Smart Management: Chrysler and Starbucks
Two recent Business Week articles showed different approaches of companies managing in the economic downturn. The first is from Chrysler and its new CEO Sergio Marchionne of Fiat; Marchionne is moving quickly to increase competitiveness at Chrysler and is aggressively changing the management there. The second example is that of Howard Schultz re-taking his place as Starbucks CEO after vacating the position from the company he founded; he is looking for more efficiency within the company and opening the company to new ideas.
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A lot of interesting stuff in these two articles. I found Marchionne's management style particularly fascinating - I like how he moves quickly and decisively, and "relies on his reports" from employees in the field to make decisions. I also like that he relies on feedback from "underlings" to know which bosses to promote to higher management. I'm very interested to see how that pans out at Chrysler.
ReplyDeleteStarbucks' story about the line on the milk pourer reminded me a bit of the hand washing story from the first chapter of Better by surgeon-author Atul Gawande. They are championing the implementation of a common-sense, everyday solution to a problem which will ultimately have a big payoff.
The story about Marchionne fostering internal development also reminded me of how they came to that handwashing solution - by letting the everyday employees at the hospital determine placement of handwashing stations.
Any time I read about these CEOs, Howard Shulz, Steve Jobs, Warren Buffett, etc. I am always impressed. When you get to see the inner workings of a CEOs office, you truly understand how much value these individuals provide to their company. In conjunction, you can see how these individuals can make such a large company 1% better and therefore deserve the multi-million dollar salaries and bonuses.
ReplyDeleteI completely agree with you. One thing that strikes me about both Marchionne and Schultz in the BW article is that they bring a strong focus to their work. By focusing on a few key areas of the business, they bring a simplicity to their work while simultaneously creating a company-wide cohesiveness.
ReplyDeleteThis same CEO focus and simplicity also appears in Warren Buffet as recounted by Bill Gates (scroll down halfway). Gates also discusses Steve Jobs, and he displays similar characteristics. Great interview.
The second thing that stands out is simply vision. All of these CEOs have a very strong vision for what they want their company to represent. For Schultz it is a comfortable consumer experience; for Marchionne a company that leads innovation in its industry; for Jobs a clean and stylish user interface across all brands; etc.
Any other good examples of this that strike you?
Aaron, on the heels of your comments about CEO pay comes a BusinessWeek article asking 'are CEOs overpaid?'
ReplyDeleteThe basic tone of the article is that employee morale suffers when they perceive that CEOs are profiting disproportionately while lower-level staff suffers. It raises a tough question - how do you balance the big impact of good CEOs, as you argue Aaron, while considering the perception that leaders aren't part of the team during lean years?
My ideal recommendation for CEO pay and other top executives, is a salary that does not exceed more than $1,000,000 per year, and paying the remainder in company stock that vests over a 5 year schedule. This ensures that executives are paid for their contributions to increasing the value of a company, and they are financially motivated to do whatever is possible for both long and short term growth.
ReplyDeleteSo if a Board of Directors decides that a CEO should be paid $20 million (maybe 0.1% of a company's value) then they get $1 million in cash and $19 million in company stock, that they can't even touch 20% for another year. The CEO is going to try damn hard that the stock worth $19 million is up even higher when it vests and he can access it.
I love this idea. It sounds like what the setup is for the Wal-Mart CEO as described in the BW article - he gets $350k in base salary, and his total "compensation package" is $4.9 billion... I am assuming that is mostly stock, unless it's a huge bonus or something.
ReplyDeleteI am sure there is a flaw with this thinking though - maybe CEOs are so used to the huge pay scales that they won't accept the stock option? Maybe they want more flexibility than what it offers? Or maybe they just want the status of having the huge salary, like the article suggests?
Also, this made me think - how do you feel about employee investment in a company? Somehow I am drawn to the idea of a company being run as more of a co-op, with all employees of a minimum tenure (say 2 years with the company) get stock or can buy stock in the company... it's what UPS did a while back I believe. Is that not feasible with the size of big corporations these days?
Well, one of the better standard employee benefits is an Employee Stock Purchase Plan, that usually allows employees to buy stock at a 15% discount. Stock options or grants of restricted stock also act as incentives. However, I would argue that for non-executives, these are never in the amounts to actually inspire the employees to work harder for the good of the company. These benefits are looked at the same way they look at a company match to a 401k contribution. It is extra money, and there is incentive in that, but the general employee feeling would be "I hope the company's stock goes up," not "If I work harder, I can make the company's stock go up."
ReplyDeleteBesides, I (and no other decent financial advisor) would ever recommend to a client maintaining any more than 10% of their portfolio in employer company stock. The only exception would be when vesting rules and restrictions require they hold stock longer, such as with restricted stock grants, or if the company stock is in addition to a well-diversified portfolio designed to provide retirement income (but this is usually only in the case of highly compensated employees and executives).
Although in the current economy many employers are reducing or eliminating the company match on 401k contributions and the 15% discount as a way to save money. Employees aren't taking a pay cut, but they are getting less money from their employer.
ReplyDeleteFollow up on Chrysler - apparently Marchionne has been aggressively making changes, even undoing previous decisions he made. He recently replaced the heads of the Chrysler and Dodge brands, while spinning of Ram trucks into its own brand and appointing a head of that brand as well. It looks like he's moving more Fiat executives into leadership roles at Chrysler.
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