I recently had my second guest appearance on the Michael Hart show. Michael and I had a rousing conversation about Fraud and other things that business leaders can do to protect themselves from making the mistakes of past CEOs.
I hope you enjoy these links, which will allow you to listen to the two segments of the show.
There wasn’t a lot of time for call-ins or listener comments, but I’d love to know what you think and if you have any questions or comments.
It’s been a long time coming, but at long last here’s the radio interview I promised you. I was on the Michael Hart show with Bernie Marcus, retired founder of The Home Depot, and here is the audio of that conversation.
As you may notice, the interview is in large part with Bernie Marcus, and it was absolutely my pleasure to get to accompany him. I really enjoyed being a part of the discussion about the government and business as well as how to create more jobs in this country.
Please let me know if you have any thoughts or questions!
Our economy has had its ups and downs in recent months and years. The experts say that we can’t technically have a double-dip recession because of the time that has passed since the official end of the first recession, but in my opinion, we’re not going to enter a double-dip recession because we never got out of the first one.
Definitions are important and valid, but at the end of the day the economy is an idea, and a recession is one shade of our attitude towards this idea, not simply a result of unemployment, debt, an unbalanced budget, and impotent spending.
What’s In Our Heads
If the economy is an idea, then we must believe in the idea for it to be and work. That is not to say that the idea, in this case the economy, does not exist without our belief in it, but that our belief in and about it colors the way the economy affects us and causes us to behave. Just consider the erraticism of the stock market recently and why I contended it’s behaving this way (click here).
For instance, when people believe that the economy is good, they are more inclined to spend. Why not? many figure. Things are looking up; the job market and salaries are rising; others around me are spending; deals are good.
However, when we’re told that we’re in a recession, that unemployment is at record highs, that the stock market is all over the place, that this or that company is not even giving cost-of-living wage increases, we’re inclined to use the phrase “tighten our belts” more often, spend less on credit cards, hedge our bets at work by doing more for the same pay, and generally become more fiscally conservative with our personal budgets.
All of this is fine and natural, but it’s important to remember the power the economy has as an idea on a very personal level. After all, plenty of people don’t have jobs in good economies, too, and opt to spend less for various reasons and feel like things aren’t great from a monetary perspective. When the economy is bad, though, this is just happening to more individuals, and on the aggregate level the perception becomes greater that the economy is bad.
A Booga Booga Booga
Consider the Boogeyman.
Kids are afraid of the Boogeyman not because they’ve seen him and he’s affected their lives in a physical fashion. He doesn’t really come out of their closets or from underneath their beds when parents leave the room. He’s terrifying as an idea because the environment is scary – e.g. it’s dark, noises sound stranger at night, parents aren’t around to protect kids, etc. – and because kids can’t even imagine all of the terrible things he will do to them if he finds them. Thus, kids cry and get upset and run to mommy and daddy. They are reacting to an idea that affects them because they believe that it has power.
In order for the idea of the Boogeyman to work, kids must have faith in it, and the same goes for our economy. In order for it to work, we must have faith in it.
When we allow the aggregate noise of those disappointed with the economy to make us all afraid of its power and badness, we all take the actions and attitude that further cripple the economy. It’s a spiral. We lose faith in the economy’s power to be strong and do right by us, and that’s part of what the economy is: our reaction to it. It has power as an idea.
Stand Up to the Idea
We are in a recession, but for most of us, it’s the idea of the economy rather than a lost job or failed business that keeps us in this recession mindset. Rather than dread the recession and lose faith in the economy, I contend that we need to change our attitude towards it. We need to prize austerity and appreciate the positive effects this environment can have on our fiscal responsibility and understanding of the things we do have.
Consider the Boogeyman again. It is the kid who braves the night alone instead of crying to his parents, believing that the Boogeyman is always on the brink of getting him, who gets more courageous every night, increasingly able to withstand the fears of lurking dread. Let’s stop whining about the horrors of this economy and getting wrapped up in the definitions of a recession.
Now it’s about how we react to this recession that matters.
How have you been reacting – both mentally and practically – to our economic climate?
I want to dedicate this post to my partner, Curt Friedberg, who was just given the Turnaround Management Association Award for his “outstanding accomplishments” turnaround around USA Dry Van Logistics.
