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A modest proposal for rescuing the auto industry

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You know, I just can’t help feeling outrage, depression, and cynicism at the Big Three auto companies asking for a taxpayer bailout. Twenty years ago, we read cases in business school about how American auto manufacturers had already fallen behind foreign imports in production capability, cost structure, and market responsiveness. At the time, this was not new information.

And now, the Detroit top brass are showing up to Congress, hats in hand, for mega-billion-dollar cash flow loans that they project will last them … oh, a few months. And they’ll do what, exactly, in those few months? Why in the world should we believe that the same people who willfully ignored their competitive situation for two generations have any relevant skills, abilities or motivation to fix any of the problems? Aren’t they exactly the people we know won’t solve the problem?

Yeah, they’re saying they’ll reduce their salary to $1 until the mess is cleaned up. How generous of them. Are they taking huge stock grants instead (Iacocca did, back when he reduced his salary to $1 when saving Chrysler. That part of the story doesn’t sound as noble, so it’s often glossed over)?

Even if they’re genuinely giving up their compensation, they’ve taken home seven- or eight-figure salaries for years. They’re way, way past the point of needing another dime as long as they live. What a sacrifice, to reduce their salaries. I say they’re not going nearly far enough. How about giving back a big chunk of what they’ve been paid over the last twenty years, since it’s now apparent they did a piss-poor job at CEOing.

Startups can’t afford the luxury of incompetent, overpaid CEOs

In the startup world, we don’t have much money to pay CEOs. So we look for CEOs who are passionately committed to the success of our idea, our customers, and our company. We give them stock options, sure, but honestly, that’s not what we count on to motivate them. We count on them loving what they do enough to go the extra mile. And not in a private jet. In fact, founder-CEOs often put in their own money to fund the company and work for free until the company is proven viable.

So here’s my proposal…

I’m happy to have taxpayers bail out Detroit, but with a condition: we auction off the CEO jobs at Ford, Chrysler, and GM. The highest bidder gets the job. They receive a total compensation package equivalent to a shift supervisor at one of their plants. No stock, no options, and no bonuses. If they want better health insurance, for example, they pay for it themselves. Why would anyone take this job? Simple. It’s the chance of a lifetime to do something that almost no one in the world will ever have the chance to do: reshape an industry.

It’s pretty clear to me that the logic of “pay the CEO big money” isn’t getting competent, committed people into the position. It’s getting incompetent leeches whose main interest seems to be in feeling self-important while relieving the company of the burden of millions of dollars of vaule.

By having people ante up real money to take the position, we would quickly narrow the playing field to people who genuinely care, are excited by the opportunity, and who are being driven by the challenge or the love of the industry, not by personal greed. And remember, this isn’t the string bean industry, it’s the auto industry. There are many superbly successful businesspeople in the world who are passionate about cars as an industry. I’ll bet we would be surprised at the number of excellent candidates who stepped forth.

I’ve had enough with this absurd logic that says, “you can’t motivate people unless you pay them.” That’s bull pucky. It may be true for assembly line workers, because those jobs are mind-and-body-numbingly dehumanizing, but when it comes to C-suite jobs, I’ve met hundreds of people in those jobs whose motivations have everything to do with passion, challenge, creating, and doing a job well-done. Most of them are already rich enough that they don’t need to work, anyway.

In fact, even Warren Buffett acknowledges this. He points out that the CEOs of Berkshire Hathaway subsidiaries are extremely successful, already independently-wealthy people. They don’t need money and aren’t motivated by it. That’s why they do such a good job.

The least we can do is take Buffett’s example and get CEOs motivated by passion, superb skill, and challenge to turn around an industry that’s had none of the above for a long time.

How we explain success may be different from what really causes it.

I was reading Steve Salerno’s “anti-SHAM” blog as he was commenting on Hillary’s speech at the DNC last night. He didn’t think much of her story. She told a story of her success, he said, that may have been a tad… biased.

That got me thinking about how much our own stories do and don’t have anything to do with actual events. Certainly the book “Mistakes Were Made (but not by me)” by Carol Tavris, Elliot Aronson documents thoroughly how we distort our own memories to tell a story consistent with how we’d rather view ourselves.

