Leaders Make the Company Culture

Regulators are right to focus on culture as a key culprit in the misbehavior of banks (“As Regulators Focus on Culture, Wall Street Struggles to Define It,” page one, Feb. 2), and efforts to survey and quantify corporate culture are important. But the reason culture is hard to define isn’t simply that it is a nebulous concept that is hard to capture objectively. The culture of an organization is analogous to the personality of an individual, in that it is defined by a set of normative, recognizable behaviors and traits that are durable and that characterize both what it is like to “live” inside that organization as an employee, as well as what it is like to interact with it from the outside, as customers, vendors, partners and shareholders.

Where the analogy to personality doesn’t hold is that organizations are greater than the sum of their parts. Unlike an individual’s personality, which is largely formed by young adulthood and resides solely in the mind of the person, the culture of a company emanates primarily from the personality of the founder or chief executive, but over time becomes embedded in other key individuals, and in practices and policies of the business. Nevertheless, the CEO wields the greatest leverage to create, sustain and change the culture. This can be a force for good or bad, as employees inevitably model the behavior they see at the top. The more regulators understand this, the less they will struggle to define culture and the more they will know where to look to address it when a company goes astray.

Deal Journal: Beware the Wall Street Salary Monster

On Wall Street, bonuses are out, bigger salaries are in.

J.P. Morgan Chase is the latest bank to consider boosting salaries for its workers, according to the New York Post, rather than rely on the old bonus system. Citigroup and Bank of America also have signaled their intent to increase salaries to keep talent from jumping ship.

But as Wall Street seeks to skirt public outcry over bonuses, it could be creating a different kind of compensation monster.

Deal Journal asked Kerry Sulkowicz, a clinical professor of psychiatry at the New York University School of Medicine and managing principal at Boswell Group, which consults with chief executives at financial firms and in other industries on workplace culture and leadership, for his thoughts on Wall Street’s move toward bigger salaries. Here are some excerpts.

Deal Journal: Is it a good idea to increase salaries on Wall Street instead of giving employees large bonuses.

Kerry Sulkowicz: It seems like a transparent way to circumvent the outcry against bonuses. But it’s short-term thinking about a longer-term problem. If you look a few years out, it’s going to be hard to roll back these inflated salaries, which don’t necessarily have a bearing on how good a job an employee is doing.

DJ: How should Wall Street try to retain talented workers in the current environment?

Sulkowicz: I understand that money may be the most important thing. But firms have to pay attention to developing loyalty in other ways. People I know who work at J.P. Morgan talk about how they have great pride in working there because they believe in the leadership of CEO Jamie Dimon. By comparison, the people I talk to at Citigroup are not particularly happy or inspired. They might stay there because they don’t have a choice, not because the leaders inspire that kind of following. The downside of loyalty is what happened at Lehman, where some senior executives felt a great sense of pride, but that can create an insular culture and you can miss out on certain problems.

DJ: Are there any studies on how different types of compensation affect workplace psychology?

Sulkowicz: Not that I am aware of, but there should be.

DJ: Are Wall Street bonuses a thing of the past.

Sulkowicz: Bonuses have a bad connotation at the moment. But my sense is that as the crisis fades, bonuses will be back.

An MBA Thanksgiving

As a vice president at Sutter Health, a big California hospital network, Ellen Meier has to deal with 500 Bay Area doctors and more than 40,000 employees. But that’s not what is keeping the 53-year-old M.B.A. up at night these days: It’s Thanksgiving.

She’s still not over the time she accidentally served still-raw turkey to her 10 guests. “We go completely dysfunctional,” she says. “It’s so stressful, and by the time you sit down to eat, your stomach hurts and you’re not hungry.”

This Thursday, home chefs all across America will tackle the most complicated meal of the year. From selecting the lineup of side dishes to devising a seating plan that separates your bickering cousins, pulling together a successful Thanksgiving dinner requires purchasing decisions, project-leadership skills and a dash of crisis management. In short, it’s a time of year when the family home is essentially turned into a business.

