of opinion from flourishing in her wake. Consider three examples:

1. Tom Peters: Enough, for God’s Sake, of the Hurd Mentality

I am not taking away from Mr Hurd’s operating performance, which probably exceeds Fiorina’s. But if we are primarily celebrating HP’s megabulk, as the heavy in computerworld, and its fashion consciousness as engine of soaring PC margins and profits, then we are celebrating Carly Fiorina.

2. InfoWeek in 2006: Hewlett-Packard’s Taskmaster: Heir to the chairmanship, Mark Hurd stays focused on growth and efficiency.

Though much remains to be done, Hurd has effected a remarkable turnaround already, largely through a relentless focus on improving operations and raising morale. When Carly Fiorina was CEO, it was unclear whether HP would survive intact without being diced into smaller companies. Hurd has untangled Fiorina’s matrix management structure to give salespeople more responsibility and clearer lines of reporting. He’s shunned the press interviews and celebrity hobnobbing Fiorina thrived on–no trips to Davos or on-stage appearances with Gwen Stefani.

3. Michael S. Malone: Carly Fiorina’s HP Legacy

One is hard-pressed to think of anything [Fiorina] did during her time at either Lucent or HP that wasn’t designed to burnish her own image — at the sacrifice of anyone who got in her way. Indeed, that’s exactly what she’s doing now with her self-exculpatory book: blaming the victims — that is, everyone but herself — for her failings as a manager.

What do you think? Where does the weight of the evidence lie?

So much so that I’m willing to call it a rule: if a company doesn’t have a good CEO succession plan in place, it’s simply not a good company — period. (I’m looking at you, Citigroup board of directors — what were you thinking?)

Carol Hymowitz has more in her latest “In the Lead” column:

Too Many Companies
Lack Succession Plans,
Wasting Time, Talent

“Succession planning isn’t an event, it is a process that is best managed over three, five, even 10 years,” because it involves building a pipeline of talent, says Joseph Bower, a Harvard Business School professor and author of “The CEO Within: Why Inside Outsiders Are the Key to Succession Planning.” Yet, “a lot of CEOs are focused mostly on getting through the next quarter, and they ignore the hard work of grooming future leaders,” he adds.

Our previous coverage:

• Merrill flunks the CEO succession test.
• CEO succession — successes and failures.
• CEO succession — it doesn’t have to be like this.

Industries always learn from the mistakes of failures gone before. (This is another version of the old military axiom that you always prepare for the war you last fought.) Here’s hoping that companies across many industries will learn from the gross failures of Merrill and Citigroup and set up adequate succession plans for themselves.