October 11, 2015

The Pretenders

In the early 1980’s, shortly after George Harvey became the Chairman and CEO of Pitney Bowes, I asked a more senior colleague why he thought George was the best candidate among those who vied for the CEO position. He talked about George’s wisdom and track record, but he also said: “Unlike many adults who collect a paycheck, he actually makes tough decisions.” He went on to explain that many highly-paid, well-credentialed people are afraid to put themselves at risk by making difficult decisions, but that no leader of a major organization could afford to be afraid to take the risk of being wrong or pretend to be taking certain actions.

That comment has not only stuck, but seems more astute than ever. I have been both more admiring of people who stick their neck out, and more frustrated with those who should, but do not, when tough situations occur. In the last few years, we have moved into the most difficult economic environment since the 1930’s. It has effectively “smoked out” whether people want to embrace tough decisions and engage others in constructive conflict, or whether they will develop even more elaborate ways to avoid those decisions. I have seen more of both kinds of people in the last three years than ever before, especially the non-performers who have learned to survive by “pretending” to perform.

Most commentators who worry about the U.S. global competitiveness focused on the poorly educated and unskilled part of our population, and they are right, to a degree, to do so. We cannot have half our population poorly prepared to compete in a global economy. However, what might be an equally large problem is that a good chunk of our educated population is drawing high salaries while being unproductive. Our problem is not only the uneducated and unskilled parts of our population, but also the educated and skilled parts that “pretend” to add value, but do not.

I have worked with three highly unproductive, inefficient sectors of our economy in recent years: health care, government, and, more recently, the entertainment industry. In all three sectors, there are some common elements that drive a lack of productivity:

  • People in key leadership positions not only are not held accountable for results, but work actively to prevent stakeholders from getting data that would allow stakeholders to figure out whether these leaders are performing and adding value. In health care, providers fight hard to keep performance data from being collected and published, so patients and payers can figure out who is good at delivering particular kinds of health care. Government unions are militantly opposed to having voters get financial reporting to describe what government is spending, based on generally accepted accounting principles, something Connecticut Governor-elect Dan Malloy has encountered with his promise to deliver greater transparency. In the entertainment industry, there is actually a term for the deliberately confusing and complex accounting film studios do to prevent investors and shareholders from figuring out whether a film is profitable: “Hollywood accounting.”
  • All three sectors have many well-educated people who attend conferences, give speeches, hold meetings, and develop complex analytic systems, but with no visible benefit. I do not want to convey the impression that nobody in these three sectors is productive or makes worthwhile decisions, but those who are productive have to work around and battle the large lumps of people who are not. As a person actively entrenched in both the health care and the entertainment industries, I am astounded by how money and time goes into conferences to explain laws and regulations, to describe theories of how the world should be, and to allow people to socialize and network, with no apparent benefit for the organizations of which they are a part.
  • In all three sectors, many people unconsciously, but deeply, fight change with vocabulary and conceptual frameworks that are obsolete, flawed, and often intellectually dishonest. During the so-called “health care reform” debate, we saw some Democratic proponents of the legislation consistently use the term “health care access” when they really were referring to “health insurance access.” An insurance card is not the same as a doctor’s appointment, but they did not care. It was in their interest to confuse the issue. Republicans were equally culpable in using the term “death panels” to confuse the issue of end-of-life decision-making.

In government, elected officials who advocate higher taxes to transfer money from “the rich” to “the middle class” and “the working class” are really advocating that money get taken from a public that has uncertain loyalties and is hard to solicit for campaign funds and transferred to unionized government employees who can be tapped for campaign contributions through union political action committees and to other special interests.

In the entertainment industry, there are many myths about how unpredictable success is, but those conceptual systems really justify a business model that allows major studios to continue to fail more than half the time. There are many examples of consistently successful filmmakers, like the African American filmmaker Tyler Perry, whom the studios refuse to understand and refuse to copy, because shareholders of those studios would not need the overhead they create.

  • In all three sectors, money keeps flowing in, and the sectors continue to consume a disproportionate share of the economy. However, the distribution of financial rewards is skewed in some dysfunctional directions. The main problem is that, in all three sectors, there are many decisions made to keep organizations going solely to keep people employed. In health care, it is almost impossible to close a poorly performing hospital that delivers poor quality, because the hospital is usually a major employer. In government, it is very difficult to lay off unproductive performers. Governments provide voluntary termination packages, which are poorly targeted, but they do not close down unproductive operations. In the entertainment industry, the large studio production lots are used infrequently, but they remain in prime Los Angeles area real estate.

These are not the only sectors plagued with well-educated, unproductive people. People in many large Fortune 500 companies have high-paying jobs, particularly in the legal, accounting, and consulting professions, and maintain their employment by being highly creative in keeping other people from getting things done. Compliance activity keeps growing, and more time is spent in boardrooms and executive suits complying with the latest fad of the day.

One of the reasons we like professional sports is that it is one of the only business sectors in which there is no room for unproductive people. As someone who is most exposed to the New York media, I am struck by how brutally the sports pages critique performance of superstars like Derek Jeter, contrasted with how the front pages report on how we tolerate schools that successfully educate a small portion of the students who come through them. Athletes are paid a lot of money, but even when they are not, such as college athletes, their performance is closely scrutinized. Performance metrics are not only thorough and detailed, but they keep improving. There is no sentimentality or pity for poorly performing athletes; they lose their jobs and are expected to find some other line of work if they cannot succeed.

There are no “pretenders” in sports. We have to eliminate the tolerance for highly paid “pretenders” in the rest of our society.