I recently read Jim Collins’ new book “How the Mighty Fail” and thought it provided good fodder for constructive conversation during these difficult times.  I liked his model of comparing the companies that succeeded in difficult times and those who failed.  The following is a summary with some commentary:

How The Mighty Fall: And Why Some Companies Never Give In

by Jim Collins

Amidst the desolate landscape of fallen great companies, Jim Collins began to wonder: How do the mighty fall? Can decline be detected early and avoided? How far can a company fall before the path toward doom becomes inevitable and unshakable? How can companies reverse course?  In How the Mighty Fall, Collins confronts these questions, seeking to offer hope to leaders that they can learn how to prevent decline and, if they find themselves falling, reverse their course. Collin’s research project—more than four years in duration—uncovered five step-wise stages of decline:

Stage 1: Hubris Born of Success

Stage 1 begins when people become arrogant, regarding success virtually as an entitlement and they lose sight of the true underlying factors that created success in the first place.  The loss of penetrating insight and a clear understanding what leads to (or interferes with success) allow people to fall off the train of success. “We will see hubris in bold, risky decisions that fly in the face of conflicting or negative evidence.” When leaders cease to realize that they are still at risk of falling, that luck plays a role, that they must still be careful, diligent and disciplined, they manifest the arrogance that can bring them down.

Stage 2: Undisciplined Pursuit of More

The development of arrogance is the key indicator of stage one.  Acting on the arrogance by growing beyond the actual abilities of the organization (based on an exaggerated sense of capability and infallibility) is the defining characteristic of stage two. Making “undisciplined leaps” into areas where they cannot be great or without the appropriate human resources to manage the growth are elements of this stage.  While many people feel complacency is a risk factor (and it can be), when the “great” fall, it is because they have more often tried to do more than they can manage.  “…big acquisitions, made out of bravado, rather than penetrating insight and understanding, can bring you down.”

Stage 3: Denial of Risk and Peril

While data begin to show that trouble is brewing and all is not good in the kingdom, the negative data is explained away, discounted or ignored.  Like the parable of the emperor who wears no clothes, everyone becomes fearful of telling him the truth that he is naked.

The disciplined collection and analysis of data that helped lead to good decisions prior to the downfall diminishes as is the open, thorough dialogue that characterizes highly functioning teams.  “When those in power begin to imperil the enterprise by taking outsized risks and acting in a way that denies the consequences of those risks, they are headed straight for Stage 4.”

Stage 4: Grasping for Salvation

Once again we see that those who fail, do not respond in a manner that is characterized by the disciplines of good management and judgment that characterized a climb to “great.”  Rather they seek a silver bullet, a savior, and a quick fix that can turn things around miraculously.  This is leadership characterized by panic or anxiety, rather than calm, careful analysis, planning and execution.  Those that come to this point and respond constructively are able to pull the company out of the spin downwards. Others look to a bold, untested strategy, a radical transformation a “game changing acquisition” or rearranging the deck chairs (on the Titanic) rather than turning the ship around. “The signature of mediocrity is inconsistency”

Stage 5: Capitulation to Irrelevance or Death

The continual struggle of stage 4 and the accumulation of issues, losses and despair over the first 4 stages catapult the formerly great company to its demise:  sell out or bankruptcy. Had the companies in stages 1-4 adhered to management disciplines anywhere along the line, they could have avoided Stage 5.  They could have turned the ship around if they had looked realistically at internal and external factors (data), applying rigorous analysis and carefully following a systematic approach to recovery (rather than untenable growth, denial of limitations and issues, grasping at miracles or saviors).

Collins:  “I’ve come to see institutional decline like a staged disease:  harder to detect but easier to cure in the early stages, easier to detect but harder to cure in the later stages.  An institution can look strong on the outside but already be sick on the inside, dangerously on the cusp of a precipitous fall.” (p. 5)

Some thoughts of significance in the book or on the book:

• One of the biggest takeaways may well be for external board directors (or owners of closely held businesses). The symptoms and behaviors of leadership in an organization that is in decline are extremely valuable markers for board members

• Other markers which observers of ventures use to identify potential fall from great include:

1. Dissatisfied customers (who are not getting the service, product quality, timeliness or price)
2. Increasing receivables (customers are not able or willing to pay)
3. Mounting debt (from unhealthy acquisitions)
4. Rapid liquidity drain

• Collin’s one marker above all to indicate the fall from grace is the declining number of seats filled by the right people. People who know what they are to accomplish, (what they are accountable for) are passionate about doing it and know how.