So we decided to take a page from companies that struggle with their own problems of just-in-time delivery and resource allocation – and call in the management consultants. We went to five consulting firms and asked them to re-engineer our Thanksgiving dinner. Their assignment: Develop a step-by-step game plan, starting this weekend and concluding with dinner at 5 p.m. on Thanksgiving Day, for a meal that would satisfy 24 guests without stressing out the host. Our ground rules left no part of the ritual off-limits, not even the cranberry sauce.

When the project reports arrived – some in PowerPoint format, of course – they were full of consulting-world buzzwords. They even offered some useful advice. One firm, for instance, identified a little-noticed Thanksgiving troublemaker: green beans, a B-list side dish that can clog up the kitchen assembly line. They cracked that problem using the “innovation fulcrum,” a concept that the consultants say has helped fuel strong profit margins at Irvine, Calif., fast-food chain In-N-Out Burger. PricewaterhouseCoopers even came up with a “burner theorem” to optimize the number of side dishes.

Another firm recommended we borrow management strategies from Southwest Airlines (specifically, the way it empowers flight attendants) to squeeze productivity out of family members helping in the kitchen.

And then there was the advice feared by employees across corporate America whenever consultants arrive: Downsize. More than one of our firms told us to hand out pink slips to guests whose performance at previous holidays failed to meet expectations.

Strategic planning, the key type of advice we sought for Thanksgiving, is the fastest-growing segment of the consulting business. But overall growth in the industry has slowed in recent years, largely because of weakness in information-technology consulting: Total revenues were an estimated $197.8 billion in 2004, up 1.4% from the previous year, according to research firm Kennedy Information.

One of the industry’s biggest catchphrases right now is “complexity reduction.” For corporations, that often involves identifying non-core functions and then outsourcing them to specialists, like the booming call-center industry in India. That was also the biggest theme in the consultants’ recommendations for Thanksgiving. For instance, several companies advised focusing on the turkey and outsourcing the mincemeat pie to a guest.

Another buzzword concept: identifying “strategic intent,” or uncovering your real goals. In other words, figuring out what you want most out of your holiday. For Katzenbach Partners, a New York firm founded by former McKinsey consultants,which meant that careful preparation of an heirloom turkey might be the key to happiness for a family of foodies, while a host with dysfunctional relatives would be advised to concentrate on “social network analysis.” From the firm’s presentation: “If the value proposition for each of your stakeholders isn’t crystal clear, ask them directly.”

Below, a smorgasbord of the consultants’ ideas.

Bain & Co.
Bain, one of the largest management consulting firms, began our case the way it often does, with market research: in this case, a survey of 280 Bain employees asking for the biggest headaches, and most crucial components, of Thanksgiving. The central discovery? The turkey, stuffing and gravy are the dishes guests most want to have home-cooked – so outsource, or guest-source, the rest.

Bain assigned our case to Mark Gottfredson, global head of performance improvement, whose specialty includes complexity reduction. He compared Thanksgiving dishes to stock-keeping units, or SKUs, retail-industry lingo for individual products offered. “As companies innovate over time, more SKUs get on their menu, and there’s very little mechanism for them to come out,” he says. But more SKUs mean more complexity – and more costs. It’s easily solved, Mr. Gottfredson says, by applying the 80-20 rule: focus on the 20% of things that drive 80% of the value.

For Thanksgiving, this comes down to cooking your “core product line” – turkey, stuffing, gravy. That’s what In-N-Out Burger does: It has only four types of items on its menu. Consultants call that the “innovation fulcrum” – enough products to satisfy customers without creating complexity. In-N-Out has expanded sales an estimated 9.2% in 2003, twice the normal growth rate for fast-food companies, according to Bain. Mr. Gottfredson cites the fast-food company in a Harvard Business Review article he coauthored. In-N-Out says it wasn’t contacted for the article and didn’t supply the sales figure.

