#46 How CEO Personalities Affect the Organization

30 Wednesday Apr 2014

Posted by Jordan Abel in General Motors, Societal Issues

(Readers: Please note the blog about the 5th revolution in the US is constructed as a story. While not all chapters are linked, the story might be more meaningful by starting at the beginning.)

(Want a PDF version for Entries #1-10, #11-20, #21-30 formatted for tablets and e-books? Entries #31-40 available soon. Click links for download. America’s 5th Revolution Volume I (Entries 1-10), America’s 5th Revolution Volume II (Entries 11-20), America’s 5th Revolution Volume III (Entries 21-30)

Scene: Jordan’s office with Matt, reporter for major publication. Matt has been asked by POTUS’ office to help write the story of GM. POTUS wants to use the information as part of a plan to help rebuild US manufacturing.

Jordan: “Before we discuss how some changes to the GM organization affected culture, I want to discuss personalities.

Matt: “Not more warm and fuzzy stuff, I hope. Where’s the meat to the story?”

Jordan: “POTUS asked me to write about GM and lessons for rebuilding US manufacturing. Part of the story is how CEO’s can affect the company’s culture and competitiveness.”

Matt: “Keep talking…but it still sounds warm and fuzzy.”

Jordan: “Think about what we’ve covered so far. About 100 years ago GM goes bankrupt twice in less than 15 years. Then a new management team comes in and voila, GM becomes a profit machine.”

Matt: “GM printed money for many decades.”

Jordan: “So what changed at GM? My contention is the CEO at GM…and any organization…has more influence than most people realize.”

Matt: “What about the board of directors? Don’t they select the CEO?”

Jordan: “The board might not realize how influential the CEO is, especially a CEO that is bad for morale.”

Matt: “So a bad guy at the top can influence an entire company? You really believe that?”

Jordan: “You know the expression about stuff running downhill. Well, it’s true at companies too.”

Matt: “Never really thought about it. Have you got a GM example?”

Jordan: “Alright. I want to compare a few GM CEO’s after Alfred P. Sloan. The comparison won’t be just dollars and cents but personalities.”

Matt: “Then can we talk organizational structure?”

Jordan: “Without understanding the personalities, the changes in the organizational structure will mean less.”

Matt: “I assume the story will have at least one good guy and one bad guy. Start with the good guy.”

Jordan: “GM’s CEO in the mid to late 1970’s was an example for everyone to follow, CEO on down.”

Matt: “Who was that?”

Jordan: “T.A. Murphy. Or as he used to say when I answered my boss’ phone after hours, ‘Tell him Thomas Aquinas Murphy is calling.’”

Matt: “You mean the CEO made his own phone calls?”

Jordan: “Yes, made his own phone calls. I told you he was a good example.”

Matt: “Give me a meatier story…or two.”

Jordan: “Some years before he became chairman, he was head of GM’s NY Treasurer’s Office.”

Matt: “And…”

Jordan: “Any time anyone from that office retired, he insisted on attending the retirement party. We had to schedule the parties the night of the Board meeting to make sure he was available.”

Matt: “Are you talking about executives retiring or anyone in the office?”

Jordan: “Anyone, including the former elevator operator from the former GM building.”

Matt: “So the CEO of the world’s largest company insists on attending retirement parties of former staff in the NY office…even elevator operators. That is unusual.”

Jordan: “Here’s one better. And I’ll tell you I’ve never seen any written proof but I’ve heard the story from different source who know the parties involved.”

Matt: “This I am anxious to hear.”

Jordan: “Murphy is head of the NY office and a staff member – and we are not talking management or high-potential employee but a regular staff member – becomes an alcoholic.”

Matt: “Does GM have a paid rehab program for alcohol and drug addiction?”

Jordan: “Not at this time. So the staff person enters treatment. And guess who pays for the treatment?”

Matt: “Murphy. On his own or through the company?”

Jordan: “His own checkbook. Plus he visits her every day in the rehab center.”

Matt: “Did anyone know about it?”

Jordan: “I was not there at the time. But, as I understand, Murphy never talked about it. Others did only discretely. I found out when she retired.”

Matt: “What a great example. Hard to believe.”

Jordan: “I agree. My facts might be off slightly but the essence of the story is correct.”

Matt: “Any other stories?”

Jordan: “Yes and one that always makes me smile.”

Matt: “I’m ready.”

Jordan: “I work in the NY office…still in my 20’s…and still learning the corporate ropes. My job was fairly high profile – what they called ‘bag man’ to the chairman. The ‘bag man’ coordinated all the presentations made at meetings of the Finance Committee and Board of Directors.”

Matt: “So I suppose Mr. Bag Man spends serious face time with the Chairman.”

Jordan: “You had to review all the key points with him and then get answers to a bunch of questions. All the info was in what was called the ‘Red Book.’ And yes it was the color red.”

Matt: “OK, now what?”

Jordan: “At the time, the Board meetings were held in NY on the first Monday of every month. The final review of the Red Book was Sunday afternoon on the plane.”

Matt: “Company plane, I assume.”

Jordan: “Gulfstream. Now here’s the scene. My first flight on the company plane. And no one has briefed me on the dress protocol. All they told me was don’t be late.”

Matt: “So what did you wear?”

Jordan: “The only clean clothes I had left were casual pants and turtleneck sweater…plus a sport coat.”

Matt: “Was that OK?”

Jordan: “I get on the plane…a 10 seater. Eight people are dressed in suits. My thoughts – just blew this opportunity.”

Matt: “Then what?”

Jordan: “Mr. Murphy gets on the plane a few minutes later dressed in…guess what?”

Matt: “Turtleneck sweater and sport coat.”

Jordan: “You got it. He sees how everyone else is dressed in a suit, then gives me a slight grin.”

Matt: “Is there more to the story?”

Jordan: “Next month same situation. Only clean clothes are casual pants, turtleneck sweater and the same sport coat. I head out to the plane, get on a few minutes ahead of the chairman. Guess how the same eight guys are dressed?”

Matt: “Turtleneck sweater and sport coats.”

Jordan: “Exactly. Then Murphy gets on the plane in a suit and tie.”

Matt: “Seems as if these guys were always chasing and always two steps behind.”

Jordan: “I still find the situation amusing…and frustrating. The other executives forgot to be themselves.”

Matt: “Interesting story and I agree amusing. But why is it relevant?”

Jordan: “Heads of companies are people. Some CEO’s are extremely humble, gracious and thankful. Others in that situation act as if they are kings with unlimited authority and no accountability. More like a dictator.”

Matt: “Your contention is companies reflect the personality of the person in charge.”

Jordan: “Being humble and gracious does not mean one cannot be firm and hold people accountable.”

Matt: “But you do not have to be a jerk or arrogant.”

Jordan: “People want to respect those in leadership positions, whether it’s in business, religion or politics. But respect does not necessarily come with the position. Respect must be earned.”

Matt: “And you believe leadership at GM earned respect…at least leadership through Tom Murphy. Then it changed?”