• Overcoming denial meant looking carefully at data.  Facing reality head on is the only way to turn the ship around.  That includes gross margins, and debt to equity.

• The successful companies in his comparison were able to manage an important paradox:  a dynamic tension between continuity and change.  This is particularly important in family owned businesses where continuity represents a legacy; and change represents updating processes, products and tools to address the ever-changing business environment.

The interesting observation about how this balance was achieved was that the successful companies continually asked “why” and explored “how” they have been successful and then understood the conditions in which old practices lead to success and when they need to be changed because they are no longer effective.

• Collins’ final message:  Maintain a firm hold of your core purpose,  the principles and values that define your culture, and go forward with disciplined action and faith, adapting the strategies and tactics needed in difficult times and you can prevail. This is good leadership.

I have developed a team assessment scale based on his observations that I would be happy to share.

Just ask!

Alignment is important in cars, in our spine and in complex systems like family businesses. The following is a poem I have written in preparation for the 14th Annual Women in Family Businesses program at Miraval March 11-14, 2010:

Alignment is the key

First we must be aligned with our selves

Knowing our true self, our integrity

Then we must learn how to assure that

Our decisions, our actions, our choices

Are aligned with what serves us in the long run

Next we must align ourselves with those who

Can help us stay on the constructive course of our lives

And not distract us or knock us off that path

Harmonizing is part of that process—

not that everything is always perfectly aligned,

rather than we can blend our sounds,

creating a better sound than that of one voice.

When we go to make our way in the world

And organize others to achieve these goals,

Once again we must seek alignment

This time between our vision and that of others

Through this alignment we combine our energies and talents

To positively impact our world, our organizations, our families.

And what if those who are important to us are not aligned with us?

What if they fail to support our dream?

What if we cannot find the path that fits us both?

Sometimes we are just misaligned

and we must release the hope, the hold,  that part of the dream.

Not allow ourselves to be drawn away from that which is most important.

In those moments we must recheck our own alignment

To assure that we are still lined up with ourselves.

But in other cases, we can stll try.

That’s when the work begins.

To dig deep and see where some alignment might exist.

To find a thread, a seed, a drop of congruent values, dreams or history

To sift through the superficial., the injuries and the history of hurt

To identify where possibilities lie

To align.

And to sew with that thread, water that seed, join the drops

And create together.

Stand up straight!

Stand together!

Reach for the sky!

Synergize!

Alignment rules!

Copyright 2009 Leslie Dashew

While these stones don't look aligned, they are positioned in alignment with each other such that they have stayed together, strongly resisting weather and wars for over 700 years!

I recently noticed that the New York Times quoted me on the selection of a Chief Executive Officer. It included some great tips.

And the Next C.E.O. Will Be …

You aren’t going to be in charge of the company forever. Who is going to be your successor?

If you don’t know, aren’t sure or haven’t thought about it, the following advice could help.

AVOID MISTAKES There are three common pitfalls you want to guard against, as you go about choosing your successor, says Francie Dalton, president of Dalton Alliances Inc., a management consulting firm.

She refers to these as “the three Cs.”

The first is capitulation, or completely avoiding the decision of who is going to replace you.

The second is clone — trying to find a twin you, or someone as good as you perceive yourself to be. If you go that route, she says, “no one will ever meet your standards.”

Finally, you don’t want to pick someone primarily on the basis of chemistry — that is, the candidate’s No. 1 qualification is that you like him or her.

STARTING FROM SCRATCH Not certain where to begin in thinking about a successor? Carole Matthews, writing on Inc.com, interviewed Leslie Dashew, president of the Human Side of Enterprise, on the issue. Ms. Dashew provided three good questions to stimulate your thinking:

¶Where is the business heading, and what skills will be needed to take it there?