This is my response to Steve:

Check out “The Halo Effect” by Phil Rosenzweig. In it, he basically discredits 99% of popular business books and research by pointing out that after-the-fact explanations where the outcome is known always come out the same, regardless of actual circumstances. The “halo” of known success (or failure) causes all the players to remember the past in a very specific way.

For example, ask people why XYZ Co. was successful and they’ll always talk about a visionary leader, good teamwork, flexibility, etc. You can predict those explanations with such certainty, apparently, that any research based on after-the-fact explanations is virtually worthless. (Because if you can predict in advance what people will say, then it obviously can’t be based on the actual situation.)

To avoid the halo effect, you would have to approach people in companies before success is known. Then ask them to describe the current environment. Then 10 years later (or whenever), see if their in-the-moment descriptions correlated with later business performance.

Though Rosenzweig limits his discussion to company success, I believe we also have a halo effect with successful people. We love the rags-to-riches, hard-work-and-skill-wins stories. No matter the truth of a situation, those are the stories we use to explain known success.

(Why is Bill Gates so extraordinarily successful? You’ll hear about strategy, ruthlessness, etc., etc. All the standard after-the-fact explanations. But that misses the point. There are lots of strategically brilliant, ruthless people who didn’t dominate the computer industry. In Bill’s case, mommy was on a board with the chairman of IBM, the head of Digital Research missed the chance to produce DOS so Bill was the 2nd choice, and IBM was stupid enough to let Gates keep all the rights to the software. Without those factors, all outside his control, he might have been just another 2-bit software developer. But that isn’t a story that we like to tell.)

When I look as objectively as I can at my successes and those of my friends (and many of my Harvard MBA friends have been very successful), I notice that hard work and skill seem far, far less important than, say, choosing the right industry, negotiating a compensation structure based on someone else’s work (e.g. paid as percentage of someone else’s transaction), and being lucky in your timing. Finance and entrepreneurship fit the bill.

But no one likes the story, “I made $100 million because I was frickin lucky.” That raises the question of whether the person deserves it, etc., etc., etc. We don’t want to challenge whether Gates deserves it because deep in our hearts, we hope we can make it big and don’t want to question whether or not we deserve it.

I’m sure Hillary frames her life as hard work, ambition, etc. And I can’t blame her. I suspect anyone in that position would frame their life that way. In part because of the halo effect, and in part because saying, “our achievements owe as much to luck as to skill” isn’t something many of us are willing to admit to ourselves.

The key to ethical, sane behavior: the *little* voice.

Have you ever wondered how certain corrupt businesspeople can keep spouting great, moral words while doing the exact opposite in their behavior? You wonder how they can wax eloquent about the need to give customers high-quality products while they happily substitute inferior quality raw materials to save costs. You wonder: are they insane? Probably not. Yes, they hear voices in their head. But we all do that. The problem is that they’re listening to the wrong ones.

In a New York Times article today, John Tierney discusses the science behind hypocrisy and how we fool ourselves. It seems when we distract our conscious mind, we listen mainly to our “gut” (or our “heart,” depending on how poetic an image you prefer), and we know when we’re doing The Wrong Thing. When our conscious minds are free, however, we use them—to self-justify. When we engage in hypocritical or anti-social behavior, our conscious mind goes to work creating justifications so we believe we’re doing the right thing, even when we aren’t.

In the past several years, I’ve become more aware of my own “heart voice.” When I have a troubling decision to make, or strong ambivalence about a situation, I sit quietly. Actually, my brain is usually shrieking gibberish about how unfair I’m being treated, or about how I don’t deserve what’s happening, or about how I’m an utter and complete failure at life because I missed “9 Down” in today’s New York Times crossword puzzle. So here’s this Shrieking Monster in my head, and I let it rant while putting attention on the middle of my chest. Then when the Shrieking Monster stops to take a breath, I quickly ask, “What should I do in this situation?”

Then I sit. After a few minutes, beneath the Monster comes a little, quiet voice. It’s barely even in words. And it has an answer.

The moment the answer comes, I know it’s the right one for me. It’s almost always the moral thing, the ethical thing, the loving thing, the passionate thing. In some weird way, it’s the answer I already knew was right, but just wouldn’t admit to myself. It took a chat with the Little Voice to bring it to the place where it could be heard over the Shrieking Monster voice.