Eliminating or outsourcing dishes also can increase your Overall Equipment Efficiency (OEE), which measures how much of your available equipment is being used. According to Mr. Gottfredson, the truly industrious home chef might make a matrix of each homemade dish, its cooking time and when you need it finished, and then use that to decide in what order you should cook your dishes.

Managing your guests is central to the plan from PricewaterhouseCoopers, a large firm that provides tax and auditing services along with strategic advice. It begins with downsizing: Don’t invite family members known as troublemakers simply out of guilt or obligation. It may be hard, but it’s important to just bite the bullet and get over it, says Joe Duffy, the U.S. practice leader for performance improvement. (The firm’s PowerPoint submission included an imitation food pyramid, where “troublesome guests and relations” replace fat and sugars – the avoid-or-use-sparingly category.) Mr. Duffy also presented a Guest-Capacity Theorem: Don’t exceed either the number of usable chairs, or the amount of usable table space – contiguous table space divided by 24 inches, the optimal amount per person.

Tell your invitees that if they want a dish you don’t plan to cook – say, pickled squash – they should bring it themselves. And remind them that they have to bring not just the deliverable, as business language would call the pickled squash, but the necessary “capacity” for you to keep and serve it. “If the deliverable is Aunt Millie bringing lemon pie,” Mr. Duffy says, “does she clearly understand it needs to come, and that if it needs refrigeration, bring a cooler with ice?”

Still, PricewaterhouseCoopers emphasizes that, like any company with multiple divisions or locations, you need a risk-management strategy in case your supplier, Aunt Millie, falls through.

The Boswell Group
Kerry Sulkowicz was a practicing psychiatrist before he founded the Boswell Group, which applies psychoanalysis to businesses and their leaders, often family businesses. At Thanksgiving, “mom,” as he calls the chef, needs to take a cue from the stereotypical “dad”: Be a bit more controlling. (In contrast, he says, he often advises CEOs to be more maternal, nurturing and self-revealing.) “When you have a clear task at hand – in this case it’s getting the meal on the table – creativity is really counterproductive,” he says. So mom needs to take more of a military approach.

Still, mom shouldn’t let her authority turn into narcissism – which for Thanksgiving might mean substituting a non-traditional main dish for turkey. That decision is similar to a common mistake made by new CEOs when they make changes simply for the sake of change, says Mr. Sulkowicz: “Mom ought to ask herself, ‘Am I making the duck because I really believe everyone’s going to be happier with duck, or am I doing this because I want to come across as different?’ ”

Mr. Sulkowicz compares Thanksgiving to a family business, and notes that an estimated three-quarter of family businesses fail at the transition from the first generation to the second. So if your relatives don’t get along, he advises, don’t force them to try merely out of guilt or obligation – and don’t substitute endless fussing over logistics as a defense mechanism. Invite friends instead of family, or at least have some friends attend to buffer tension. Mr. Sulkowicz says he often tells family businesses to bring in outside managers.

Katzenbach Partners
Even the best-intentioned leader can cause problems by not delegating. That’s one of the organizational principles of the Katzenbach Thanksgiving. The firm suggests assigning your child to handle what restaurants call the “staff meal,” in this case dinners that will keep your family well-fed during the week of preparation. The goal: to eliminate “human resource bottlenecks,” which are limitations caused not by tasks but by people – in this case, you. Also watch out for “operational bottlenecks,” key points in manufacturing that disproportionately slow down delivery. A Thanksgiving analogue might be failing to begin defrosting a frozen turkey until Thursday morning.

Because your labor force is unpaid, you’ll have to motivate them – “pride-building,” in Katzenbach’s lingo. Give your helpers a chance to exercise their judgment and truly run their own tasks, says Niko Canner, co-founder and managing partner. That’s a contrast, for instance, to the overly scripted and inflexible routines typical of call centers. Pride-building is an approach familiar to Southwest Airlines, says Mr. Canner, which gives its crews “a great deal of latitude to create a quirky, fun experience for customers.”