¶Will family members, employees and investors have confidence in the person you are thinking of picking?

¶Can the potential successor work well with the management team and you?

GET HELP Picking your successor can be an emotional and potentially overwhelming decision, of course. After asking those opening questions, if you are still not sure who your successor should be, experts suggest turning the problem over to your board or an outside search firm. Having them evaluate candidates can add objectivity.

WHAT TO DO Having settled on your successor, Heath Finn writing on Score.org, suggests you take the following three steps:

1. “Develop a formal training plan for your successor. Immerse your successor in the business of your company so he or she sees both the depth and breadth of the operation. This may sound simple enough, but there is a certain amount of ‘letting go’ that goes along with teaching your successor by allowing him or her to learn, grow and make mistakes before assuming the helm.”

2. Determine when the change in command will happen. Employees need to be clear who is going to be in charge when. “Once that’s accomplished, you need to be prepared to let your successor carry out the role for which he or she has been trained. Ultimately, your successor’s success or failure is up to him or her.”

3. Prepare to retire. “As your successor takes on more and more responsibilities, spend time planning how you will continue to be energized and involved in other activities away from the business.”

LAST CALL And then there is the advice you want to leave for the person who comes after you. The following, from Notboring.com, may not be the way to go:

On his final day, the outgoing chief executive hands his successor three numbered envelopes. “Should you encounter a problem you feel you’re not capable of solving,” says the old executive, “open these.”

Six months later, sales start to fall, and the new chief executive doesn’t know what to do. Then, he remembers the envelopes and opens the first one, which contains the message, “Blame your predecessor.” The new executive does, and the media, his bankers and Wall Street are placated. Sales began to pick up and the problem is soon behind him.

About a year later, the company again experiences problems. Having learned from his previous experience, the executive quickly opened the second envelope. The message: “Reorganize.” Again, the advice pays off.

But after several consecutive profitable quarters, the executive needs help again, so he opens the last envelope.

The message: “Prepare three envelopes.”

In my next post, I will share new ideas about transition planning that may be helpful to you.

I recently visited Japan and China for the first time. What an adventure!

I find travel always provides an opportunity for me to broaden my horizons, learn from new contexts and provide for more extensive reflection:

• At the International Women’s Forum Conference in Hong Kong, I met and learned from women from every corner of the globe. The theme was “Beyond Borders” and the message was “Borders no longer define us” in this “post globalization era.” The H1N1 (“Swine”) flu that impacted our travel to Hong Kong is a very concrete example of this phenomenon. Many flights from North America were quarantined to try to prevent the flu from infiltrating. Germs know no borders.

• The programs brought home the significant shift in economic power that is occurring in the world. “Challenging economies” such as China and India are sending tsunami waves across our shores. Hyper-competition from these emerging economies with large numbers of consumers and entrepreneurs is having a tremendous impact on us all.

• China and India together, two “challenging economies” make up 37% of the world population. Their low cost of services and production and access to communication via cellular technology and internet make them formidable competitors. And they are becoming more and more entrepreneurial and are hungry to succeed. As one of my clients wisely said “Fat cats don’t hunt.” We in the “developed” economies have become fat and complacent and are at risk.

• We must be prepared to incorporate these new challenges and opportunities into our business models. New consumer bases are developing in those countries as literally billions of people are now buying products. For example, Volkswagon was the only auto company that took the risk to open up manufacturing plants in China. They are selling more VWs in China in a few months than they have in the US in an entire year!

• We were reminded of a great quote by Mahatma Ghandi about sustainability:”The world can produce enough for everyone’s needs, but not everyone’s greed. “

• The combination of greed, complacency and insular thinking puts us at risk. For me, spending time in Asia was an enormous wake up call regarding the dynamics of the expanded field in which we are “playing” now. It’s one thing to read the statistics. It is another to meet people, see the growth, and sense the energy.

I spent much of yesterday in an art class.

I made a “mosaic” with found objects. It was a wonderful experience from several perspectives.