Jordan: “After Murphy the respect was lost…actually not earned. And when the respect was gone, what went along with it?”

Matt: “The economic engine that Sloan and other had built.”

Jordan: “Now we can start to talk about some things that went terribly wrong at GM.”

#45 GM’s Organizational Structure Helped Build an Economic Engine

26 Saturday Apr 2014

Posted by Jordan Abel in Economics, General Motors, Innovative Thinking: Ideas and Products

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(Readers: Please note the blog about the 5th revolution in the US is constructed as a story. While not all chapters are linked, the story might be more meaningful by starting at the beginning.)

Matt: “I’m still dumbfounded over the last session. But we have one more segment to go on Sloan – organizational structure. Why was it so important?”

Jordan: “Couple of reasons. Maybe the most important is Sloan understood people like to identify with an organization or with a brand. Ask some people who they work for.”

Matt: “You mean like Apple, or Honda or Starbucks?”

Jordan: “Right. Do you ever hear anyone say, ‘Gee I work for this acronym of a holding company.”

Matt: “No, other than a few Wall Street types.”

Jordan: “When GM was at its best, the divisions – Cadillac, Buick, etc – were effectively independent companies. The employees – hourly and salary – the dealers, even some of the suppliers would say ‘I work at Buick.’ And notice I used the word ‘at’ and not ‘for. Because the employees felt part of the team.”

Matt: “Did anyone ever say I work at General Motors?”

Jordan: “Rarely, if ever. Even when I worked on the corporate staff in New York, we used to identify ourselves as the Treasurer’s Office, New York, aka TONY.”

Matt: “All these divisions sound great but wasn’t it inefficient to allow so much autonomy? There must have been a lot of overlap and extra cost.”

Jordan: “You sure you aren’t a bean counter?”

Matt: “Jordan, you know I’m not. But still, seems like a lot of unnecessary overhead.”

Jordan: “Matt, take a deep breath and listen. Keep in mind how large the divisions were. For example, Buick Division was larger than say all of Goodyear Tire and Rubber Company. That’s Goodyear worldwide. And Buick was not especially large in GM.”

Matt: “I had no idea each division was that large a business.”

Jordan: “Well, now you know what an economic engine GM was. Sloan understood the economic engine was fueled by sales. And he understood that clear brand identity was critical for sales.”

Matt: “Is identity with the brand the foundation for creating an emotional bond?”

Jordan: “For a reporter, you’re not bad marketer. Absolutely. Establishing an emotional bond is important for all types of products.”

Matt: “You have some examples?”

Jordan: “Jump from brands of cars to brands of electronics. In a somewhat cynical way, you can think of most computers, phones and other electronic equipment as just pushing around electrons.”

Matt: “I suppose not much different than looking at a car as mere transportation.”

Jordan: “And for some buyers that’s true. But many, many buyers develop an emotional bond with their product. When thinking about buying electronic equipment some people are die-hard Apple fans; others are in love with Google. And still others are die-hard Microsoft fans. And the same applies to cars and trucks.”

Matt: “Now that you mention it, my grandfather used to refer to himself as a proud ‘Buick’ man.”

Jordan: “Mine did as well. That’s why I was so happy to be assigned to Buick after the Sloan program.”

Matt: “Was your grandfather alive then?”

Jordan: “No. But many times when talking about Buick product or dealers I would think of him…and one product in particular. While I was at Buick we introduced…really re-introduced… a large rear-wheel drive sedan. And guess what we called it?”

Matt: “Roadmaster?”

Jordan: “You got it. The name Roadmaster fit perfectly. My grandfather loved his Roadmasters. But the funny part of the naming story happened during some consumer research of the car.”

Matt: “What do you mean?”

Jordan: “We had a fiberglass model of the car in a research clinic but no badge identification.”

Matt: “You mean like no Ford oval or Chevrolet bowtie?”

Jordan: “No markings at all. Anyway, this young lady gets a first look at the car and says without any prompting, ‘That looks like a master of the road. A road master.”

Matt: “So that cemented any doubts about the name.”

Jordan: “I could not have scripted it better.”

Matt: “OK, so Sloan allows the divisions to operate fairly autonomously. You also mentioned the New York office. What was the name again, TONY?

Jordan: “The Treasurer’s Office, New York operated as a consulting group. TONY was to be a voice away from the day-to-day activities at Detroit HQ and the ‘hype’ at the car divisions.”

Matt: “’Hype’ seems a bit pejorative. I mean the car divisions weren’t all used-car sales people.”

Jordan: “Actually only dealers sell used cars but I know what you mean. The divisions were vertically integrated and included engineering and manufacturing staffs. But like organizations with a product, the goal for the divisions was to sell more products.”

Matt: “I still think ‘hype’ is a bit too much. Still too much like used-car sales people.”

Jordan: “OK. How ‘bout ‘enthusiastic’?”

Matt: “That works. Back to the New York office.”

Jordan: “Recall that GM’s bankruptcies in 1909 and 1919…we need to confirm those dates… were not caused by lack of demand but by running out of cash.”

Matt: “Did Sloan set up some type of system to manage cash?”

Jordan: “I don’t know all the background but any expenditure beyond a certain dollar amount had to be reviewed and approved by corporate staff…or even the Board.”

Matt: “And that was TONY’s role?”

Jordan: “Yes. We worked directly with the chairman, coordinating the meetings, providing the analysis and making recommendations. Plus the group developed forecasts of demand. TONY even had an Economist’s Staff.”

Matt: “You mean with real PhD economists?”

Jordan: “Yes, I worked on that staff for a while. And no I am not a PhD economist. But I am a decent model builder and forecaster. At least I was.”

Matt: “The NY office really does sound like a consulting group. What about the Treasury function?”

Jordan: “When the office was established, being close to Wall Street had advantages. Far less so today.”

Matt: “What I’ve heard so far is GM was at its best when the divisions operated fairly independently and with their own engineering and manufacturing staffs. Doing so created…or at least helped create…strong brand identity, which helped build an emotional bond with customers and with employees.”

Jordan: “Good summary so far.”

Matt: “In addition, GM had a separate office in NY to oversee use of capital, both internally and as a treasury function.”

Jordan: “Let’s take a break. Next session we’ll talk about how some organizational changes in the 1980’s began to destroy Sloan’s formula for the economic engine.”

#44 Sloan’s Segmentation Works, then Trashed by Bean Counters

23 Wednesday Apr 2014

Posted by Jordan Abel in Back Asswards Thinking, General Motors, Innovative Thinking: Ideas and Products, Societal Issues

≈ 1 Comment

(Readers: Please note the blog about the 5th revolution in the US is constructed as a story. While not all chapters are linked, the story might be more meaningful by starting at the beginning.)

Scene: Jordan’s office with Matt, reporter asked by POTUS to help Jordan write story why GM was so successful and why it failed. Report will be used as part of effort to rebuild US-based manufacturing.

Jordan: “Ready for some more GM history under Sloan?”

Matt: “Have my coffee and ready to listen.”

