HP Example: Choosing a Vendor and Saving the U.S. Through Leadership


A few weeks ago I was struck by Congress pummeling U.S. auto industry CEOs over their use of private jets to get to the meeting. One congressman even asked if they would sell their planes on the spot to show how serious they were about a turnaround.


It made for nice theater, but it also demonstrated a serious problem with most politicians: a total inability to recognize hypocrisy. While the U.S. government is bleeding trillions of dollars, our president flies around in a 747 and the head of the House of Representatives had her own jet issues. How is this really any different than what Congress was complaining about? (In Obama's defense, he does appear to be turning thumbs-down to a new fleet of high-tech presidential helicopters).


I believe this same kind of hypocrisy by executives regularly cripples their companies. There are a lot of executives who seem to think their rules only apply to others. They require their employees to fly coach even though they have corporate jets, or institute layoffs or pay cuts while they get raises or bonuses. And then they wonder why their employees refuse to follow their direction and company performance drops. It's because the employees see their leaders as crooks.


There is always justification: CEOs have unique needs; by cutting, they are doing their jobs; it's the employees that are the problem; or one I'll never forget, "We would do so much better if we only got rid of all the whining salespeople." Yes, that really did happen, and I'm pleased to say that executive was out of his job and back in sales the very next day. He didn't do well.


Back when I was doing my MBA, one of the lectures was on how management, rather than leadership, caused the failure in Vietnam. According to the professor, Vietnam-era military practice was based on management and when I say "management," I mean logistics. Soldiers were treated like property and officers stayed back and managed attrition rates. The interesting result was that, according to the professor, more officers were shot by friendly fire than in any U.S. conflict in history. In a business, folks that don't lead generally fail their company and get shot metaphorically by their employees.


The HP Example

HP recently instituted a salary cut of 5 percent for its employees and 10 percent to 15 percent for executives. CEO Mark Hurd could have used the result to justify a bonus but, instead, he had his own salary cut by 20 percent. This showcases shared pain and tends to foster loyalty. This is a leader standing up, even though he clearly doesn't have to.


The other thing he did right was to cut base pay, but leave bonuses intact to provide incentive. We've known for several decades that if you cut pay and don't provide some kind of incentive, you will crater productivity, particularly in an environment that is incentive-based. I watched IBM relearn this painful lesson years ago when, for a while, it dramatically cut commission and put everyone on a salary, which had a negative impact on the incomes of the top producers. In my unit, every top producer I had quit -- at the time I was managing the execution of the comp plan -- and my unit went from profitable and trying to get to $1 billion annual revenue to massively unprofitable and trying to keep from dropping below $250 million. It remains one of the most incredibly stupid things I've ever seen.


Choosing Your Vendors and Advice for the U.S.

We have no control over whether our executives or politicians are idiots. It does give me hope that some of the most successful CEOs like John Lasseter first got rid of the idiots . But if we realize that executives who dictate programs that cripple their company during what may be the hardest market in our lifetimes are on a corporate suicide path, we can protect ourselves.


More important, personally, if we reward companies that treat their employees well with business, that will be a lesson that resonates and maybe our own management will learn from the trend and treat us better. It isn't certain, but at least it provides a better chance than doing nothing. I suggest you look at how companies are handling this crisis and whether the executives are sharing their employees' pain and investing in their company's future or standing above it like some kind of royalty.


In both cases, I'd require the former from vendors and consider the latter as a reason to avoid what likely will be a failing company. For the nation, telling citizens that they must sacrifice while the politicians live in the luxury of palatial homes, private jets and royal-level health care probably is not going to lead to a recovery. I'm not even convinced it will lead to re-election.