Gettelfinger in the ESOP pie?

April 25, 2007

180px-the_boy_who_cried_wolf_-_project_gutenberg_etext_19994.jpgChrysler’s future looks increasingly precarious. Union President Ron Gettelfinger has a tough call to make. He may be able to disrupt progress towards a takeover. Or he may soften the Union’s stance over pension rights with the parent company. But that makes Chrysler a more attractive morsel for a predator. ESOPs offer a possible way forward.

The financials make gloomy reading. Chrysler made a $1.5bn loss last year as its US sales deteriorated. Kirk Kerkorian has tabled a $4.5bn offer. Magna is believed to be considering making a marginally better offer. Parent company Mercedes Benz faces 90% loss of the $40bn it paid for Chrysler in 1998.

How ESOPs may be the way forward

An ESOP (Employee Share Option Plan) is an old idea that has found recent favor in Private Equity deals. In principle, an ESOP is a form of worker incentive through participative ownership. As such, it has a distinctly liberal or (dare I whisper the word?) socialistic ethos. Strange, then, that such an idea would be popular in that most red-blooded of capitalistic barbarians at the gate, the private equity consortia.

Unsurprisingly, The Economist takes a mildly cynical view:

If all else fails, hand the workers some equity. That seems to be the new philosophy of America’s private-equity firms, at least, judging by the bidding war for Chrysler [and The Tribune Newspaper]. ..
Anyone seeking in this the spirit of Robert Owen, the father of the workers’ co-operative, or of Louis Kelso, an American lawyer who invented the ESOP in 1956, is likely to be disappointed.

When Daimler bought Chrysler in 1998, it paid $35 billion. Analysts now value it at no more than $8 billion, though Daimler may be fortunate to get anything close to that for a business that some experts think is destined, sooner or later, for bankruptcy, along with Detroit’s other giant car manufacturers, Ford and General Motors.

On April 5th Tracinda, the investment vehicle of Kirk Kerkorian, a buy-out veteran, offered to pay a paltry $4.5 billion for Chrysler .. Mr Kerkorian’s offer assumes that Daimler will retain some of Chrysler’s crippling health-care and pension liabilities and that the firm’s employees will take a big chunk of equity in exchange for giving up some promised benefits.

Overall, ESOPs seem to improve the performance of firms that have them, which may explain why they are increasingly popular. Some 10 million American workers are members of ESOPs, which together control assets worth an estimated $600 billion. However, it is less clear that they help firms in upheaval or confronting possible failure–such as Tribune and Chrysler.

The Economist argues that the move is more based on financial engineering than on the kind of social engineering required to harness the energies of the workforce towards competing globally, and contributing to a change of fortunes of Chrysler, (and by the same token, GM and Ford). In contrast, the rise and rise of the Toyota phenomenon (Toyataoism) is based on production and social innovation.

The view is one shared by those of more leftist disposition, typified by the following quote. I jotted it down from a lecture by a distinguished social scientist who was discussing worker participation schemes: ‘Scratch an enlightened employer, and not far below the surface you will find an unreconstructed exploitative capitalist’ .

But for all the mistrust, the workers at Chrysler may see such deals as offers they can’t refuse. To them, this is far more than an experiment in financial engineering. Magna, with its track record of employee share ownership, could have the better prospect in that respect. The almost forgotten third way of Kelso may attract more advocates.

On becoming a leader

February 11, 2007

This post takes the humanistic legacy of Carl Rogers to explore: Leadership as map making; Leadership as block busting; and Leadership as bridge building. It offers a framework for use in leadership development progammes at undergraduate, graduate, professional and executive levels.

Old Bridge

The title of this post acknowledges the work of Carl Rogers, a pioneer (with Abe Maslow) of humanistic psychology. His ideas on personal development have since come into common currency. In particular the post connects leadership to the title of his most influential book, On becoming a person.

The legacy of Carl Rogers

Carl Rogers (1902-1987) conceived of human development as the process of becoming (self-actualizing). Although his major professional world was that of clinical therapy, his ideas have become influential beyond that domain. His dominant idea is that the process of self-actualization is natural, albeit hindered by various life experiences. We each have an instinctive desire (an aspiration) to develop our potential.