Jordan: “In addition to the financial discipline, Sloan segmented GM’s car lines.”

Matt: “Segment in what way?”

Jordan: “I know the term segmentation seems obvious today but it was not going on 100 years ago. At the time there were 20 or more car manufacturers with a wide variety of products.

Matt: “So GM had several brands at the time, didn’t It.?”

Jordan: “Buick, which was really the cornerstone for GM, Cadillac and Oldsmobile.”

Matt: “What about Chevrolet and Pontiac?”

Jordan: “Chevrolet became part of GM in 1918. Pontiac in the mid-1920’s.”

Matt: “Saturn was when?”

Jordan: “Saturn, Hummer, Saab are part of GM post 1980. We’ll talk about those brands later. For this paper we’ll skip some other GM brands – Oakland and LaSalle and all the brands sold outside the US – Opel, Vauxhall, Holden’s. Including them will just confuse the issue.”

Matt: “So under Sloan GM analyzes the car market, segments it and then decides on roles for the different brands.”

Jordan: “Exactly. What he…I mean GM…tried to implement was clarity. Clarity so people outside the company knew what each brand stood for.”

Matt: “And so people inside the company knew what each brand stood for.”

Jordan: “You’ve got it. Remember, at the time Ford was selling only the Model T. GM models were higher priced so buyers needed to understand what each brand stood for and why it was worth more money.”

Matt: “What was the segmentation strategy?”

Jordan: “A car for every price and purpose. The car market is still emerging. Most of the segments we have today did not exist.”

Matt: “Chevrolet covered the lower end. Oldsmobile, Buick middle to lower upper end. Cadillac the higher end. Pontiac filled a gap just above Chevrolet. Even before Pontiac, GM offered cars for most everyone.”

Jordan: “Many buyers wanted to move away from the Model T one size fits all. After owning a couple of Model T’s…that look identical to every other Model T…buyers wanted something different.”

Matt: “Sloan’s segmentation is another idea that seems so simple. How successful was it?”

Jordan: “GM, actually Chevrolet, outsold Ford Motor Company for the first time in 1926 or 1927. While I think Sloan was a genius, Henry Ford helped GM by sticking with the Model T too long. During Ford’s changeover to the Model A, GM became the #1 seller.”

Matt: “Did Ford bounce back and overtake GM?”

Jordan: “Since then GM has outsold Ford nearly every year, if not every year. GM was the #1 car company until 2008, when Toyota outsold it worldwide for the first time. The companies have switched leads several times since.”

Matt: “When was GM at its peak?”

Jordan: “In the 1950’s and 1960’s, GM accounted for more 5 of every 10 cars sold in the US. GM also has the #1 brand refrigerator and the #1 train locomotive.

Matt: “What? GM had the #1 selling refrigerator and the #1 selling locomotive?”

Jordan: “And to help finance cars, GM started a finance company – General Motors Acceptance Corporation. In fact, GM was so dominant in so many areas the Federal government began an anti-trust investigation.”

Matt: “What a change. Anti-trust and too large to government bailout. Hard to imagine what a machine they were.”

Jordan: “That’s why POTUS wants this series of articles. What lessons can we take away that can be applied today?”

Matt: “So GM peaks in the 1960’s or maybe later and then starts to slide. Did GM management quit following Sloan’s principles?”

Jordan: “Yes but not all at once. We’ll talk more about this later but in the early 1980’s the GM CEO declared that profitability was more important than market share.”

Matt: “Doesn’t a company have to have market share to generate revenue…and profit?”

Jordan: “Low market share leads to lower total profits. The percent profit per car might look good but at the end of the day the stack of dollar bills is smaller.”

Matt: “What was the rationale?”

Jordan: “GM could ‘optimize’ earnings and shareholder value by focusing on selling only cars and trucks with certain profit.”

Matt: “What happened to Sloan’s segmentation scheme?”

Jordan: “Part of the plan to reduce cost was to reduce the differentiation between the brands. Doing so would allow certain development costs to be spread over more cars…and customers would never know, or so they thought.”

Matt: “With this plan, some programs that made Chevrolet different from say Pontiac would be reduced or eliminated.”

Jordan: “Exactly. The plan was that separation between Buick and Oldsmobile could also be reduced. Even Cadillac would be affected.”

Matt: “But some of this narrowing of brand differentiation started before the 1980’s.”

Jordan: “True. But if you look at GM market share, the point of inflection is in the 1980’s.

Matt: “Did the plan work?”

Jordan: “In one word, no. In fact, the plan made an already difficult situation worse. GM share at the beginning of the 1980’s was about 45%. By the end of the 1980’s it was about 35%.”

Matt: “How much loss is that?”

Jordan: “1.2-1.5 million cars and trucks per year.”

Matt: “How many assembly plants is that?”

Jordan: “Equal to all the production of 5-6 assembly plants per year. 5-6 plants two shifts, 60 cars or trucks per hour, all year long. Not one year but every year. So you think the planned worked?”

Matt: “They waved good bye to 5-6 assembly plants? How much money did they wave good-bye to?”

Jordan: “The numbers are staggering. Every year GM no longer sold 1,500,000 cars and trucks it used to sell. In today’s dollars GM sales price to dealers averages about say $30-35,000.”

Matt: “So GM waves good-bye to $50 billion…$50 billion dollars per year…out the door. Good-bye. Whose idea was this?”

Jordan: “Only a bean-counter could think up such a back-asswards strategy. Show me one company that saved its way into prosperity? To earn money companies need to generate revenue. You cannot make up profit on $50 billion in revenue by cutting expense. The math does not work.”

Matt: “I am almost speechless.”

Jordan: “You should be speechless. It’s a staggering number. And we’ve not talked about what happened to all the GM customer and GM employees as a result.”

Matt: “I see now why you insist this story is more than a numbers game. It is about management and how it influences the culture of the organization.”

Jordan: “I’ll give you one more arrow in the culture quiver. In the 1990’s a then GM CEO had the audacity to state that Sloan’s segmentation was no longer relevant.”

Matt: “Was he right?”

Jordan: “Segmentation criteria might get tweaked a bit over time but the fundamentals do not. Segmentation in the 1990’s was as important as in the 1920’s.”

Matt: “Why do you think he claimed Sloan’s segmentation was no longer relevant?”

Jordan: “I don’t know for certain. But given his background, he thought the reason GM lost so much market share was Sloan’s segmentation. He never considered that by ignoring Sloan’s segmentation, especially in the 1980’s, GM lost market share.”

Matt: “Another case of back asswards thinking. May we take a break, please? My head hurts.”

#43 Beginning My Years with General Motors

19 Saturday Apr 2014

Posted by Jordan Abel in General Motors, Innovative Thinking: Ideas and Products, Personal Stories, Possible Solutions

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(Readers: Please note the blog about the 5th revolution in the US is constructed as a story. While not all chapters are linked, the story might be more meaningful by starting at the beginning.)

Jordan: “First bit of trivia. Matt, how many times has GM gone bankrupt?