The Shrieking Monster is the one that usually pushes me to do stupid things. It goads me to yell at people when I’m frustrated, to get petulant and childish when I could be forging alliances, and to beat myself up when I don’t do well, even if I did my best. The Little Voice, though, is my own internal Dear Abby: its advice is excellent, even if its hairstyle could stand some updating.

If you’ve never tried this, give it a shot. Ponder a decision that’s giving you angst. Maybe it’s an ethical quandry, or an issue with a co-worker, or that persistent fantasy about wrapping your boss in duct tape upside down, hanging from the ceiling. Choose something really, really important, like: is it fair that I always have to spend the 3 minutes to type up action items after a meeting?

Sit quietly with the situation. Your Shrieking Monster will helpfully point out how unfair it is that you have to type those action items, how your fingers ache, how it’s probably carpel tunnel syndrome and you’ll be crippled for life, and how you really deserve to be the boss and are just not deeply appreciated. Then sit quietly and listen to the Little Voice behind the shrieking monster. It just might have some good advice.

If it seems reasonable, give it a shot. You might find yourself acting more ethically, more morally, more professionally, and more happily. In other words, you just may find your little voice is the key to acting as—not just aspiring to be—your Very Best Self.

Find the article on hypocrisy at http://r.steverrobbins.com/hypocrisyarticle.

The world is what you make it; what are you making it?

Chris Matthews was just commenting that Benazir Bhutto’s assassination was “a reminder of the dangerous world we all live in.”

In that moment, it struck me: we all live in a world of our own making. Oh, I don’t mean literally, though fans of The Secret may disagree. But our experience of the world is so deeply tied to our interpretations that what most of us call “truth” is nothing more than our own made up stories.

I look at the world today and see more than 6 billion people surviving. Many don’t have enough water or health care, but they’re surviving. It fact population continues to rise. That doesn’t sound like a dangerous world to me; that sounds like a world that’s provided us pretty much everything we need to thrive. Heck, we’ve even exterminated or controlled all of our natural predators.

To the extent we live in a “dangerous” world, that danger comes from other humans. For example, investment bankers and financial managers who deal in collateralized debt obligations. And yes, the occasional human being kills others. Sometimes it’s in war, or for political reasons, or whatever. And the media focuses on those events precisely because the violent, dangerous events are the exception, rather than the rule.

Most Americans have never suffered pain worse than a stubbed toe. We’re surrounded on the east and west by oceans so broad that no one can cross them without ample warning. We have Mexico and Canada to the south and north. The greatest danger there comes from having too much cheap labor and better ice hockey teams, respectively. As for the rest of the world, we have more intercontinental warheads than everyone else put together and then some.

In short, we’re the most dangerous thing in the world, and in the absolute scale of things, even we aren’t doing much damage. (Except unintentionally, to the environment, but that’s not what Chris Matthews was talking about.)

So Chris lives in a dangerous world because he finds the danger and then calls the world dangerous. He could also look at all the good things and call the world safe, secure, and happy. His choice.

And what is your choice? Which world do you live in?

If you want to bring this into a business context, since this is a business BLOG, let me ask you: when you look at your competition, your industry, and your trends, what stories do you tell? How do you explain the actions of others? The actions of markets? Do you tell a story of luck? Of skill? Of timing? Are you a victim of the market (“the failure of our initiative was because of a bad economy”) or are you a driver of the market (“we did everything we could think of and found the combination that let us become market leader in a mature market”)?

Examine your stories. They’re only stories, and they dictate your every perception, your every decision, and your every action. Choose your stories well.

U.S. Auto Manufacturers outraged at 12-year target to reach below-average performance

I’m not quite sure what to say. The Senate has voted to raise mileage standards to 35 mpg by the year 2020. U.S. auto folks claim it will never happen, as AutoBlog reports.

Is it just me, or are these folks crazy? Gas gas gone up 100% in the last 10 years, and 30% in the last 2 years. By 2020, whether or not you believe in Peak Oil, the price will likely go up considerably, if only because China and India are drastically increasing their demand for oil. And they think that offering sub-35-mpg cars when gas is $5-$6/gallon will keep them in business? Get real. This is long-term planning of the worst kind: long-term planning to go bankrupt.