Furthermore, we feel good about ourselves when we are engaged in the processes of developing our potential. This is at the heart of another key concept, that of positive self-regard. (terms such as self-image and identity can be traced back to his work). At a personal level, positive self-regard is unconditional in nature.

However, social groups have developed in ways in which self-regard receives only conditional respect. That is to say, we become restricted by the conditions and rewards of the social group. Such reinforcement distorts the natural processes of development. The individual may have trouble dealing with the gap between the expectations of the group, and his or her perceptions of ‘the real me’.

Over time the individual deals with the problem through psychological defences (Rogers notes two major defence systems, distortion and denial).

Developing yourself, developing others

The core of Rogerian theory is the capacity of the human to self-development. You are your most important teacher and moral leader. However, he also was concerned with the process of developing others (particularly those with seriously damaged processes of self-actualisation). The Rogerian therapist strives to develop openness (‘congruence’), empathy, and respect (unconditional positive regard). If we are to borrow from Rogerian theory for leadership development we must examine whether these principles can translate.

As a first step, we can see how Rogers had worked out a model for encouraging individuals to achieve their potential. This is what the therapist does. I believe we can indeed borrow many of his ideas (changing what needs to be changed) to arrive at a more general model for leadership and for leadership development.

We will be connecting the ideas of Carl Rogers with the leadership text, Dilemmas of Leadership, to explore the importance of map making, block busting and bridge building in leadership development.

Leadership as Map-making

Dilemmas of Leadership suggests that leaders develop themselves through processes of map reading, map testing and map making.

The mapping processes are metaphors of journeys of self discovery. During the journeys, maps of received knowledge, and examined in the context of direct experience leading to revision of personal beliefs.

Dilemmas of Leadership suggests that a text can be read as a Platform of Understanding or summary of a belief system. The POU is a kind of map, ready for use. It covers the historical maps of leadership from trait theory maps, through situational maps, to those maps dealing with new leadership concepts (transformational leadership).

To take a simple example, a student may read a book about leadership and extract from it a map of what leadership is all about. She then has a personal assignment – let’s say it is in a volunteering project. During the project she experiences various events which can be connected to the things she has read in the textbook. The process of testing enables her to make sense of the text-book connected through her own experience. This, in turn, strengthens her skills in future leadership roles. When she acts, she draws on the (always developing) personal map she has been making.

Map-making from the daily news

This blog can be seen as a series of maps about leadership drawn from the news stories appearing every day of the year. Out of personal choice I select a story that seems to have some leadership interest and summarise it for myself. Towards the end of that stage of map-making I find myself doing some map testing. Does the story fit with what I already believe I know? Even more rarely I might make a new connection and discover a new (to me) leadership concept.

For example, I came across several stories about threats, either by a leader or to a leader. A recent rather complicated one involves the chairman of The Royal Mail, Allan Leighton. You can follow the story in an earlier blog. The point here, is that the story reminded me of the way in which a threat takes on a dominating role. I could have been reminded of global warming, but I happened to think of an old chess story attributed to a chess player by the name of Nimsowitsch. This is now leading me to look more actively for examples of threats to a leader, and for convenience I label the process the Nimsowitsch principle. Maybe the concept will help me act differently in the future, not just in a chess game, but faced with real-life crises.

A second example is the map of management and organisational structures often known as Fordism (after Henry Ford’s production line innovation). A colleague suggested that Toyota’s lead production methods were moving manufacturing away from Fordism, and associated with a new leadership approach. I found refrences to Toyotism. What if, I wondered, we were seeing a shift in leadership approaches to include Eastern philosophic values. Perhaps inspired by a well-known book on the Tao of leadership, I added another concept to the map, and coined the term Toyotaoism.

An invitation to make some leadership maps

I believe in the processes of map reading, making and testing, and invite you to try them out for yourselves. You could keep a diary or learning log. Which, come to think of it, is not that far away from the process of writing a weblog or blog …

It’s a process of triangulation through which you combine your connect your received knowledge maps, with your personal experiences, and with the stories available every day of other leaders and their actions.

Leadership as block busting

Leadership as block busting was dealt with in an earlier blog. One new twist is worth mentioning, namely to link block busting to the leadership development ideas of Carl Rogers.

In his writings, Rogers explained creativity as the output or manifestation of self-actualisation. Why is creativity so rare and prized? Because of those distortions of the (Rogerian) ‘true’ self through socially imposed bias, which produces denial or distortion of the creative journey of discovery.