Matt: “One that I know of – 2009. That’s when the Feds put in a lot of cash and got a lot of stock in return. People started calling it Government Motors.”

Jordan: “A lot of people thought the Feds should have let GM die. Doing so would have been a huge mistake. We can discuss why in another session…but not today.”

Matt: “OK, I give. How many times has GM gone BK, or bankrupt?”

Jordan: “Three. 2009, then twice before 1920. The first was about 1909 and the second about 1919. We need to get exact dates but close enough for now.”

Matt: “Three times. That’s a surprise.”

Jordan: “And they might survive all three.”

Matt: “What happened in 1909 and 1919?”

Jordan: “The short version is this. Rapid expansion of production and rapid sales growth without proper financial controls. The result was the deadly sin – running out of cash.”

Matt: “So unlike 2009 when demand was weak, the other two times demand was strong. But GM expanded too quickly…really beyond their ability to raise enough cash to finance the growth.”

Jordan: “Yes. And that reminds me of my first day in finance at MIT.”

Matt: “Alright. First day of finance class. What happened?”

Jordan: “The professor begins the class by saying, ‘Ladies and gentlemen, if you learn nothing else the entire time you are at this esteemed institution, I want you to remember one thing. It does not matter whether your income statement indicates you made money or lost money. The only thing that matters is…never run out of cash.’”

Matt: “Well, GM management apparently didn’t go to that class.”

Jordan: “A lot of people seemed to have skipped that class…a hundred years ago and now.”

Matt: “OK, GM goes BK. But in 1919 there is no government bailout. Who bailed them out?”

Jordan: “My view is the second BK and the bailout is the beginning of the GM juggernaut. The bailout is from the DuPont family. DuPont’s, already an investor, put in a boatload of cash and end up with a boatload more shares – 30-35% ownership.”

Matt: “Anything else happen?”

Jordan: “The cornerstone for GM’s future success. Pierre DuPont, chairman of the Board, installs Alfred P. Sloan as president.”

Matt: “Is that the same Sloan as Sloan-Kettering Hospital in NY…and the Sloan School at MIT?”

Jordan: “The same Alfred Pritchard Sloan. Sloan was an MIT grad. And I think he implemented three major ideas that separated GM from the pack.”

Matt: “Under Sloan, GM operated differently than other car companies?”

Jordan: “Very much so. GM set a new standard. The ideas applied to car companies and most other manufacturing companies. And the ideas are still relevant today.”

Matt: “I’m anxious to hear more but is the story going to get too complicated for people to understand? We have to keep the story out of the weeds and make sure it is understandable.”

Jordan: “The topics might seem a bit deep at times. But this is not a story told in sound bites. Success does not come with slogans and talking heads…despite what some people think.”

Matt: “Alright but really try to KISS – keep it simple, stupid.”

Jordan: “In my estimation, Sloan’s three major contributions were: (i) implementing understandable financial controls (ii) clearly separating GM’s different products (iii) separating strategic and operational decisions.”

Matt: “I sort of understand financial controls and separating products. Separating strategic and operational decisions is a bit more abstract.”

Jordan: “OK, let take these one at a time, starting with financial controls.”

Matt: “Are you talking about say authority to write checks and keep accurate books?”

Jordan: “Yes, but there is much more. What is hard to understand now with computers, electronic databases and scanning equipment is companies were run using information written on index cards and hand-written ledgers.”

Matt: “That is hard to imagine.”

Jordan: “Imagine this – and I think the date is about right – until the mid-1920’s Ford Motor Company operated without any real accounting system.”

Matt: “Ford had become a huge company by then…and no real accounting system?”

Jordan: “GM before Sloan was similar. But Sloan brings systems thinking. Systems for accounting, systems for cash management and systems for forecasting production.”

Matt: “What you’re saying is GM went from shoe-box accounting to at least reconciling bank statements and creating a budget.”

Jordan: “In very simple terms, yes. However, it is hard to overstate the importance of the discipline Sloan began instilling in the company.”

Matt: “Wasn’t it just an accounting system?”

Jordan: “No, it was creating a culture of being accountable. Having a system in place allowed performance to be measured.”

Matt: “You’re saying the measurement system – production, cost, etc. – allowed measurement of the performance of individuals and groups. And the measurement made them more accountable.”

Jordan: “Exactly. Individuals and groups began to understand what needed to be accomplished and how well they performed.”

Matt: “Have a specific example?”

Jordan: “Yes, and I hope it is not too abstract. But I think critically important to GM’s success.”

Matt: “What is it?”

Jordan: “Budgeting is critical in the auto industry…and any industry with high fixed costs. The company must generate enough sales to pay for all the fixed cost before it begins earning a profit.”

Matt: “Like the sales person on full commission. He or she needs to sell a certain amount just to cover expenses – mortgage, utilities, groceries, car payment, fuel. Then sell some more just to have some spending money.”

Jordan: “Good example. And the higher the mortgage payment and car payment, the more the person has to sell.”

Matt: “But the sales person never knows how much will be sold, and therefore never knows what the commission check will be.”

Jordan: “Car companies face the same problem. When the economy is good, people have more money and buy more cars. When the economy is not so good, people put off buying a new car and sales fall.”

Matt: “What was so innovative about what Sloan did?”

Jordan: “Sloan created a budgeting procedure such that GM broke even profit wise at 70% of its capacity.”

Matt: “So if the company had capacity to sell 1,000,000 cars for a certain year and sales were only 700,000 cars for that year, GM would break even…really, not lose money? That idea seems so simple.”

Jordan: “The idea is incredibly simple but very hard to execute. Forcing the execution helped create a culture of the importance of managing costs.”

Matt: “So budgets were built around 70% of capacity. Still not sure if I understand the significance. And does the process have a name?”

Jordan: “The budget was called a ‘standard-volume budget.’ Focusing on ‘standard volume” helped people form a discipline of controlling costs. Early in my career I was assigned to coordinate the budget process for Cadillac. The budgeting process was not easy and not very pretty. A lot of negotiating, arm twisting and cajoling. By the end everyone involved understood the importance of controlling costs.”

Matt: “Obviously left quite an impact on you. What’s the second point?”

Jordan: “All sales above 70% of capacity were very profitable…and I mean very profitable.”

Matt: “How often did sales fall below 70% of capacity?”

Jordan: “Not very often, even in the Depression. In fact, GM made money every year from the early 1920’s and throughout the Depression.”

Matt: “You’re kidding?”

Jordan: “GM made money while many car companies went out of business. Duesenberg, Cord, Auburn just to name a few.”

Matt: “So how many years in a row was GM profitable?”

Jordan: “70+ years. From the early 1920’s to the early 1990’s.”

Matt: “What a run. What happened?”

Jordan: “This is a good time to take a break. Sloan implemented a couple more key ideas that made the 70-year string possible…and the string should still be going on. We can talk about what went wrong after we talk about what went right. Let’s take a break.”

#42 The GM Story: Safety Played 2nd Fiddle?

