My column in this week’s Time is about John Mackey, the CEO and co-founder of Whole Foods Market, and Kip Tindell, the CEO and co-founder of the Container Store, and their shared belief that corporations perform a lot better over time if their executives focus more on employees and customers than on shareholders.
Mackey and Tindell go way back–they shared a house in Austin with three friends one year in the mid-1970s as they worked their way through the University of Texas on the eight-year plan. They’ve recently begun hanging out together a bit, and when I met Tindell at a National Retail Federation event in New York late last year, he invited me to come down to Texas to talk to the two of them. So I did. We met at Whole Foods’ headquarters in Austin, which is perched atop the chain’s flagship store, and we talked, and talked. Tindell is stereotypical laid-back, slow-talking Texan. Mackey is a not so stereotypical hyper, fast-talking Texan. But they seemed to get along pretty well. As for me, I mostly just stayed out of the way.
What follows is an edited transcript of the conversation. I cut some stuff out, moved a few passages around, and removed a lot of “uhs” and “you knows” (mine as well as theirs). Beyond that it’s a pretty faithful representation of what was said. It’s pretty long, too. But most educational.
Category: Careers
Confessions of a Risk Manager
Why did banks become so overexposed in the run-up to the credit crunch? A risk manager at a large global bank–someone whose job it was to make sure that the firm did not take unnecessary risks — explains in his own words
IN JANUARY 2007 the world looked almost riskless. At the beginning of that year I gathered my team for an off-site meeting to identify our top five risks for the coming 12 months. We were paid to think about the downsides but it was hard to see where the problems would come from. Four years of falling credit spreads, low interest rates, virtually no defaults in our loan portfolio and historically low volatility levels: it was the most benign risk environment we had seen in 20 years.
As risk managers we were responsible for approving credit requests and transactions submitted to us by the bankers and traders in the front-line. We also monitored and reported the level of risk across the bank’s portfolio and set limits for overall credit and market-risk positions.
Nassim Nicholas Taleb: the prophet of boom and doom
“You have to worry about things you can do something about. I worry about people not being there and I want to make them aware.” We should be mistrustful of knowledge. It is bad for us. Give a bookie 10 pieces of information about a race and he’ll pick his horses. Give him 50 and his picks will be no better, but he will, fatally, be more confident.
We should be ecologically conservative – global warming may or may not be happening but why pollute the planet? – and probablistically conservative. The latter, however, has its limits. Nobody, not even Taleb, can live the sceptical life all the time – “It’s an art, it’s hard work.” So he doesn’t worry about crossing the road and doesn’t lock his front door – “I can’t start getting paranoid about that stuff.” His wife locks it, however.
He believes in aristocratic – though not, he insists, elitist – values: elegance of manner and mind, grace under pressure, which is why you must shave before being executed. He believes in the Mediterranean way of talking and listening. One piece of advice he gives everybody is: go to lots of parties and listen, you might learn something by exposing yourself to black swans.
I ask him what he thinks are the primary human virtues, and eventually he comes up with magnanimity – punish your enemies but don’t bear grudges; compassion – fairness always trumps efficiency; courage – very few people have this; and tenacity – tinker until it works for you.
A Look Back at The Bill Gates’ Era; and a few lessons
Mr Gates also realised that making hardware and writing software could be stronger as separate businesses. Even as firms like Apple clung on to both the computer operating system and the hardware—just as mainframe companies had—Microsoft and Intel, which designed the PC’s microprocessors, blew computing’s business model apart. Hardware and software companies innovated in an ecosystem that the Wintel duopoly tightly controlled and—in spite of the bugs and crashes—used to reap vast economies of scale and profits. When mighty IBM unwittingly granted Microsoft the right to sell its PC operating system to other hardware firms, it did not see that it was creating legions of rivals for itself. Mr Gates did.
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And look at what happened when Mr Gates’s pragmatism failed him. Within Microsoft, they feared Bill for his relentless intellect, his grasp of detail and his brutal intolerance of anyone whom he thought “dumb”. But the legal system doesn’t do fear, and in a filmed deposition, when Microsoft was had up for being anti-competitive, the hectoring, irascible Mr Gates, rocking slightly in his chair, came across as spoilt and arrogant. It was a rare public airing of the sense of brainy entitlement that emboldened Mr Gates to get the world to yield to his will. On those rare occasions when Microsoft’s fortunes depended upon Mr Gates yielding to the world instead, the pragmatic circuit-breaker would kick in. In the antitrust case it did not, and, as this newspaper argued at the time, he was lucky that it did not lead to the break-up of his company.
The “500 True Believers”
The deal is, we’ve been told, that CEO pay is so high because demand for the 9-sigma talent of these Water Walking Wonders, so very beyond your and my shriveled imaginations, wildly exceeds supply when it comes to the 500 jobs as Fortune 500 CEOs. I contend that there are exactly 500 Guys (almost all guys, hence I can safely use the term) who believe that line of reasoning—namely the 500 CEOs of the F500 companies. (I guess I could also throw in the heads of the biggest search firms, who unearthed many of these so-far-beyond-the-pale dudes, which perhaps puts the total at 505 True Believers.)