The Monitor Group
Michael Kunst, global accounts manager at the Monitor Group, which is known for consulting on issues like competitiveness and designing distinctive brands, advises doing some market research before setting your Thanksgiving menu. The chef, Mr. Kunst says, should “segment” his or her market to see what different groups of guests want. Rather than trying to find lowest common denominators, create products – in this case dishes or activities – that please each of your audience groups.

Mr. Kunst breaks the Thanksgiving market into four segments: kids, men, women and older people, more-objective labels than “needs-based” ones like “lonely, depressed people.” The problem with needs-based labels is that there’s no good way, he points out, to identify and therefore market to all “lonely, depressed people.”

Once you’ve defined your groups, answer some basic questions about what each segment wants, like a favorite dish or holiday activity. Ensuring that there’s something for every segment might mean having two small turkeys, one roasted and one deep-fried.

Finally, Mr. Kunst, a foodie who thinks cooking might be a good second career, has a tip that’s served him well at Thanksgiving: Buy turkey wings and thighs and cook your gravy on Wednesday night. Gravy is critical to the meal, but it’s time-consuming and distracting to worry about at the last minute. “Like with Coke’s secret ingredient and much like in any professional restaurant, recipe and sauce production needs to be in your, the CEO’s, hands,” he says. “Don’t take this lightly: A so-so gravy versus a blow-away gravy can make all the difference in your product perception.”

Read the management consultants’ complete Thanksgiving recommendations:

“Focus on the essentials”
Bain & Co.

“Troublesome guests should be avoided (Plus, the warming tray corollary)”

“There is no shame in outsourcing”
Katzenbach Partners LLC

“Mom as client”
Boswell Group

“Determine your ‘definition of victory'”
Monitor Group

In The Lead: More CEOs Seek Therapy

CEOs who have spent their careers beating out rivals, proving they can get results and masking their vulnerabilities, may not appear to be the type to seek psychotherapy. They seem too focused on achieving external goals and proving their prowess as unflappable leaders.

But more top executives are seeing therapists these days. The stigma about mental illness persists, so most keep their sessions secret. But unlike earlier generations of executives, today’s CEOs know they don’t have to be falling apart to seek help. “CEOs have the same relationship problems and life-stage issues as the rest of us,” says Robert Michels, a psychiatrist and psychoanalyst at Cornell University’s Weill Medical College in New York who has treated top executives in financial services and other industries.

The CEO of a New York technology company didn’t realize he was depressed when he started skipping meetings and not returning phone calls. But he did know that his remoteness was detrimental to his employees and his business, and he asked a close friend to recommend a therapist.

Just talking about his difficulties helped, and he began communicating more regularly with his staff. But then, suddenly, after a crisis at work, he withdrew all over again. “He may have instigated that crisis, but it’s forced him to think about whether he really wants to be the boss who always has to be in front of people,” says Kenneth Eisold, the executive’s psychotherapist. “He’s under pressure to do it or get out–but he sees that he has choices.”

Once they reach the top, CEOs often find themselves isolated, with hardly anyone to confide in, yet pressured to measure up to an image. “They think others expect them to be visionary or always in control,” says Thomas Saporito, senior vice president of RHR International, a Chicago-based consulting firm that works with executives on management development and succession planning. Add to this the difficulty that high-achieving executives have in allotting time for their families or pursuits outside of work and “you have a lot of CEOs saying, ‘Oh my God, what am I up against, and who can I talk to?’ ” he says.

“Psychological change doesn’t always happen quickly,” adds Kerry Sulkowicz, a New York psychiatrist, psychoanalyst and founder of Boswell Group, a management consulting firm. “But executives are used to getting results quickly, which can make them very motivated patients.”

Scott Flanders, the chairman and CEO of Columbia House, a New York marketer of entertainment products, says he’s glad he had therapy when he was still in his 30s and climbing through middle management. At the time, he got along well enough with superiors and subordinates, but he had intense rivalries with peers. A human-resources executive at the publishing company where he worked encouraged him to attend a week-long seminar in human behavior at the Menninger Clinic in Topeka, Kan.