16 Wednesday Apr 2014

Posted by Jordan Abel in Back Asswards Thinking, General Motors, Stupid Is as Stupid Does

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(Readers: Please note the blog about the 5th revolution in the US is constructed as a story. While not all chapters are linked, the story might be more meaningful by starting at the beginning.)

Scene: Jordan’s Office. Reporter assigned by POTUS’ office arrives.

Jordan: “Matt, it has been a long time since we chatted.”

Matt: “I’m trying to think of the last time I interviewed you. A lot less gray hair on both of us. But, anyway does not matter.”

Jordan: “You’re still with my favorite paper but most of the bylines are articles about technology.”

Matt: “True but apparently POTUS read some earlier pieces I wrote on automotive and thought I was right for the job.”

Jordan: “I’m delighted you’ve been assigned.”

Matt: “Keep in mind I still want to be as objective as possible so you might get some pushback from me on certain issues.”

Jordan: “Understood. In fact, feel free to challenge me at any time. The gist of the story is more about culture than anything else. And my perspective. Let me know if you think I am being too biased”

Matt: “I’ll tell you what would help. A short lesson in GM history. Not all the gory details but an overview would really help me put the project in context. And make sure you cover the financial results. I know you think the issue is more culture but the financial results tell a story, too.”

Jordan: “I agree that the financials tell a story. A great story for many years. Before we start the history lesson, are there any pressing issues?”

Matt: “Yes. This baffles me. The ignition switch — how did GM ignore a safety problem with the switch for what 10 years? How does that stuff happen?”

Jordan: “My view is the failure to fix the ignition switch – a $1.00 part at most – is the culmination of 30+ years of a management team and Board of Directors focused on profits and not the customer.”

Matt: “Your tone of voice tells me how angry you are.”

Jordan: “Angry is an understatement. A few clowns decided to ignore very strong evidence of a safety problem. The cost to fix was less than $1.00.”

Matt: “Why do you think they ignored the evidence? The fix was, from all indications was simple and as you said, less than $1.00.”

Jordan: “You tell me why they ignored it. That kind of behavior qualifies GM as stupid and I think immoral.”

Matt: “What about criminal?”

Jordan: “I am not at Department of Justice and do not have all the facts. But not to fix a known safety problem for $1.00. What’s wrong with those people?”

Matt: “Did you ever experience any decisions where cost overrode safety?”

Jordan: “No. Just the opposite. I recall my days at Buick when we were going to add some piece of equipment that increased the weight of the car to a new category. I don’t remember which car but the weight was only a couple of pounds over.”

Matt: “What happened?”

Jordan: “The tire-and-wheel engineer interrupted the presentation and said the car needed a larger tire and wheel to handle the added weight.”

Matt: “Even though it was only a couple of pounds? Was there any discussion or resistance?”

Jordan: “None. The guy had the power of a king. When it came to safety, you did what he said. No questions asked.”

Matt: “So safety was an overriding concern.”

Jordan: “Absolutely.”

Matt: “What happened to that culture?”

Jordan: “That is a key issue. To help answer that question let’s go back to the beginning of General Motors.”

Matt: “Alright. But I need a break first.”

Jordan: “So do I. How ‘bout 10 minutes?”

#41 POTUS Asks Jordan to Write about GM

12 Saturday Apr 2014

Posted by Jordan Abel in Economics, General Motors, Societal Issues

≈ 7 Comments

(Readers: Please note the blog about the 5th revolution in the US is constructed as a story. While not all chapters are linked, the story might be more meaningful by starting at the beginning.)

Scene: Jordan’s office.

Gelly (Jordan’s assistant): “Jordan, POTUS is calling.”

Jordan: “Good morning, Mr. President.”

POTUS: “Morning Jordan. You alive and well today?”

Jordan: “With a question like that I’m not sure. But, yes, I’m fine. Thanks.”

POTUS: “I need a favor. Call it a payback for setting up the meetings about rebuilding Detroit.”

Jordan: “What’s the issue?”

POTUS: “The special election resulted in some good changes to Congress. The parties are starting to work together again.”

Jordan: “Glad to hear it.”

POTUS: “What the country needs next is to begin addressing economic policy.”

Jordan: “I’m not a PhD economist.”

POTUS: “We have plenty of PhD’s around. What I need is some real-world experience. The experience needs to be relevant for policies about rebuilding manufacturing and rebuilding the middle class.”

Jordan: “How can I help?”

POTUS: “The question that keeps popping into my head is why the USA was so successful at generating wealth for the society in the 1950’s, 1960’s and even the 1970’s. And we have made no progress since.”

Jordan: “The economists can probably analyze that for you.”

POTUS: “I’m not looking for some academic analysis. I want a different perspective. And I know you have one.”

Jordan: “What kind of analysis would be helpful?”

POTUS: “You spent a number of years at General Motors in some very interesting jobs. I also know you are a student at heart.”

Jordan: “You got that right. I love taking classes and I love to teach.”

POTUS: “OK, then let’s combine the two. i’ll give you an assignment and then the opportunity to teach.”

Jordan: “Alright. What am I getting into?”

POTUS: “For many years GM was an economic engine. Remarkable revenue, remarkable market share and even more remarkable profits. It was the…capital THE…manufacturing company worldwide.”

Jordan: “True. GM made lots of products, employed lots of people and paid lots of taxes — federal, state and local.”

POTUS: “Years ago, Charles Wilson…”

Jordan: “…also known as Engine Charlie Wilson…”

POTUS: “See you do know this stuff. Anyway, Charlie Wilson said ‘…what’s good for General Motors is good for the country, and vice versa.’”

Jordan: “And I think what Engine Charlie said is still correct.”

POTUS: “Well, Jordan, now you know why I called you. I would greatly appreciate if you would write a series of articles about GM. What went right and then what went wrong, terribly wrong.”

Jordan: “Funny you bring up that idea. I’ve thought for a long time about writing such articles but never had a reason.”

POTUS: “Now you have that reason. Understanding what went right and wrong at GM will help me and many other people trying to set economic policy.”

Jordan: “If I heard you correctly, you want my perspective on GM and not some widespread study by a bunch of people.”

POTUS: “To answer your question, ‘yes.’ I understand some people might not agree with your analysis. But the point is to get your perspective, not some politically correct version scrubbed by a PR agency. You don’t learn from sanitized versions of situations.”

Jordan: “Not to worry. You’ll get the un-sanitized version. And like any series of events, doubtless there will be…and probably should be…other opinions. But I’ll give you my perspective.”

POTUS: “Good. The articles should really help.”

Jordan: “Anything else?”

POTUS: “Only that you cover why GM became such an economic juggernaut and then what lead to the bankruptcy.”

Jordan: “Which bankruptcy?”

POTUS: “You mean there was more than one BK?”

Jordan: “You’ll have to read the story. I do have one request for this project.”

POTUS: “What’s that?”

Jordan: “May I get someone from your staff assigned to help me? I want the person to act as a reporter and help with the writing and maybe some research. I’ll provide all the key info but an extra person would be great.”