This is GGG’s sixth TMA Award, and I’m incredibly proud of Curt for earning it.
Congratulations, Curt!
The stock market plunged 390 points yesterday. Are you surprised? I’m not, especially in light of the sentiment I’ve been sharing in my recent posts.
Our stock market is a gut reaction to what’s happening out there, and right now, that’s in Europe. The market is only as smart as the last person it talked to.
On Tuesday things were looking up because the Greek Prime Minister had agreed to resign.
However, since we weren’t sure what was going on today with fears that Europe’s sovereign debt crisis was widening, we went into a market spin. Bond yields in Italy surpassed 7%, which means that it may be getting ready to follow in the footsteps of Greece, and of course this was most upsetting for our stock market.
Again, let’s not undermine the complexity of our markets and the systems behind them, but there’s a reason that I keep pointing all of this out to you. This is what it looks like when companies go through crises. Many of them – or at least their CEOs – become as smart as the last person they talked to and the last news they heard.
Learn from the example that international markets are setting for us – and the example of our own market as it reacts to the world’s problems.
Apply this lesson to your personal life, your personal finances and your business’s finances as well. While everyone is selling and reacting and worried, do other things. Go golf or scrapbook or play Metal Gear Solid or whatever it is you crazy kids are doing these days. Get a hobby, but make sure that hobby is not overreacting to the financial situation around you.
Studies consistently show that those who do not get mired in the day to day financial swings around them – and who learn to tune out the related noise – make better longterm financial decisions, are less stressed and are more likely to make their financial goals a reality.
Why? Because they’re not as smart as the last piece of information they heard and they’re not acting on everything! If you bought and sold as fast as the market swung you’d be nothing more than strung out, stressed out and broke.
Instead of the Dos Equis, “Stay thirsty, my friends,” I encourage you to, “Stay occupied, my friends.”
What do you do to tune out the financial noise and distract you from the market’s volatility?
I’ve been writing a lot lately about Greece, which is representative of the larger problems Europe is having right now. My interest lies in the fact that an organization (in this case a country or group of countries) is spinning out of control in crisis and has little or no idea how to fix things. I think that they need a turnaround guy’s help, or at least his attitude.
I know that there are differences between companies and countries, namely, the number of factors involved. What do I mean by that?
At a company, you can quite often say, If I do x, y will occur. The reason is that there are a limited number of factors involved. I can look at the numbers on a Balance Sheet; I can comb over a P&L. I can say, if we stop spending in these places, the cash saved can pay for the following. With those payments made (generally debt and required expenses), the business can stay afloat, avoid further crisis, ultimately pay its debt down, and emerge to become profitable again. It’s not that easy and requires a lot of creativity and negotiation, but there’s rarely a case I can’t figure out.
Unlike in a country, in a private company you can sell off assets, which is a great way to generate cash you don’t have (in contrast, countries tend to just print money, which is creating an asset they don’t have and that devalues the other assets they do have). Greece, for instance, can’t sell off Thessaloniki. Well, maybe it could, but I don’t know that Romania would pay the asking price (Turkey might).
In addition, in a private company, you don’t have to worry (as much) about gauging people’s reactions. Of course you want buy-in and for the people to be on your side, but at the end of the day, whatever must be done to survive must be done. If it’s not, and the business collapses, the people are laid off and must go elsewhere. If the people in a country disagree with the decision makers, riots can ensue alongside, potentially, political mayhem and anarchy. After all, the people are assumed to comprise the country and therefore be responsible for the debt. If the government dissolves, the people are still there, the country is still there and the debt still, arguably, exists. In business, there’s bankruptcy. In governments, not so much.
As a turnaround professional, I look at all of these country-based crises, and I see the opportunity to turn them around. It would certainly be exceedingly complex and involve unpredictable elements at that level, the likes of which we don’t usually see in companies, but it’s the attitude that’s needed – an attitude that doesn’t seek to make more money out of no money, but one that embraces austerity and survival at all costs.
So without further ado, I’d like to show you a great animated video that does a delightful job summing up the European debt crisis and the proposed solutions. Watch it and tell me we don’t need a turnaround guy in there:
http://www.guardian.co.uk/business/blog/2011/oct/28/euro-debt-crisis-animated-explanation
What did you think?
