In an Uncertain World (45 page)

That experience caused me to revise my views about the issue of joint CEOs. Steve Friedman and I had worked together effectively in running Goldman Sachs a decade before because our fundamental views were compatible, because we were both relatively analytical and fell easily into a process for working out differences, and because we didn't have ego conflicts over decision making. But very rarely will the kind of people who are likely to become CEOs be able to function in this way. The experience of John and Sandy, and other similar situations I've seen, left me with the feeling that the odds of co-CEOs working together effectively in a corporate setting are actually very low. In most cases, corporations are best off with a single North Star, though I still feel, contrary to virtually all established opinion, that in the rare circumstances where the co-CEO structure will work, the benefits can be substantial.

   

IN EARLIER CHAPTERS, I discussed how my previous experience in business served me when I went into government—and considered some of the differences between the corporate and government worlds. There's a widespread view that the public sector has more to learn from the private sector than the other way around. But the traffic seems to me to go in both directions. The private-sector prejudice against the public sector is such that people are often surprised when I say that for-profit enterprises have much to learn from the way government works.

One area where I think business can gain from government is in interagency process—getting people from separate units and with different points of view together around a table to reach common ground on issues that cut across unit boundaries. Two others that can be closely related are managing in the kinds of crises that are becoming more common and often thrust companies into the public eye in unexpected ways, and dealing with the political and “message” dimensions of high-profile issues. Yet another is dealing directly with government itself.

After returning to New York in 1999, the area where I was most keenly aware that the private sector could gain from the experience of government was in managing the decision-making processes around complex issues with multiple internal stakeholders. In government, a chief of staff or a cabinet-level official spends a great deal of time trying to get groups of people from different units to work together in an effective way. This is an inherent need, because most major issues cross organizational lines and require coordination among different agencies, constituencies, and centers of authority to be resolved most effectively (though the history of our government is rife with examples of breakdowns of this needed coordination, often with untoward effects on policy decisions). For example, a major new initiative for inner-city problems probably wouldn't be properly developed unless officials from, at the very least, HUD, OMB, HHS, Treasury, and the White House got together in a room and hashed out a recommendation for the President.

At big corporations with many different business units, the same kind of need exists. These units maximize their collective profits over time by working together effectively—and the private sector has the advantage of being able to use accounting and compensation to encourage people to work together, which the public sector for the most part cannot do. But the separate business units of a big company usually aren't as used to working through their differences and problems with one another to enhance the well-being of the whole as government is of necessity. They're more used to operating in separate “silos” and being held accountable for their own individual bottom lines. That issue often comes to the fore when companies seek to cross-sell—that is, to use the sales force of one unit to sell related products from other units—or to make product/geography matrices work. (Who runs a credit card business in South Korea—the person in charge of credit cards or the person in charge of South Korea?) People who have learned how to manage interagency processes in Washington have a crucial set of skills that are not likely to have been as well developed in business and can add much to a company if they are properly supported by the CEO.

Another area where corporations clearly have much to learn from Washington is in understanding political considerations, both in dealing directly with governments, domestic and foreign, and in handling business issues that are political by their nature. In December 2001, Sandy and I traveled to the People's Republic of China and met with Premier Zhu Rongji to discuss a strategic alliance with a Chinese bank to issue credit cards. In putting together our proposal, we focused only on solving complicated substantive problems and failed to consider an even more intricate set of issues related to the distribution of political power within the Chinese government. What political interests would the Premier have to think about if he wanted to support our plan? Who, within that political structure, would view our proposal as threatening, and who as beneficial? A robust credit card business in China would promote consumption, which was clearly an economic goal of the government. But it might also threaten elements of the banking sector or of the bureaucracy that maintained control over the banking sector. Zhu was supportive of the project, but it foundered, seemingly because of internal political opposition. Perhaps if we had recognized these problems in advance, we might have devised a plan that would have helped to satisfy those other constituencies.

Political experience can also be valuable in the private sector when companies find themselves involved in issues with a significant political dimension. A good illustration of the corporate world's difficulties in dealing with political-style controversy that I experienced firsthand was the conflict that erupted over Ford Motor Company's potential liability for accidents involving SUVs that rolled over after tire failures. In 2000, the press reported that a number of people had been killed or injured in car accidents that had occurred when the tread on tires manufactured by Bridgestone/Firestone had separated. Firestone was Ford's main tire supplier, and many of the accidents involved Explorer sport-utility vehicles, which were outfitted primarily with Firestone tires. Ford blamed the defective tires; Firestone claimed that the design of the Explorer made it more likely to roll over than other cars, and that Ford hadn't warned buyers about the need to keep their tires properly inflated. Ultimately, the National Highway Traffic Safety Administration found that Firestone, not Ford, was at fault for the failures. The reputation of Ford and the Explorer emerged intact, but in the interim, Ford suffered reputational and political damage that might have been avoided or lessened.

Other than Citigroup's, Ford's was the only corporate board I'd agreed to sit on after leaving Treasury. For me, joining Ford's board was an opportunity to learn something about how big industrial companies are run. Ford also had a significant family influence, which made it more interesting at a personal level and seemed to me likely to result in more of a long-term focus. Also, Ford had been Goldman Sachs's flagship client in my early years there, and the idea of now being on Ford's board carried a special meaning for me.

After becoming a board member, I began having conversations from time to time about issues facing the company with Bill Ford, who was then the nonexecutive chairman. (In more recent conversations, Bill and Jacques Nasser, the CEO of Ford when I joined the board, agreed to let me relate the discussions about Ford that appear in this chapter.) Bill has a disarming manner and a modest style that belies his having grown up in Detroit with the Ford surname. He also knows and cares a great deal about environmental issues.