POTUS: “Consider it done. Now you better get off the phone and get to work. Good bye Jordan.”

Jordan: “Good bye, Mr. President.”

#40 Why Manufacturing in the US Can Be Less Expensive

09 Wednesday Apr 2014

Posted by Jordan Abel in Back Asswards Thinking, Causes of the Revolution, Economics, Innovative Thinking: Ideas and Products, Possible Solutions

≈ 1 Comment

Note: Entry #41 begins a series of blogs about General Motors. How did an apparent culture change over time likely lead to bankruptcy and an apparent disregard for addressing safety issues. Such actions by corporations affect societal attitudes.

(Want a PDF version for Entries #1-10, #11-20, #21-30 formatted for tablets and e-books? Click links for download. America’s 5th Revolution Volume I (Entries 1-10), America’s 5th Revolution Volume II (Entries 11-20), America’s 5th Revolution Volume III (Entries 21-30)

Scene: Jordan met former college economics professor. Just got a coffee refill.

Professor: “A few minutes ago you asked why US companies manufacturer electronic products in China when much of the production is automated.”

Jordan: “I really do not understand. But I think the #1 reason by far is perceived lower labor costs.”

Professor: “The perception of lower labor costs, not necessarily the reality of lower labor costs.”

Jordan: “Let me give you some personal experience. I realize data points of one are dangerous but the more I talk to people about their real experiences, the more my experience seems typical.”

Professor: “This should be interesting.”

Jordan: “I was recruited to run a small, publicly held company in northern California.”

Professor: “Lucky you. Near wine country?”

Jordan: “Smack in the middle of it. The area is great for grapes and apples but not what one calls a hotbed for manufacturing.”

Professor: “What was the product line?”

Jordan: “Electric bikes and scooters, all of which are assembled at company facilities in the same town.”

Professor: “What’s the issue? The company was manufacturing, or at least assembling in the US”

Jordan: “The Board of Directors wants to move assembly to China and lay off many of the US employees.”

Professor: “Because labor costs were too high?”

Jordan: “That’s what they thought but none of the Board members had any real manufacturing experience.”

Professor: “They could have been right. If the area is not a major manufacturing center, the costs could be too high.”

Jordan: “My analysis? To understand true labor costs we also needed to analyze other systems. When I started average production was 37 scooters per day. Some days production was 75 scooters and other days production was zero scooters.”

Professor: “Seems like a production scheduling issue.”

Jordan: “Scheduling and parts sourcing at a minimum. The company did not fully evaluate how quality of parts could affect the rate of production.”

Professor: “Give me an example.”

Jordan: “The scooter drive system included a sprocket that linked the electric motor and a belt, which turned one of the wheels. The price of the sprocket appeared cheap…”

Professor: “But further analysis…”

Jordan: “Further analysis indicated 80% of the parts were not to specifications. As a result the output of the motor assembly line was lower. Even worse was when the workers tried to make the sprocket fit, they sometimes inadvertently damaged the motor, which caused more problems.”

Professor: “So to get 100 good sprockets you had to buy 500 sprockets. Where were the sprockets manufactured? Let me guess…China.”

Jordan: “Yes. Look, China makes some quality products. I asked the chief engineer to call a contact of mine in automotive. We sent the drawings. He quoted parts from a US manufacturer that cost 30% less and guaranteed all parts were to spec.”

Professor: “The individual part cost 30% less?”

Jordan: “Each part. Not the total but each part.”

Professor: “Good move. Quality goes up, production goes up and purchase costs go down and warranty goes down. As if that’s not enough, anything else?”

Jordan: “We made some changes to the assembly line.”

Professor: “Equipment and automation?”

Jordan: “No capital equipment or automation, just basic layout and processes. Most of the ideas came from the employees. We also implemented some recommendations from lean manufacturing techniques…but all ideas you would learn before the first coffee break on the first day of class.”

Professor: “You’re telling me you used very basic information to begin to make improvements.”

Jordan: “I am embarrassed to tell you how basic. We literally taped off work stations, color-coded hand tools by worker, bought a few hand carts and implemented employee suggestions.”

Professor: “What happened to production?”

Jordan: “Give me a guess. In just 7 months how much do you think production increased?”

Professor: “50%? No make it 100%. You doubled production.”

Jordan: “Try a higher number.”

Professor: “OK 300%. Production increased from 37 to 150 per day.”

Jordan: “Try 37 to 250 per day. Well above a 500% increase in production with basically the same equipment…and workforce.”

Professor: “You didn’t add any people?”

Jordan: “We added a few in shipping because they could not keep up. But nowhere else.”

Professor: “What about labor costs? How much more did you pay people?”

Jordan: “We gave people bonuses for reaching certain targets. Here’s an interesting statistic. Take the US labor rate and bonus at the seven months and double it.”

Professor: “So you are going to pay the US twice as much?”

Jordan: “Yes. Now take the labor cost for products made in China and make it zero.”

Professor: “Double the labor cost in the US and make labor cost in China zero…free.”

Jordan: “And tell where it’s cheaper to build the product?

Professor: “I know this is a set up. Cheaper in the US.”

Jordan: “Hard to believe but it is true.”

Professor: “That’s remarkable. But seems like an extreme example.”

Jordan: “I agree the percent increase in production is unusual but not the savings in other costs. What companies often overlook are the less obvious costs – lead time between order and receipt of goods. Cost of not being able to adjust production quickly for parts changes or even a bad part. You might end up with container loads of product before the change.”

Professor: “What is the lead time between ordering and receipt.”

Jordan: “Usually months. Unless you air freight, you have 6-8 weeks shipping time on the ocean versus days by train or truck in the US.”

Professor: “Is quality control really an issue?”

Jordan: “Quality control is a problem for any manufacturing company. But when your supplier is thousands of miles away and with long lead time, the impact of problems grows exponentially. Plus, the cultures are different when it comes to quality. Also ask companies how difficult it is to protect IP.”

Professor: “Intellectual property?”

Jordan: “Yes. Product knock-offs are a real problem.”

Professor: “In your example labor costs became a very small piece of the overall cost. Why do you think the companies continue to source outside the US when total cost seems to be cheaper when manufacturing in the US?”

Jordan: “That’s my frustration. And let’s take electronics specifically. Virtually all of the manufacturing and assembly of many electronic products are automated. Why go outside the US?”

Professor: “US offers competitive…and maybe lower cost…and faster turnaround time.”

Jordan: “That’s why we need a national policy to get more companies to start manufacturing in the US. Even with automation, there will be more people employed in the US. And we can start to rebuild wealth.”

Professor: “The administration can begin rebuilding with some macro-economic policies. The first recommendation might sound silly but the administration needs to promote buying products made in America. I’m not talking about everything but products that can be made here at a very competitive price.”

Jordan: “Are you suggesting that as a policy?”

Professor: “Jordan, you know as well as I know the power of persuasion. If the president begins to discuss in understandable terms why people should buy products made in America, then customers will begin to force companies to change.”

Jordan: “You talking about fireside-chat talks, like FDR did?