Soon after, he began weekly psychotherapy with a Menninger-trained psychiatrist and stuck to the process for five years. He says therapy helped him realize that much as he craved success, he also felt unworthy of it. “My therapist once said, ‘Scott, you’d be happier if you lost everything and could start over,’ and that’s when he got my attention.”

As Mr. Flanders talked about his rivalries with his siblings, it became easier for him to start forming alliances with peers “who really wanted me to succeed,” he says, noting that “I was complicit before in encouraging them to hate me.” One of his fiercest former rivals is now a close friend and golf partner.

If it weren’t for psychotherapy, “I wouldn’t be married today, wouldn’t be happy” and might not have become a CEO, Mr. Flanders says. “Once you get in touch with yourself, it’s a lot easier to get in touch with others.” Now, when subordinates seem stuck at a certain level because they don’t get along well with others, he offers frank feedback. “I don’t want to avoid the issue by simply saying ‘You’re not ready for a promotion,’ ” which a lot of managers do, he says.

Some executives worry that therapy will make them soft or weak or cause them to lose their competitive edge. But Mr. Flanders says therapy didn’t change his ambition, just made him more effective. “It didn’t change who I am fundamentally,” he says.

Executives whose relatives or close friends have suffered mental illnesses are particularly receptive to therapy. Jim Arneson, president of Professional Instruments, a Minneapolis engineering firm, was still in high school when his dad, Theodore John “Ted” Arneson, the company’s founder, suffered his first bout of clinical depression. The father, who is now 80, was later hospitalized for depression, which he has suffered intermittently throughout his life.

“My dad taught us all to be proactive” about mental health, says Mr. Arneson, who has done family therapy. His company has a more liberal mental-health treatment policy than many businesses, but he worries that there is a shortage of effective therapists. “My family is very aware of how debilitating depression can be,” he says.

Michael Leven, chairman and CEO of US Franchise Systems, Atlanta, which owns three hotel brands, says several months of therapy earlier in his career enabled him to bounce back from feeling depressed and angry after he uncovered accounting irregularities at Days Inn and quit a job he loved there. He sought therapy after he took a new job at Holiday Inn but realized he was withdrawn and less productive than usual. “As a leader, you have to jump on ideas and provide an environment where employees can be creative and take risks,” he says. “It’s difficult to do that if you’re not in good psychological shape.”

Can therapists who know little about finance or manufacturing operations help executives in those fields who are floundering? Dr. Eisold says that when he first began treating finance executives and commodities traders he felt insecure. “They’d use all this jargon as if I understood it, and I didn’t know anything about trading,” he says. But he soon concluded that the best thing he could do was not bother to understand the specifics of trading.

“What I can help them think about is what is going on in their minds when they have a good day or a bad day,” he says. Some lose money when they get caught up in rivalries. “They see someone else trading big and don’t want to be put down,” he says, “so they also trade big regardless of what the market is doing.”

But CEOs, who are used to giving orders, may be less likely than other patients to be deferential to their therapists. Roger Brunswick, a New York psychiatrist and co-founder of consultant Hayes Brunswick, treated one CEO who lit up cigars without inquiring whether the smoke was a problem.

Several sessions later, the CEO began talking about how he rarely sought his directors’ viewpoints, didn’t pick up their cues and might appear insensitive to them. “How do you think I feel about your smoking cigars here?” Dr. Brunswick asked the man. “Suddenly it dawned on him that I might not like cigar smoke, and he realized that he acted the same with me as he did in his company.”

Written by Carol Hymowitz

In The Lead: Companies Hire Psychotherapists To Focus on Emotional Impasses

Tolstoy’s observation that “every unhappy family is unhappy in its own way” also applies to companies. And as in families, businesses run into problems when communication breaks down and damages relationships.