When the Ford/Firestone story broke, Bill and I discussed how to deal with its political dimensions. Substantively, the company seemed to be handling this serious matter wisely, immediately offering to replace the relevant Firestone tires free of charge. That decision cost Ford some $3 billion but reflected Jacques Nasser's immediate decision that the highest priority was to avoid further injuries or loss of life. But in dealing with the media and political aspects of the problem, the company's natural instinct was to have its own legal and public relations officials handle the situation. I thought that these corporate people, who as far as I knew didn't have extensive political experience, would be unlikely to deal with this kind of firestorm effectively. I said, “Bill, you're not in a corporate situation anymore. You're at the nexus of corporate issues, politics, the media, congressional investigation, and possibly even criminal prosecution. And you need people who are experienced working at that intersection.”

Bill said: “I think you're right. Call Jac.” I'd gotten to know Nasser at Ford board meetings a bit and liked him a great deal. Born in Lebanon and raised in Australia, where he had begun working for Ford in 1968, Nasser had deep knowledge of and many interesting ideas about the automobile business. I called him and repeated the points I'd made to Bill Ford. Then I told Nasser that I'd like to make a few suggestions, which basically involved putting company officials in touch with people I knew who were savvy about Washington and the media.

I think that Nasser, never having lived through an event of this type before, understood my points more intellectually than viscerally. Like most senior executives in businesses, he was not experienced in this kind of crisis. As a result, even though Ford did hire some experienced Washington people, the company, for the most part, dealt with the problem with regular corporate programs and personnel. Firestone, meanwhile, shrewdly retained Akin Gump—my friend Bob Strauss's politically connected and savvy law firm. And Firestone seemed to outmaneuver Ford on the media and message dimensions of the issue for some time. In the longer run, that didn't matter, but in the shorter run, Ford's reputational damage might have been more limited had the company adopted a more effective political and communications strategy.

While this matter was unfolding, I found myself being drawn into issues over Ford's management that were unrelated to the Firestone problem. Bill Ford, unlike most nonexecutive chairmen, was involved in the company on a daily basis and had his office there. Moreover, the Ford family controlled 40 percent of the shareholder vote, which meant that he held considerable influence over the company in some ultimate sense. But Bill wasn't the boss at Ford. Nasser, who had become CEO in 1999, ran the business. Though Bill liked and respected Nasser, over time he developed ever-deeper concerns about the condition of the company. Every so often, he would call me to discuss them.

That situation was difficult to interpret from the outside. Nasser was clearly at Ford as an agent of change, which Bill and everyone else agreed the company needed. But Jacques had run into significant difficulties in transforming the company. Like a number of executives in those days, he was trying to apply techniques that had been popularized by Jack Welch, who had made dramatic changes in the culture of General Electric. For instance, Nasser was trying to implement more rigorous personnel reviews, and he especially insisted that managers identify the bottom 10 percent of their people and develop tough-minded requirements for improvement. But what some of these CEOs overlooked was that Welch had had two decades to gain people's confidence. Welch also had the personality of a coach—a natural ability to motivate people and breed enthusiasm.

Bill Ford's view—as reported in the press at the time—was that Nasser's efforts were hurting morale at the company. He thought that Nasser's manner in pushing for change at Ford meant that the desired transformation was less likely to be accomplished. To remake a corporate culture successfully means not only being willing to incur some opposition but also winning the support of the preponderance of a corporation's people. You can't just impose change by fiat. Nasser pointed out that Ford was a hundred-year-old company with a large number of lifetime employees and a deeply entrenched culture, and that antagonism and resistance to change were inevitable—which was also true. That's typically the conundrum around significant change in a corporate—or any other—setting: it won't happen unless you're willing to break some eggs and incur sharp opposition. But change also won't take hold without broad buy-in. It is usually very difficult—if not impossible—for an outsider to judge whether an effort at change is meeting both these tests or is either too aggressive or not aggressive enough.

In the case of Ford Motor, I suspect both perspectives may have reflected an element of the truth. For example, focusing on the bottom 10 percent of executives every year ought to have had the benefit of forcing managers at Ford to face the difficult realities of improving the company's workforce. But what had worked for Welch at GE might not fit at Ford, where long-term job security had always been the norm. At the same time, other difficulties were surfacing. Bill began to report to me and others on the board that even though corporate profits were strong, people who worked at the company were increasingly dissatisfied. The company's relations with its dealers were worsening. And new surveys coming out indicated that Ford's quality and productivity were declining relative to other automakers'.

Nasser, who is very smart, had been very focused on repositioning Ford as a consumer-products, services, and financing company. But too little attention had been paid to manufacturing and design, with the result that there were too few new models in development and meaningful cost disadvantages. Bill said he did not want to be CEO himself. He wanted Nasser to be successful. But he felt Jac was excluding him. Bill said that if he was going to help with the company's problems, he needed to be in on decisions.

The difficulties at Ford brought home to me how little you can know as an outside board member of a company, even if you are very conscientious about your duties. At Ford board meetings, the issues that ultimately led to Nasser's departure were often raised. My immediate reaction to hearing them would be:
My God, we really do have a problem here and we have to deal with it.
Then Nasser would respond. He'd either say that some issue sounded like a problem but really wasn't for the following reasons. Or he'd say, “Yes, there is a problem, but here's our plan for dealing with it.”
That's a good answer,
I'd think, listening to him.
There's really not a problem.
Or:
There's a problem here, but he really does have a plan for dealing with it.
An outside board member has an obligation to learn as much as possible about the issues facing the company. But in truth, it's very hard to know enough to disagree confidently with management about a problem until matters have reached a relatively serious state.