Professor: “Have you ever listened to those chats…or read the transcripts? If you have not, you should. FDR presented major issues and solutions in an understandable way.”

Jordan: “None of the hyperbole of today?”

Professor: “Incredibly straightforward. You need to listen to them. If fact, all politicians need to listen to them.”

Jordan: “A series of fireside chats might be a great start.”

Professor: “The chats will give you time to refine some recommendations.”

Jordan: “OK, we have a plan. I’ll propose fire-side chats. Can you help with the longer-term recommendations?

Professor: “Thought you would never ask. It would be an honor. ”

#39 How Manufacturing Can Create Societal Wealth

05 Saturday Apr 2014

Posted by Jordan Abel in Definitions, Economics, Innovative Thinking: Ideas and Products, Societal Issues

≈ Leave a comment

Scene: Jordan Visiting College Campus. Meets Former Economics Professor.

Jordan: “Professor, nice to see you again. Been a while since I was in one of your classes.”

Professor: “Yes, a long time. I understand you’re spending a lot of time in Washington.

Jordan: “Too much time. I need these kinds of breaks to keep my thinking straight.”

Prof (laughing): “You’re not saying people inside the Beltway have distorted thinking?”

Jordan: “I’ll skip my thoughts on that one. But if you have a few minutes I would like to get your thoughts on some serious issues facing the country.”

Prof: “I’ve got about an hour before my next lecture. What’s on your mind?”

Jordan: “There are some disturbing trends in the economy.

Prof: “Such as?”

Jordan: “The United States needs to generate more wealth as a country. Taxing the rich does not create wealth, merely redistributes income. Like moving money from one pocket to another. What policies should we consider implementing to create more wealth for society? Not just wealth for some individual or some company but wealth for society.”

Prof: “Great question. Creating wealth is a simple concept but far more difficult to execute.”

Jordan: “Let’s pretend we are back in Econ 101. Explain the concept and then we can talk about execution.”

Prof: “OK students, quiet down. Just kidding. For me the easiest way to understand how to create wealth for society is to think manufacturing.”

Jordan: “Exactly what do you mean by manufacturing?

Prof: “Most people think manufacturing as making cars or airplanes or furniture. But in the broadest sense manufacturing is the process by which value is added to a product.”

Jordan: “If I understand, then farming can be considered manufacturing. You start out with seeds and you end up with a bunch of corn. Mining would also be the same. Start out with dirt and end up with say iron ore.”

Prof: “Let’s use your examples. How is wealth created? Let’s take raw material – iron ore, corn, lumber. Step 1 is consider the value of that raw material on its own – a hunk of iron ore, stalk of corn or a tree. Step 2 is think about a product that uses the raw material. Step 3 is compare value between the raw material and the finished product?”

Jordan: “Let’s take this coffee mug. The raw material is some type of clay and some paint for decorations.”

Prof: “Good example. What would you pay for the clay and paint as raw materials?”

Jordan: “Nothing because they are of no value to me.”

Prof: “What did you pay for the coffee mug — $10?

Jordan: “Try $20. It’s a nice mug.”

Prof: “So value went from $0 for the raw material to $20 as a coffee mug?”

Jordan: “Yes. Whoever made the mug must have created the value.”

Prof: “He does remember Econ 101. Actually there are some other people in the chain but you have the idea.”

Jordan: “The other people – the trucking company, the place where I bought the mug, the company that mined the clay and the company that made the paint – all contributed to the wealth creation.”

Prof: “On a very simplest level, none of those people would be working if you didn’t buy the coffee mug.”

Jordan: “So each one of the companies involved in making and then getting the coffee mug to me contributed to value creation?”

Prof: “One can argue that the people between the potter and the buyer are merely middlemen. You could have purchased the coffee mug directly from the maker.”

Jordan: “So the middleman might not really add value, bur rather…call it ‘facilitate’?”

Prof: “The word ‘facilitate’ will work. ‘Catalyst’ will work also. A catalyst allows a reaction to occur without becoming part of the reaction.”

Jordan: “Hasn’t the internet started to replace the middleman? Many more companies seem to be selling directly to the customer.”

Prof: “The internet has been a disruptive force to the middleman, or distribution system. For centuries people in developed countries bought in physical stores. Virtually all these stores were operated by merchants who sold the goods but did not make the goods.”

Jordan: “Now, with the internet, in many cases I can buy directly from the manufacturer and have the product delivered to my location – no more brick-and-mortar store.”

Prof: “A lot of jobs associated with…call it merchandising business…have been eliminated.”

Jordan: “Did those people really add value and create wealth?”

Prof: “Technically, no. But what they did do was enable a lot more people to buy the product. Without the middleman, the potter who made the coffee mug would have a very limited population to sell to. With the middleman, the potential for sales expanded exponentially.”

Jordan: “Now the potter can use the internet and reach many more people than before. In some cases maybe even more people than with the middleman.”

Prof: “And keep more of the profits since no payment to the middleman.”

Jordan: “At the same time, employment declines because fewer people are working to distribute the product. So did we really create any additional wealth by selling on the internet?”

Prof: “Answering a related question will help you set policies for wealth creation.”

Jordan: “Where are we headed?”

Prof: “What if the coffee mug is no longer made in the US but now made in say China…bad pun, I know.”

Jordan: “I’ll forgive you. If the mug is made in China, the wealth created between the raw material and the finished product – coffee mug – stays in China and not the US.”

Prof: “You’ve got it.

Jordan: “Rather than $20 being spread among US companies, the only value in the US is for transportation and distribution — maybe $5-6. The potter is cut out completely.”

Prof: “One can make a good argument that no wealth is created for US society when products are manufactured outside this country. What we as a society confuse is wealth creation for an individual or company compared to wealth creation for society.”

Jordan: “Macro and micro economics. Or as a friend of mine calls it macro schmacro and micro schmicro economics.”

Prof: “I’ll remember those terms. But the distinction is important. What is of benefit to an individual or a company…schmicro economics…is not always a benefit to society…schmacro economics.”

Jordan: “Moving production of coffee mugs to China might generate more profits for a specific company…schmicro…but overall the US loses wealth as a result…schmacro. Correct?”

Prof: “Yes…but…and the ‘but’ is the value of trade between countries.”

Jordan: “So trading between countries is not just a one-way street but can create wealth in both countries?”

Prof: “Trading is important because more demand can be created. Just like the internet opened up new markets for the potter who made the coffee mug, trade opens up new markets for countries.”

Jordan: “But isn’t trade usually one sided. I mean the country that exports seems to benefit the most.”

Prof: “The country doing the exporting is usually more efficient at making those products than the country buying the products. But for trade to work the country buying has to offer something in return – another product at a lower cost or some raw material that has value.”

Jordan: “Let’s take coffee. Brazil is more efficient at growing coffee beans than the US mainland. Therefore, the US should buy coffee beans from Brazil.”

Prof: “The US is also very efficient at growing certain crops – corn, soybeans, wheat. And it exports lots of those crops.”