A new generation of management consultants, trained as psychotherapists, is making its way into corporate offices. Unlike traditional consultants who try to analyze and improve a company’s business strategy, these consultants focus on emotional impasses at work – from competitive executives who waste time undermining each other’s work to autocratic bosses who squash employees’ initiative.

“People’s ambitions, dreams and egos are all involved at work yet they are supposed to act as if none of this affects their own or their company’s performance,” says Roger Brunswick, a psychiatrist and co-founder of Hayes, Brunswick & Partners, a New York consulting firm. The result is a lot of unacknowledged emotional static that hurts productivity. “Sometimes I’m amazed any work at all gets done,” Dr. Brunswick adds.

Although looking at emotional factors in a workplace is not new, the focus is now on specially trained therapists looking at a broad range of relationships rather than individuals’ problems.

Dr. Brunswick and his business partner, Gary Hayes, a psychologist with a background in international affairs, don’t investigate managers’ marriages, for example, or ask about their parents. “The patient is the company,” Dr. Brunswick says.

Often, a problem for which one manager gets blamed is actually the result of friction between that manager and his boss or his peers. A human-resources executive at one financial-services company had been judged too deferential by his boss, the CEO. Dr. Brunswick learned the executive had plenty of ideas but was frightened to share them.

“We got into this discussion about how enraged he got when the CEO was dismissive of him and how the only way he could deal with his anger was to shut up and become deferential,” he says. Dr. Brunswick suggested the executive try a more direct approach with the CEO.

“We agreed that only in the movies does someone come up with the perfect one-liner at the right time — and it is all right to revisit an upsetting situation, to go back to the CEO after he has been dismissive and say ‘I didn’t like what you said to me,’ ” says Dr. Brunswick.

Initially when the executive did that, the CEO told him he was being too sensitive. But the executive persisted, saying, “Maybe that’s so, but I don’t like to be treated that way in front of my peers,” Dr. Brunswick says. The result: The executive feels a lot less angry and the CEO sees him as a stronger player.

To untangle emotional bottlenecks at work, Dr. Brunswick and Dr. Hayes try to talk to everyone involved and to attend meetings to see the group in action. They did this when working with an executive at a consumer-products company known as technically brilliant but arrogant and autocratic. He had a temper, but his colleagues fueled his anger by never delivering what they promised.

In meetings with the group, Dr. Hayes and Dr. Brunswick observed who made the most promises and excuses and who said nothing at all. Finally, at a meeting where the group was setting goals they asked: “How are you going to actually do this because the last time it didn’t work out?”

After blaming each other, the group finally mobilized as a team. They confronted the executive in a constructive way and began working together toward their goals.

What emotional problems do companies face the most? Kerry Sulkowicz, a psychoanalyst who also runs the Boswell Group, a consulting business in New York, notes two common problems: unhealthy narcissism, which occurs when leaders become so self-involved they can no longer listen to others, and obsessive styles of management.

At one company, a senior executive was so bogged down in minutiae he never had time to think ahead or set broad strategy. Dr. Sulkowicz encouraged the senior managers who worked with him to stop accommodating him. Rather than call goal-setting meetings, for example, he encouraged them to get together to brainstorm.

By the time Dr. Sulkowicz is hired, many companies are in crisis. At some, senior executives are embroiled in bitter squabbles or are no longer speaking to each other. “Yet they’re surprisingly open to my point of view and very motivated to change,” says Dr. Sulkowicz. They know their careers may depend on it, and they appreciate having someone to talk to.

“The higher you go in business, the lonelier it gets,” he adds.

Top executives also face conflicting challenges in today’s tougher business climate, which adds to their stress, says Dr. Hayes. One of his client is a marketing executive who must meet very tight deadlines while also proving she is a statesmanlike leader. “She’s been alienating colleagues by pushing the deadlines,” he says, “and her only choice in the short run may be taking extra time and working even longer hours to reach out to these people and win their understanding.”

Written by Carol Hymowitz