The Inspiring Invincibles! Chuck Prince (Citigroup, formerly head of)! Stan O’Neal (Merrill Lynch, formerly head of)! Angelo Mozilo (Countrywide, formerly head of)! Tough cookies, each one. And yet, somehow, on their watches, The Three Geniuses allowed their firms, through grotesque negligence—maybe silliness or Theaters of the Absurd would be better words if the stakes weren’t so high—to get into positions in which tens upon tens of BILLIONS of greenbacks had to be written off from their books of account. Dodger, my 5-year-old Aussie, could have done a better job. (He could have bitten anybody who tried to make a $500K loan to someone who had never had a job or paid a bill and signed his name with an “X”; and peed on the pants of any 22-year-old University of Chicago PhD who said, “With my clever algorithm I’ve designed what’s called a ‘derivative’—it’ll make risk a thing of the past.” Yes, had Dodger bitten and peed on schedule, the likes of Citigroup would be ten or twenty billion ahead of their current position.) But, since the demand is so strong for the 500 different-from-mere-vice-presidents-Monumental-Management-Marvels, and the supply is so short, The Three Geniuses, on the basis of “Upside Potential,” were able to chalk up about a half BILLION buckaroos on their pay stubs over the last five years, while busily installing the tools necessary for Global Economic Meltdown. Well, I guess that means they’re “excellent” at something. Isn’t there some line about wool & eyes & pulling? (In most cases, their pay deals, especially the parts about “if you turn out to be an idiot, we’ll pay you a king’s ransom to clean out your desk,” were effectively set before they set foot in the executive suite. Wow, I wanna piece of that action!)
Riding That Train, A Long Commute
At 6 on a Wednesday morning, Jim Bourgart is already 15 minutes into a 175-minute commute by foot, bus, train and foot again. From downtown San Francisco he’ll catch an Amtrak motor coach to the Emeryville station, where he’ll sit 20 minutes on a hard plastic bench waiting for the 6:40 to Sacramento.
He doesn’t mind as long as he is moving. It is the lost sleep time in the waiting room that hurts. Since the Capitol Corridor runs both the bus and the train, you’d think it could tighten the time-cushion allowed for traffic that never appears on the eastbound bridge.
“I could use those extra 20 minutes, or even 10 or 5,” says Bourgart, who starts his day with a 12-minute walk in the dark from his SoMa condo to the bus stop at the Market Street entrance to Bloomingdale’s. “Every minute counts, especially in the morning.”
The Capitol Corridor is a line made possible by the voters, who in 1990 approved Prop. 116 to provide state funding for intercity passenger rail service. Until 1998, there were only four trains each direction per day and the morning commute was essentially westbound only. Now there are 16 roundtrips. The State of California owns the rolling stock, Union Pacific owns the tracks, BART supplies administration, Amtrak staffs the trains and stations and a joint powers authority oversees it. The Capitol Corridor is like Caltrain with more layers of agencies.
Intuitive Decision Making
Kurt Matzler, Franz Bailom and Todd A. Mooradian:
Should executives make decisions based on what their “gut” tells them? Lately that idea has lost some favor, as technology’s ability to accumulate and analyze data has rapidly increased — supplanting, according to some accounts, the high-level manager’s need to draw heavily on intuition. But intuition needs some rescuing from its detractors, and the place to start is by clarifying what it really is, and how it should be developed.
Intuition is not a magical sixth sense or a paranormal process; nor does it signify the opposite of reason or random and whimsical decision making. Rather, intuition is a highly complex and highly developed form of reasoning that is based on years of experience and learning, and on facts, patterns, concepts, procedures and abstractions stored in one’s head.
In this article, the authors draw on examples from the worlds of chess, neuroscience and business — especially Austria’s KTM Sportmotorcycle AG — to show that intuitive decision making should not be prematurely buried. They point out that although the study of intuition has not been extensively explored as a part of management science, studies reveal that several ingredients are critical to intuition’s development: years of domain-specific experience; the cultivation of personal and professional networks; the development of emotional intelligence; a tolerance for mistakes; a healthy sense of curiosity; and a sense of intuition’s limits.
A profession is born to help people navigate the health care maze
Margalit Mathan and Peter August found themselves caught in a maze of medical appointments and conflicting professional opinions when their 7-year-old daughter developed serious eye problems related to her juvenile rheumatoid arthritis.
The Berkeley family decided to consult yet another professional. They turned to a health care advocate, an adviser who specializes in helping patients and their families cut through the health care bureaucracy to find the help they need.
“It’s been this huge roller coaster with the medical system and negotiating her different needs and the different information we’re getting from different doctors,” said Mathan, a high school psychologist. Her daughter, Siona, was diagnosed two years ago with arthritis, a condition that can cause eye inflammation and, in Siona’s case, led to glaucoma.
Private health care advocacy is a new and growing field emerging at a time when an increasing number of Americans find themselves dealing with a chronic disease, aging family members or the bureaucracy of health insurance.
A professional advocate might have some background in health care, such as nursing or medical social work. But the business of health advocacy is unregulated, and people who call themselves a health advocate might have no training other than helping a family member through a difficult illness.
Career Guidance for This Century
Guy Kawasaki interviews new Madison resident Penelope Trunk:
Question: Will getting an MBA or any other type of advanced degree be a good use of time and money since I can’t find a job?
Answer: No. If you can’t find a job, then you should invest in something like better grooming, or a better resume, or a coach for poor social skills. These are the things that keep people from getting jobs. Instead of running back to school, figure out why you can’t get a job, because maybe it’s something that a degree can’t overcome.
Grad school generally makes you less employable, not more employable. For example, people who get a graduate degree in the humanities would have had a better chance of surviving the Titanic than getting a tenured teaching job.
Toyota Memogate?
These issues pale in comparison to one problem that could make or break Toyota’s North American operations: their relationship with their hourly workers. In a confidential memo that accidentally ended up in workers’ hands, Seiichi Sudo, president of Engineering and Manufacturing in North America, discussed the cost of American labor and the steps they need to take to control those costs.
The memo, which was inadvertently stored on a shared computer drive, states the US auto industry pays some of the highest manufacturing wages in the world. It compares American wages to those in France and Japan (50 percent higher) and Mexico (500 percent higher). They project their American labor costs will increase by $900m over the next four years.
Ed Wallace on the upcoming truck wars.