Jordan: “But Brazil and the US are not as efficient at producing electronics as say China. So Brazil might trade coffee beans for US wheat and the US might trade corn for electronics made in China.”

Prof: “You’ve got it the basics. In theory…and I emphasize theory…each country trades products that it produces more efficiently. As a result products made in another country are less costly to consumers and wealth is created in each of the countries.”

Jordan: “I realize understanding wealth creation has many more variables. But the gist of it seems taking a raw material and refining it so it is worth more. Clay becomes a coffee mug. Wheat becomes flour which becomes a cake. Silica becomes silicon which becomes an electronic circuit which becomes a computer.”

Prof: “Very good Jordan.”

Jordan: “Prof, I have a somewhat related question that has bothered me for some time.”

Prof: “Which is…?”

Jordan: “The manufacturing of electronics is mostly automated. Labor cost as a percent of the cost of the product must be very low. So what is the advantage of making so many electronic products in Asia? Lead times are long and it is hard to protect intellectual property.”

Prof: “Let’s take a break and come back to that question. But I want to put the answer in the context of your first question – what policies will help the US create more wealth for society and not just individuals or certain companies?”

Jordan: “Good. Now I want to refill by coffee mug. Let’s see where this was made?”

#38 Duke Refuses to Clean Its Ash

02 Wednesday Apr 2014

Posted by Jordan Abel in Back Asswards Thinking, Causes of the Revolution, Societal Issues, Stupid Is as Stupid Does

≈ Leave a comment

(Readers: Please note the blog about the 5^th revolution in the US is constructed as a story. While not all chapters are linked, I think the story will be more meaningful by starting at the beginning.)

Want a PDF version for Entries #1-10, #11-20, #21-30 formatted for tablets and e-books? Click links for download. America’s 5th Revolution Volume I (Entries 1-10) America’s 5th Revolution Volume II (Entries 11-20) America’s 5th Revolution Volume III (Entries 21-30)

Scene: Jordan’s office with JC — conversation continues.

Jordan: “OK, JC, we’ve got our coffee refill. What else qualifies Duke Energy for ‘Stupid Is as Stupid Does’?”

JC: “There are several. #1 is Duke, in their terms, wants to take a disciplined, fact-based approach to evaluating long-term solutions for coal-ash basins.'”

Jordan: “What more facts do they need?”

JC: “Ya’ got me. Of course earthen dams can leak. Some of the coal ash earth dams have been there for decades. And CEO Goody-Two-Shoes claims Duke needs more time to study.”

Jordan: “That does seem a bit bizarre. Duke is supposed to monitor dams so where are the data?”

JC: Jordan, that coffee must be clearing your brain. You are starting to understand why people are so upset with Duke.”

Jordan: “What else are they doing?”

JC: “Duke wants to restrict the release of information it gives to legislators and environmental groups. Let me read what an attorney said who is representing Duke. Now Duke has an outside attorney as a talking head instead of a Duke employee. Here goes, ‘Duke Energy strongly denies it has in any way knowingly violated the law or committed a crime.’ OK, if no crime, then why outside counsel and not CEO Goody-Two-Shoes talking?”

Jordan: “Some info is private.”

JC: “Mmm. The info is about violations of environmental laws. And they want to withhold the info from the NC DNR.”

Jordan: “What’s their rationale?”

JC: “Duke claims the info might be used in a civil lawsuit against them.”

Jordan: “No info to regulators and no info to people who might want to sue Duke.”

JC: You got it. Goody-Two-Shoes heads a monopoly that is supposed to be monitored by government. Everything smells like Duke violated the law. Now, Duke refuses to provide any info and therefore no one can prove any wrongdoing.”

Jordan: “Are you implying a cover-up?”

JC: “I am not implying anything. I just look at the facts. Duke dumps coal ash into the Dan River, causing a major pollution problem. The NC DNR finally decides to investigate. And now Duke does not want to provide any info. What does that smell like to you?”

Jordan: “At a minimum, smells like a lot of arrogance.”

JC: “And what has been the pattern when companies display a lot of arrogance?”

Jordan: “Some type of wrong doing.”

JC: “And one other little item about Duke.”

Jordan: “What’s that?”

JC: “Gee, somehow Duke was caught dumping coal slurry into some river in eastern North Carolina.”

Jordan: “Illegally?”

JC: “They had a permit to release small amounts. But they were pumping many times over the limit.”

Jordan: “Who discovered it?”

JC: “Believe it or not, the NC DNR. As tight as Duke is…or at least was…with the DNR, the violation must have been really gross for DNR to report Duke.”

Jordan: “What you’ve told me is Duke seems to have a pattern of ignoring the law and/or viewing any fines if they get caught as a cost of doing business.”

JC: “The cost of which they probably figure out how to charge back to rate payers. I don’t condone that behavior from any organization. If a company acts that way, usually you can boycott them and buy a product from someone else.”

Jordan: “But not Duke, because it is a monopoly.”

JC: “Hey, he does understand. Duke is a monopoly that’s run amuck. Now, Jordan, what action is the government going to take.”

Jordan: “Good question. People need electricity. Converting Duke to a publically owned utility is an option but fraught with problems…and lots of lawsuits.”

JC: “What about changing CEO’s?”

Jordan: “The CEO sets the tone for the organization. We might be able to do that.”

JC: “Who was the former CEO at Duke? Something Rogers. All I can think of is Roy Rogers.”

Jordan: “It wasn’t Roy Rogers.”

JC: “But the guy was a cowboy. Seemed to shoot any executive that might question his judgment.”

Jordan: “He did fire his announced successor and then reinstated himself as CEO.”

JC: “Then he picked Goody-Two-Shoes to succeed him.”

Jordan: “The Board of Directors approved.”

JC: “Jordan, don’t be stupid again. Roy Rogers picked the Board members. Why wouldn’t they approve Two-Shoes?”

Jordan: “Alright. I see two major issues with Duke that flame public outrage. #1 is a monopoly disregarding the law. #2 is a monopoly that wants to withhold information from regulators and the public.”

JC: “Duke’s behavior is what leads people to seek revenge…like this revolution. Changing the CEO seems like a great first step.”

Jordan: “Let me get started.”

JC: “Don’t take too long. Duke is a loose cannon and the ship is headed into rough waters.”

Jordan: “Aye, aye, captain. I’ve got my orders. By the way, nice to see you JC.”

JC: “You too Jordan. Good luck.”

usrevolution5

~ USA Headed for a 5th Revolution! Why?

Monthly Archives: April 2014

#46 How CEO Personalities Affect the Organization

#45 GM’s Organizational Structure Helped Build an Economic Engine

#44 Sloan’s Segmentation Works, then Trashed by Bean Counters

#43 Beginning My Years with General Motors

#42 The GM Story: Safety Played 2nd Fiddle?

#41 POTUS Asks Jordan to Write about GM

#40 Why Manufacturing in the US Can Be Less Expensive

#39 How Manufacturing Can Create Societal Wealth

#38 Duke Refuses to Clean Its Ash