Wisdom From Clorox’s CEO

Recently, I ran into an interview with the CEO of the company that’s best known for Bleach.

Two things that stood out (to be honest, the entire interview/article made for a nice read) I thought should be mandatory reading for CEOs and managers everywhere:

On the heart side, the lesson is that it’s all about your people. If you’re going to engage the best and the brightest and retain them, they’d better think that you care more about them than you care about yourself. They’re not about making you look good.  You’re about making them successful. If you really believe that and act on that, it gains you credibility and trust. You can run an organization based on fear for a short time. But trust is a much more powerful, long-term and sustainable way to drive an organization.

 The other thing I’ve learned is that you’ve got to assume the best intent of people, and that they’re really trying to do a good job. I’ve seen organizations that are based more on fear than trust because senior management really thinks people are trying to get one over on them, that they’re just punching a clock. People really are trying to do a good job, and they want to be proud of where they work. Understanding that helped make me a bit more patient.

What Makes For A Good Manager?

Gallup, in its research, found that just one out of ten people possess all of the 5 traits that make for a good manager:

  1. They motivate every single employee to take action and engage them with a compelling mission and vision.
  2. They have the assertiveness to drive outcomes and the ability to overcome adversity and resistance.
  3. They create a culture of clear accountability.
  4. They build relationships that create trust, open dialogue, and full transparency.
  5. They make decisions that are based on productivity, not politics.

But since most promotions are based on individual performance (or worse, seniority), no wonder there are so many bad managers all around…

Corollary: Ever run into an accomplished “individual contributor” that’s chosen to remain that way, spurning promotions to management? I think they deserve respect.

Operational Improvements and The Private Equity Industry

As Dan Primack wrote in his newsletter today, a couple of researchers released a report via the Rock Center for Corporate Governance at Stanford University last week on the “operational consequences of Private Equity buyouts”. 

The paper’s abstract has some nice findings:

Do private equity buyouts disrupt company operations to maximize short-term goals? We document significant operational changes in 103 restaurant chain buyouts between 2002 and 2012 using health inspection records for over 50,000 stores in Florida. Store-level operational practices improve after private equity buyout, as restaurants become cleaner, safer, and better maintained. Supporting a causal interpretation, this effect is stronger in chain-owned stores than in franchised locations — “twin restaurants” over which private equity owners have limited control. Private equity targets also reduce employee headcount, lower menu prices, and experience a lower likelihood of store closures — a proxy for poor financial performance. These changes to store-level operations require monitoring, training, and better alignment of worker incentives, suggesting PE firms improve management practices throughout the organization.

As everyone would agree, that’s a good thing.

In fact, one presumes that such “operational consequences” are probably seen across various other industries too, whenever struggling companies are acquired by PE firms and made healthier away from the scrutiny of public markets. And that would make PE firms pretty valuable in a capitalistic society.

Still, they get a bad rap for a handful of deals where financial (over)engineering caused ruin and bankruptcy. Not sure that’s fair. 

The CFO Factory At eBay

Many jobs at most companies train those who hold them for bigger (and hopefully better) positions in the future. 

But eBay, in San Jose, seems to particularly good at being a CFO factory of sorts, says Emily Chasan, on The WSJ (paywall). 

Meet the eBay Mafia.

That is the tongue-in-cheek name for the at least 20 executives who have become chief financial officers in Silicon Valley and beyond over the past three years after training in the big e-commerce company’s finance department.

The list of eBay veterans who now are corporate-level CFOs includes Rob Krolik at YelpInc., Douglas Jeffries at RetailMe Not Inc. and Sean Aggarwal at Trulia Inc., who have all taken their companies public in the past two years. Startups with former eBayers at the financial controls include the online clothing retailer ModCloth Inc., digital-video company Roku Inc. and online ticketing company Eventbrite Inc.

So how does eBay mould them? Scale and exposure, among other things

EBay has become a hot house for CFOs in part because it has enough resources to invest in grooming up-and-coming financial talent and enough breadth to offer the best prospects hands-on experience running their own operations. The company says it has about 1,000 financial executives around the world and more than a dozen divisional and regional CFOs.

Rookies get both theoretical and practical training in finance, analytics and leadership. And, as part of a two-year program, eBay rotates star performers to a different division every six months to expand their professional networks across the company.

At one time, and even today, GE is regarded as an amazing management crucible. eBay, Google and Amazon increasingly seem to be the crucibles for the digital age.  

An Interview With Ram Charan, on HBR

Ram Charan, that low-key, widely respected global CEO advisor, was interviewed on (for?) HBR – and as usual, there is a lot of wisdom in his words that every professional should read and can use – not just CEOs. 

A sampling:

How do you test a decision?

By thinking through as many second- and third-order effects as you can. It’s not just a matter of knowing the expected ROI. If you decide to make a major investment in country A, of course you’ll want to calculate the return, but you also have to understand the community issues, the government issues, and the likely reaction of competitors—current competitors; potential competitors; and local competitors, who don’t play by the same rules. Many executives are learning the hard reality of investing in the oil industry in Russia. Is it still worth it? What are the second- and third-order consequences for a financial services company if it settles with regulators who want it to not just pay a fine but also admit wrongdoing? Or if a company lets an activist shareholder join the board?

Today most CEOs factor how investors will react into their decisions, especially in transformative moves, like the merger of Publicis and Omnicom. They also devote a lot of energy to thinking about how the board, and especially a few critical directors who drive consensus, will respond.

Good executives don’t let concerns about the consequences make them indecisive, however. One midwestern CEO was outperforming by a mile in the late 1990s, when the top brass at Home Depot said they wanted his company to supply theirs. Volume would obviously go up, but selling to the retail powerhouse would have several negative consequences for the brand in the long run. The CEO didn’t think it was the right thing for his company and said so. He had to wrestle with how the board and investors would see it if the story went public—which it did, with a negative spin—but that didn’t stop him from turning Home Depot down. His company did suffer for a while from lower growth and a stock price in the doldrums, but the CEO won the board’s support, and his strategy and long-term/short-term trade-off were eventually proved right.

Sriracha Sauce’s Reluctant Mogul

Passion explains why people start companies. But ultimately what drives them? Growth, revenue and profits?

Maybe not – at least in a few “holdout” cases. 

Consider David Tran, the man behind the iconic and wildly popular Sriracha sauce. As Roberto Ferdman writes on Quartz,

Talking to (David) Tran is a bit like pulling teeth. He only began granting interviews and extensive press access recently. His assistant and operations manager, Donna Lam, accompanies him on interview calls. His English is slow and calculated, and he often has to have more complicated questions and comments translated so he can properly answer—or slyly circumvent—them.  Try to ply historical growth numbers from him, and you’ll hit a wall—he doesn’t share them. All he’s willing to concede is that sales have grown steadily and in the double-digit range since he started bottling Sriracha 33 years ago.

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Tran doesn’t want anyone to know fast Huy Fong is growing for fear that more people will show up at his doorstep with business pitches he doesn’t care to hear and growth plans he couldn’t be less interested in. He says a number of investors have already approached with piles of cash and lofty promises, even full-on offers to buy the company on the spot. Tran has turned them all away. ”People who come here are never interested in the product, only in the profits,” he laments.

The full article – which includes other details that tell you that Mr Tran is indeed quite an unusual founder/CEO – makes for an interesting read. 

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