If you’re a news person or you follow finance then you’re no doubt already aware of the situation in Greece. That country is a mess. It’s debt is astronomical; it has no capacity to repay; the political situation is volatile at best; there are mass protests, and nobody has any idea what to do. That’s my definition of a mess.
Let’s Help or Face the Mess Ourselves
In order to prevent some kind of catastrophic ruin that affects the governments and finances of the rest of Europe – after all, Greece is on the Euro and its economy is intimately tied to the rest of the continent – European leaders have been working on some kind of deal to manage Greece’s debt (a large part of which they’ll just dismiss or fund) and get its economy back on track.
And Greece isn’t the only European country riding this roller coaster. It’s just got it the worst right now and is in the lime light. Spain, Italy and others are also going through quite a bad spot.
With the state of the world’s economic intimacy, we’re all affected by the situations around the world. Hardly a country is free from the ripple effects dealt by other members of our global union. But what’s fascinated me recently is the degree to which that intimacy is more emotional than logical.
Up and Down and Up and Down
As I’ve watched the stock market plummet and rebound over the past month, I’ve seen that movement tied disturbingly to our reactions to Greece’s economic situation.
When news came that Greece was tanking and talks were stalled, the market dropped. Last week, as news landed that Europe had reached an agreement on how to bail Greece out, the market rallied 340 points. Yesterday, the market closed down nearly 300 points. Here’s how CNN explained it:
“New fears about the fate of the European rescue plan reverberated through stock markets in the United States and around the world Tuesday. Following European markets, U.S. stocks ended sharply lower across the board. Bank stocks were hit especially hard. The bad news was propelled by Greek Prime Minister George Papandreou’s surprise announcement that he would put his country’s participation in last week’s European debt plan to a voter referendum.”
Now, I understand that the stock market is not merely a bunch of mercurial people making decisions but an enormous number of trades made on the backs of incredibly complicated financial equations and algorithms, but when it swings so violently back and forth at news about Greece, I can’t help but think that things are getting a little ridiculous. And this is just news, mind you. Nothing is actually happening in any of these instances. A deal was reached but no money moved. A referendum was proposed but no vote actually taken. These may as well be rumors for the bearings they should have!
Don’t Be As Smart As the Last Person You Talked To
This reminds me of the business leaders I’ve dealt with who change their entire course of action every time they talk to someone. As I pointed out in my 5 Foolish Faux Pas of CEOs in Crisis, some CEOs are only as smart as the last person they spoke to. That’s what our economy feels like: as though it’s only as strong or relevant as the last thing it heard.
And I don’t want you to be this way!
Making plans and sticking to them is an important part of being a good leader and developing and growing a sustainable business. It’s especially important when you’re in a crisis. You can’t be flopping all over the place in rough times. Of course you change course when things are going wrong and you actually take the time to evaluate the situation, but if you’re changing plans after every conversation your people will lose faith in you and nothing will ever get done.
How do you keep focused when things around you get topsy turvy?
I’ve talked about it before, and here’s another reason that America should be run like a business.
Each and every bill that goes through Congress has many pieces yet most of those pieces don’t pertain to a bill’s raison d’être.
Why?
Self interest and politics.
It’s for those same reasons that bills we need don’t get passed and the country continues to suffer as a result. Self interest and politics are also the reasons that the Democrats and the Republicans are fighting.
If America were run like a business – especially a business in crisis being run by a turnaround manager, with every issue being vetted as it affects the bottom line – then self interest and politics would be swept aside to make room for survival and positive cash flow.
Going forward, I recommend we take it one issue at a time. In business – especially turnaround – we take everything one issue at a time. It’s how we focus, make progress, and ensure that we’re not muddling our priorities or success.
Consider the President’s job bill as an example. I am not judging the merit of any of those elements tacked onto the bill, but I am saying that the very act of tacking them on was foolish. The tax increases in the bill and other elements included were purely a function of self interest – not public interest and certainly not a jobs bill. A jobs bill is likely the result of an unusually high unemployment rate, and a bill about unemployment and jobs is not a bill about taxes. Had the Buffett tax been excluded, the jobs bill may have had the ability to pass on its own, but when Congress makes singular bills about more than their primary subject, the country cannot move forward.