There is an enormous body of literature, theory and practice dealing with ways of breaking out of the assumptions imposed in an individual. We have been applying Lateral Thinking methods with cohorts of MBA students for several decades and summarised it:

Lateral Thinking for Project Work

For a recent introduction to creativity in business see the (admittedly lengthy) monograph from The Innovation Research group at Brighton University Business School. The report goes far more deeply into the brief summary offered here.

We have identified several Lateral Thinking techniques which help in the production of new ideas. The techniques (Reversals, Wouldn’t it be Wonderful If, and Jolts) are summarized in a power point presentation on using Lateral Thinking in project teams.

Bridge building

The leader as bridge builder is implied in the leadership literature. The textbook Dilemmas of Leadership explores the concept as trust-building. Leaders who believe in a trust-based style accept that they have to grant followers permission to act without direct leadership control. This leads to a dilemma of granting power to others if the leader wishes to exercise more direct control over them. Trust-based leadership facilitates and invites change rather than directing it.

In Celtic legend the story of the giant Bran tells of the way a great chief has to be a bridge.

In the Romance of Branwen, there is a curious passage where Bran and his men come to an impassable river. Bran says, “he who will be a chief, let him be a bridge”, and lays himself down to form a bridge over a river, allowing his army to cross over. The narrator of the romance tells us that this was the first time the saying was uttered.

In negotiations, the bridge building style is essential where it is vital to avoid win-lose outcomes (that’s back to the Nimzowitsch principle, by the way). It is necessary as peace process negotiations develop. It is often needed to resolve honesty held differences, by making a creative leap.

The related concept of ‘join up’ was originally developed by Monty Roberts (The ‘so-called Horse Whisperer’ in the film starring Robert Redford). Join up involves collaborative working, even if one partner may have more power and responsibility that others. It has since been extended to provide insights for trust-based leadership methods applied in Primary and Secondary Schools, as well as in business and social care environments. (Note, these are unequal power partners, where there can still be respect, Rogerian unconditional positive regard of the other partner, be it a child, a horse, or a remedial prisoner).

A parallel has been proposed between creative leadership and trust-based leadership

A simple to use concept is to look for Yes And rather than Either Or in your leadership efforts. As a bridge building technique, Yes And has been documented as having been applied successfully in numerous trust-based projects to achieve better decisions, harmony, innovation, and other creative outcomes. It offers a way to work through the (Rogerian) blocks which would otherwise reduce individuals to feelings of powerlessness.

Discussion Points

Various approaches have been described to support the process of leadership development, that is to say the process of becoming the leader you are capable of becoming. Using a humanistic approach developed by Carl Rogers, three aspects of leadership development were studied: map making, block busting, and bridge building.

In what ways do the suggestions support (or challenge) your beliefs about leadership, and suggest learning for future actions?

Poor Leadership slammed at Ford and GM

January 11, 2007

Leadership at Ford and General Motors has been identified as a key factor in their decline against Toyota and other competitors. As Ford plugs its innovative link with Bill Gates, industry experts predict a further decline in its fortunes. It is possible that the industry has developed mechanisms that are protecting it from acknowledging the extent of its decline.

In a recent post we asked whether Toyotaoism is replacing Fordism. The debate following that post has continued. This week’s news from the US Motor Show is accompanied by further press reports on the competitive challenges facing US car manufacturing, that bell-weather of the economy. The battle for commercial success seems to be favouring the more philosophical arguments for Toyotaoism.

BBC reporter Steve Schifferes was at Detroit for the motor show. He interviewed its North American head Mark Fields, but interestingly, the Company’s new overall leader, Alan Mulally is not giving press interviews at the Show. The company has retained its high profile stance at the show, emphasizing its continued innovation, majoring on a link with Bill Gates and Microsoft which will produce a new in-car audio system (‘Sync’) in an exclusive one-year tie up.

Industry insiders remain unconvinced

Industry insiders remain unconvinced of Ford’s prospects. Ford lost $ 17 Billion last year and its factories are in hock to its $20 Billion bank borrowings. Its voluntary redundancy plans are proceeding apace.

Professor James Levinsohn of the University of Michigan said the US companies have only themselves to blame.

