A Case Study in Opportunity

October 2011 

In the last two weeks, we have attended two seminars, have been forwarded two articles and read two books all chronicling the current condition of leadership in the United States. It might be that we are intended to write more on the subject. 

Most of our readers know from reading many sources, including our articles, that leadership in our country could be and needs to be better. So, how can that get done? Perhaps a contrasting case study will provide insight into what works and what doesn't.

Greg Farrell recently published his eye-opening book, Crash of the Titans, the horrific tale of Merrill Lynch's near bankruptcy and ultimate sale to Bank of America, set within the backdrop of the profound failure of other financial and governmental leaders to understand their own culpability in the mess that may even now still sink the world into depression.

Farrell takes us through the timeline leading up to and through the meltdown of banks in 2007 and 2008. Really, we were amazed as we read about the profound confusion of the CEO's of our nation's largest financial institutions as to the causes of the meltdown. Even at the brink of a worldwide catastrophe, they couldn't see or admit their own culpability. By and large, consideration for employee and stockholder interests were not a part of the thinking on the part of most of the leaders of these important institutions.

Let's go back to the early 1980s, where after decades of management and union infighting and neglect, International Harvester was broken into pieces and scuttled. One small heavy manufacturing unit was sold to Jack Stack and a small group of investors. Having been renamed The Springfield Remanufacturing Company (SRC), the company reconditioned heavy diesel engines for commercial use.

With a total purchase price of $10 million and total equity of only $100 thousand, the 99/1 leverage was a killer. Interest rates were sky high and the banks required two financial statements per week from SRC. With an adversarial union workforce, Stack estimated he had six months at most to turn the business around. This was before the source of 50% of their orders, General Motors, took their business elsewhere.

Jack Stack needed to do something radical. In such a business culture in 1983, his management style couldn't have been more unorthodox. He told the whole truth to every single member of his workforce about every aspect of their business. He told them the harsh facts of their financial condition. He taught each employee what his or her job made or cost the company, and asked each of them to contribute ideas for improvement in every phase of the operation. He encouraged each employee to buy stock in the company. The company reported weekly exactly how the company was performing financially, sharing every detail with every employee, and providing every department additional needed support and assistance.

Even as they pulled their company back from the brink of disaster, the employee-centered philosophy never changed. Salaries for top management, compared to blue collar pay, were far less than 30 times (today U.S. executive pay approximates 300 times that of blue collar pay). At SRC no employee received a bonus unless all employees did. Every person applying for a job was interviewed intensively. SRC had incredibly low turnover coupled with high productivity and maintains it even today. INC. Magazine has called SRC the most competitive company in America.

SRC in 13 years saw its stock price rise 18,000%. In 15 years they were completely free of debt. By every measure, performance bordered on unbelievable. By the year 2000, they had 17 divisions. Most employees today own stock individually and in their employee stock ownership retirement plan. All retiring employees are immediately bought out of their stock position to ensure they retire comfortably, so new employees can participate fully in company growth.

This happened because of their people. SRC owned virtually no tangible assets when they started in 1983. Great people will do that for you.

In so many companies and governmental units today, there seems to be a serious lack of self-awareness. Witness the near meltdown in Washington regarding the recent debt ceiling brouhaha. That is not true of Springfield Remanufacturing Company. Each week every department knows how every other department is performing compared to their objectives, and difficulties are immediately addressed company wide. You see, if one department fails, every department fails, and so much loyalty exists in SRC; they do everything they can to prevent any and all performance roadblocks.

We have quoted Howard Gardner before. The well-known Harvard Education Professor and Researcher addressed these twin challenges head on: "Most people only resist correcting these issues (lack of self-awareness and denial of responsibility) because they aren't remotely aware they have these problems in the first place. Once they receive proper training regarding interpersonal and intrapersonal awareness, most are astonished this has been happening outside their awareness AND how simple it is to correct it."

When we solve the twin issues regarding lack of self-awareness and the denial that the errors and failings in our organizations are ours alone, we then can deal effectively with all of the other significant challenges we face.

When a truly committed leader takes that dreaded look in the mirror, examines these challenges at depth and resolves to work through and eliminate them, they come upon the most surprising discovery. As they show humility, respect, selflessness, honesty, patience and understanding for others, they receive them in return. In addition, they are able to view the business landscape with far greater insight, wisdom and clarity. It is a model that SRC and other fine companies have proven over the last quarter of a century.

Why not look seriously at the available business tools to quickly and effectively gather all the data needed to eliminate these debilitating blind spots? Hiring the right people, placing them in the right position, giving them every resource to perform their work superbly, treating them honestly and fairly and training them to be the best they can be is not a foreign concept. Fine performance management professionals are available in the community to assist you.

In the next decade we'd like to see thousands of organizations vying for the title of "The most competitive company in the United States."

Tom Searcy & Diane Winn, PCC
Through Eagles Eyes, Inc.