And by the way, the EPA reports that Toyotas, even the non-hybrids, already get around 35mpg. That means the U.S. auto manufacturers think that 12 years isn’t enough time to become competitive with mileage available today from imports. Gee, talk about American “can-do” ingenuity. And we’re paying these auto CEOs how much money?

If this represents Detroit’s true attitude, let’s just liquidate the companies now and distribute their remaining assets to startups committed to helping us find a long-term transportation solution.

The answer to CEO pay: yes, make them pay…

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In a recent New York Times article on CEO pay, the reporter closely examines pay practices where companies use peer groups to justify CEO pay. But they don’t disclose who those peers are, allowing CEOs to inflate their pay by carefully choosing the peer group.

That all sounds fine and dandy, but I must ask: what difference does the peer group make, even if it’s chosen well? There is this bizarre assumption that CEO pay should somehow be linked to what other companies pay. What absurdity! That argument would suggest that if it’s the norm to vastly overpay executives (which it is), then a company should overpay their CEO for doing a job that just isn’t worth what they’re being paid.

“But that’s the market price for a CEO. we HAVE To pay that or we can’t hire a good CEO.” Bull-pucky. Startups and small businesses routinely find CEOs who will work for relatively low salaries because they’re devoted to the company or industry. IF they do well, their stock is worth something, but only if they truly do well. (Many F500 company CEOs think so little of their own skills they find it necessary to backdate their own options.)

Shouldn’t we use the same criteria for Fortune 500 CEOs? In fact, why not have prospective CEOs pay for the job? After all, the jobs are in very short supply, carry huge prestige and status, and give the job holder the unprecedented opportunity to test their skills and ideas on a scale 99.9999% of the human race can never know.

So there’s my solution to CEO pay: have the CEOs pay for the job. You’ll quickly weed out all but those who have an intrinsic care, interest, and passion for the job. It’s not at all clear to me that you’ll get a lower calibre of candidate–only different. So let’s give it a try. Then we can recapture all the money and time we’re spending examining CEOs and putting together niggling little disclosure policies and do something useful with our time instead.

Why do people always sabotage you?

Being betrayed by those around you is just no fun.

I was watching the finale of Bravo’s reality-based TV show, “Top Chef” the other night. The finalists were Tiffany and Harold. Tiffany lost. Her food was good. She took some risks, and some of her dishes paid off. But the other Chefs unanimously said she ran roughshod over them and she was hell to work with. There’s more to the job of running a kitchen than just the technical skill. She was disqualified because of her lack of leadership skills.

They cut to a scene of Tiffany and Harold in the kitchen, waiting for the final decision. At one point, Tiffany says to Harold, “I guess I ran my back into your knife.”

Tiffany has had consistent feedback that she doesn’t work well with others. People don’t like her and have publicly said she’s difficult to work with. In the finale, she even appeared to try to take credit for another Chef’s work. Yet her diagnosis: someone’s stabbing her in the back.

Do you ever find that it seems like people are betraying you? They’re not recognizing your true worth? They’re sabotaging you? Maybe they criticize from time to time… but they’re just jealous? Or small? Or petty?

If so, you might be pulling a Tiffany and fooling yourself. Whether or not it’s true, if you place the responsibility on others, there’s nothing you can do about it except try to sabotage them in return. And once you’re playing mutual sabotage, escalation is natural and everyone may well lose.

Instead, accept that it’s your fault, even if it isn’t. Maybe your true worth isn’t being recognized because you are overvaluing your contribution. Maybe Tiffany’s food really wasn’t as good as she thought it was. We’ve all eaten at restaurants where the Chef’s taste didn’t match our own. Yet to the Chef, the food probably tasted fine. So if you think you aren’t valued, you may be using a different scale than the people evaluating you. And if you’re trying to win their approval, you have to meet them on their scale, not your own. (See my Harvard Business School Working Knowledge article on what motivates your boss for more on this point.)

Also consider that maybe you don’t realize what actually matters. I’ve coached many executives whose technical skills were excellent, and they thought that should be enough. They didn’t realize that being a good team player, helping others, and creating high morale were job requirements, every bit as much as the technical skills. Businesses are communities of humans. If people like you, they’ll help you succeed. If they hate you, they’ll sabotage.

Either way, it’s under your control.