Focus, America! Keep it simple.
I guarantee that if Congress addressed only one issue in each bill, it would make more progress. If we could get a bill making every bill about one thing, we’d dramatically reduce partisan fighting because all bills would be based on the merit of the individual issue at hand.
For us to move forward and survive we need to Keep it Simple Stupid.
Have you ever been overwhelmed by too many issues and been crippled to affect even one?
I was recently on WSB radio, and I explained there the same thing I explained in my recent Atlanta Business Chronicle article.
We have to cut the rate of spending – the rate at which we’re burning money – in the government. 10 or 15% across the board – that’s every single department – is what’s going to be the beginning of necessary to start the process of recovery. And the road to recovery will be long, to take a line from someone else’s trite playbook.
The reason I’m bringing this up again is because I want to emphasize what the guys at WSB kept asking me about: the political aspect.
Party Politics is a Debt Party
Is it possible in a Washington as mired in party politics as ours currently is that we could get a sweeping cut in spending like I’m proposing without any exceptions?
Disappointingly, I think the answer is no. Things have become too politicized and though everyone there can say I’ll scratch your back if you scratch mine, nobody can end his own itchy back. That is to say that even when our representatives are not scratching one another’s backs they still want to have their own causes funded – or not defunded as the case may be in my proposal.
But if we don’t start treating the government like a business and money like it’s real and debt like it matters and ultimately do what we do in turnaround – slash spending immediately without question, qualm or hesitation – we’ll be hesitating and backscratching all the way back to a recession.
Blind Man, Dark Room
I don’t want to overplay the recent AA+ downgrade and the impact that it could have – or more importantly the impact that the reasons it occurred is going to have – but at the very least it should serve as a wake-up call that we are not behaving effectively and our policy makers are not taking the appropriate steps.
Stop spending money, now, Washington.
I don’t want excuses, and I don’t want politics.
I don’t want to keep hearing things in the news like the trade deficit unexpectedly widened to 53.1 billion dollars. That just means that once again projections and statistics are off and we need a collectively more conservative approach (and I don’t mean conservative in a political sense – I mean it in a spending sense).
Cut 10-15% of all spending immediately. This is not political. This is personal – 315 million people personal. Let’s fix this before it gets worse.
How would you help cut spending and eliminate waste in government?
As you may have read, some former Fed Officials are suggesting a new round of securities purchases to spur the economy. They claim that this move is in response to stifled job growth and continued recession issues.
Shenanigans!
Well, I used a harsher word before, but this time I’m going with shenanigans.
Purchase a new round of securities? Are you kidding me? Are they really shortsighted enough to think that this move will get the economy moving. This is part of the Fed’s old bag of tricks, but as we’ve seen before buying back bonds from the free market does not successfully stimulate the economy.
Speaking of old bags of tricks, lets look at another one that’s equivalent to peeing in the ocean, which is to say that it adds liquid but doesn’t change the levels: stimulus money.
The Fed buys securities and the government provides stimulus money, right? The last round of stimulus money was effectively invested at 1/10th of 1% or used simply to pay down debt. In case I’m being obtuse in my exaggerated implications, I’m saying that people didn’t spend the money, and when they don’t spend money there is no economic spurring. Stimulus money is as effective as buying back securities . . . tinkling in the ocean, remember?
These are just old tricks that don’t work.
Everybody wants to see the economy jogged back into high gear (or gear?), but as the fed said yesterday, it would hold rates for two years. This acknowledges that we’re going to be in a funk of an economy for at least two years.
Rather than spending money buying back securities – old tricks – we need to cut spending in dramatic ways. For instance, end entitlement programs. Did you know that anyone who serves in Congress for any length of time gets health premium insurance forever? I ask again: Are you kidding me? We’re paying for this! This might also be peeing in the ocean but if we all relieve ourselves at once maybe the levels will change.
If the Fed wants to “spur” the economy, then we all need to be patient, tighten our belts, stop government spending, get out of debt and then be led by a solvent, healthy government that can make wise decisions for its people.
The Turnaround Authority 