First, I rarely spend a day using the artistically creative side of my brain, making something myself. While I am very creative in my work and I have a very high aesthetic value (I am always enhancing the visual aspect of my environment and love being around art), I rarely make things myself. I loved the opportunity to bring my own objects and materials brought by the instructor and actually creating pieces of artwork. The day went quickly and I was fully engaged in the physical creative process.

Secondly, the first piece I made used objects that were assembled from my life as well as others’ lives. There were single earrings (where the match had been lost) that had been my mom’s or mine. Broken items that could no longer be used for their original purpose (a pin or necklace, for example). Or gifts that I like having around, but never used for their original intent. As I put these objects to use in my new photo frame, a sense of honor came over me. I was honoring my mother, my friends, my past and pieces of life that seemingly had no further purpose by incorporating them into a new role.

Finally, I have works of art that are functional that I get to use and see and enjoy!
While these may not be “masterpieces,” they are pretty good for a beginner. My husband saw them and said “Yep, these look like you!” I guess I left my mark.

As I reflected on the day, several thoughts came to me:
1. Using all sides of ourselves is important to reducing stress: a biological fact! It also brings new ideas and opportunities to us that we might not  have considered,otherwise. Ideas that can be useful in our current work as well as directions we may take later in life. For example, many people who are consumed by work, can not conceive of finding satisfaction in anything other than work. Diverse experiences, while we are still engaged in our work lives, help us know that it is, indeed possible.

2. Many people feel that their original roles in life or work define who they are: if I always thought my life’s purpose was to be a mother and my kids leave the nest, who am I now? If I have built a business and am considering succession and retirement, who would I be if not for my identity as a business owner? As I looked at each object I “recycled” into artwork, I thought about how we must find ways to recycle our talents, competencies, interests, contacts and energy into new arenas as we move into new stages of life.

3. Finally, as we watch others make these transitions, it is important that we let them know how we honor them and cherish what they have taught us or shared with us at points throughout our lives. My mother was a sculptor and potter and her love for making art was instilled in me at a very early age. Sadly, she died fairly young, so I can’t show her how her passions have influenced me at this point in my life. But I do think my resurrecting my interest in making art, along with the pieces of her jewelry, would make her smile. I know that I am honoring her now.

I plan to make more and more time for these “balancing diversions”  and continue to cultivate all sides of my life.

Women in Family Business XIII has now concluded and it was a wonderful event!

The 22 women who participated came from every corner of the US-Hawaii to Florida, Cleveland to Denver, throughtout  California to Reno, Nevada. Our discussion focused on the role of Chief Emotional Officer. We discussed what a chief emotional officer does, what it takes to be a cEo, the challenges and obstacles faced by someone working in this role and the impact she can have.

There are 5 categories of functions which the Chief Emotional officer fills:  she (and sometimes he)

• Facilitates communication
• Is the steward of family culture
• Encourages family relationships
• Provides a bridge between the family and the business, and
• Provides leadership to the family and the business

The skills and attitudes it takes to be a cEo include:

1. Awareness of family culture: values, traditions, history, rituals and symbols
2. Interest in and Commitment to the family and business
3. Ability to engage others
4. Sense of timing
5. Multi-tasking
6. Interest in and Commitment to the family and business
7. Being supportive of all constituents within the family-business system
8. Recognition of the importance of the role
9. Ability to take care of one’s self (including having strong interpersonal boundaries!).

There are many obstacles to performing the tasks-having this range of skills is only one of them.  Participants note that cEos are often greeted with ambivalence:  there support is sought, but sometimes resented.  The role is rarely “official” and often is invisible and not legitimized.  While preliminary research shows that this role is important to the survival of families in business, there has been very little attention paid to this role in academia or professional circles.

We will be sharing our observations and data on the website soon.  If you would like more information, please leave us your name and e-mail address.

I am delighted that you are visiting my new website and blog!

I will be posting information, observations and insights here on a weekly basis. The content will relate to family business, families of wealth and effectiveness as individuals and organizations. I will also share observations and insights that might reflect on lessons learned from other domains as well.

Thanks for taking the journey along with me
Leslie