Ford and GM regularly round up the usual suspects when searching for a reason for their troubles but the real culprit is the obvious one. These firms are not making products that people want to buy. The responsibility for that lies with what passes for leadership at these firms.”

Blanking out the bad news

Levinsohn claims that he has been unable to find a placing for his analysis in auto-industry publications. He believes that the publishers are concerned that such the magazines are worried that such bad news stories would put a magazine under pressure from its advertisers.

State of denial

It is not unknown for academics to claim that their work has been rejected on non-academic grounds. Independent evidence to assess such a claim is hard to obtain. However, the brave face of the industry at Detroit is itself some evidence of the industry’s need to talk itself up. Yet, Ford’s main claim for innovation as the Microsoft link seems peripheral to its commercial problems. We may be witnessing what Chris Argyris has called covering up the cover-up. That is to say, a state of denial

Tundra vanilla with cherries?
The show also signalled the continuing advance of the Totota brand. Its Toyota Tundra is marketed as an American pick-up, designed and manufactured in the good ‘ol US of A.

The Asian automakers have cornered the market on vanilla,” says Global Insight automotive analyst Rebecca Lindland “..Now they’re adding the hot fudge chocolate with cherries on top, which is what they have to do to progress in the US market .. They are going after a new segment with its truck – heartland America, NASCAR drivers, who are more patriotic [and] not Toyota drivers typically”

The story is not completely bleak. The Economist has been following the auto-industry for some years, and commented (January 13th 2007) that prospects for GM ‘have dramatically improved’. Even this more positive view suggests that the company seems to have been galvanized by stake holder Kirk Kerkorian’s decision to pull his 10% stake last year, and that recovery and rationalisation if it works ‘will achieve economies of scale that only Toyota can match’, and that GM’s core North American operations are still only ‘heading in the right direction’.

Questions to ponder

In which case there are further questions to ponder. Are we witnessing leaders operating with a clear vision for the future at Ford and GM? Are the companies putting on a brave face? Or are they operating in a state of denial?

Will Toyotaoism replace Fordism?

January 5, 2007

250px-lao_tzu_-_project_gutenberg_etext_15250.jpgSometime in 2007, Toyota seems likely to become the World’s biggest auto manufacturer. According to Professor Fangqi Xu, the 21st Century will be an era in which the Fordist principles of production will be replaced by a more creative leadership style. I suggest Toyotaoism would be an appropriate term for characterizing the emerging Post-Fordist era.

Sometime in 2007, Toyota seems likely to become the World’s biggest auto manufacturer. In contrast, Ford workers face substantial job cuts. Toyota represents one of the outstanding illustrations of developments which have been gradually refining and replacing the production line processes and mentality of the 20th Century.

The company has pioneered a fusion of Fordist methods with a more Eastern philosophy of respect towards the environment, customers, and employees. The fostering of empowered teamwork in Toyota is a central element of the philosophy, production system, and leadership style of the corporation.

Beyond Lean Production

In broad terms, the Toyota system has been equated with the arrival of lean production and subsequent higher efficiency gains. This has simplified out the production gains from the deeper philosophical implications. These bring the system closer in spirit to the European experiments in socio-technical systems design at Volvo, itself briefly hailed as a revolutionary innovation for manufacturing. However, insiders argued that Volvo’s experiment failed in face of ‘Toyotism’.

The best-known Western account of the Toyota system is arguably from the MIT researchers led by James Womack. Their study raised popular awareness of Toyota’s Just in Time system, and the broader concept of Lean Production.

From Toyotism to Toyotaoism

I would like to propose the acceptance of a slightly different term for the significance of the changes implied by the Toyota approach. Rather than the narrower perspective of Toyotism, I suggest Toyotaoism. The term hints at a philosophy that goes beyond a shift in production system. The philosophy is particularly appropriate in its Eastern origins. Western authors have already simplified some of the principles in The Tao of Leadership.

One leading scholar has been developing this idea is Professor Fangqi Xu of Jiangsu Polytechnic University, China. Professor Xu is the Director of International Connectionas of Japan Creativity Society, and also a student of Ikujiro Nonaka, the renowned Knowledge theorist. Professor Xu has made a detailed study of creativity courses around the world. His studies have convinced him that the 21st Century will be an era in which the Fordist principles of production will be replaced by a more creative management style.


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