On the opposite end of the spectrum is BPs response in 2010 to the oil spill in the Gulf of Mexico. Their CEO took to the airwaves, misled the public, tried to downplay the seriousness of the accident, placed blame on others, and even went so far as to complain about the time that the crisis was taking him away from his planned vacation and weekend sailing. As a result of public response and pressure from BP, the CEO resigned. When reporting on the crisis and BP’s response, CNN reported that “Leadership is, among other things, about projecting an image of being cool under fire, acknowledging where the buck stops, being knowledgeable about the company’s business and being realistically reassuring about the future. People both inside the company and outside need to believe their leader is in charge and in control. This did not happen at BP.” In fact, it took high-level discussions between the US and British governments before BP finally changed their response.

Many Americans and most football fans are aware of a crisis that occurred involving the Pennsylvania State University in November 2011. That crisis involves accusations against a former assistant football coach (Jerry Sandusky) who retired from coaching 13 years earlier. The assistant coach is also the founder of a non-profit organization for troubled youth (The Second Mile). In fact, one of the reasons that head coach Joe Paterno asked the assistant coach to resign was due to the increasing time that Sandusky was committing to his nonprofit and the decreasing time that the assistant coach was committing to his coaching obligations. About four years after his retirement, Sandusky was heard or observed participating in an apparent inappropriate or illegal activity with a young boy in a building on the University campus. There are different versions of what was heard or observed by an assistant coach but it is agreed that the assistant coach waited until the end of the following day to notify his boss, head coach Joe Paterno about what he had heard.

In his testimony before a grand jury, the head coach stated that the accusation as reported to him by the assistant coach in 2002 was vague. On the morning after learning of the accusation, head coach Paterno met with the witness and his superiors, including the athletic director, the vice president in charge of the University Police Department, and the university president. The incident was subsequently reported by the university president to the Board of Trustees.

In November, 2011 as result of the investigation, Sandusky was arrested and charged with multiple counts of molestation of young boys. The retired assistant coach was a Penn State University graduate as well as a long time and nationally recognized assistant football coach. Although he was retired for 13 years, some of the alleged offenses occurred on the University campus and media focused on the University, the football program and the highly respected head coach.

Reports of crimes attract the public’s attention, particularly in this case when the alleged crimes involve children. This article is not about the alleged crime. The allegations are extremely offensive and if true, the retired assistant coach should be prosecuted to the fullest extent of the law. This article is about the two responses to the crisis: the response by Penn State University, and the response by Joe Paterno, the recently deceased former head coach.

The University’s Board of Trustees made a knee-jerk reaction in November 2011, a couple of days after Sandusky’s arrest was announced by the media. The University did not conduct an investigation and they did not even hire a crisis management advisor until months later. The crisis was not a football matter but it was a matter involving a former university employee who allegedly committed crimes against children with some of those crimes being alleged to have occurred on the University campus. The Grand Jury interviewed many people concerning the allegations. In their findings, the Grand Jury recommended that charges be brought against Sandusky. They also noted that there were many people who could have taken additional actions when they heard of the allegations including head coach Paterno, other assistant coaches, other university employees, the athletic director, the vice president in charge of the University Police Department, the university president, and others not affiliated with the University. In their panic, the university trustees chose to give-in to media pressure and they made it a football problem when they responded by firing head coach Paterno, a 61 year employee of the University. The University continued to experience intense media attention and waited a month before hiring a crisis management firm to advise the University on how to respond to the crisis.

The second response to the Penn State University crisis was a response by Joe Paterno. Paterno had a lifelong commitment to teaching his students to become honorable adults. For 61 years he was a coach of a major university sports program that did not have one accusation of improprieties by the NCAA. He not only set academic and behavioral standards that far exceeded those of the NCAA, but he recommended changes and served on committees that formulated rules and regulations. Phil Knight, the renowned and sometimes controversial CEO of Nike stated that he has always needed a mentor and hero in his life. Up until 12 years ago his mentor and hero was his University coach and the cofounder of Nike. When his hero passed away 12 years ago, he told (not asked) Joe Paterno that he was Knight’s new hero and mentor, a position that Paterno held until he passed away on January 22, 2012.

In a society that is often confused about the definition of accountability, Paterno was truly an accountable person. He took responsibility rather than placing blame. When the problem occurred, rather than asking who created the problem, he asked how it can be corrected and what can be done in the future to prevent that problem from ever occurring again. When Paterno was interviewed by the Grand Jury regarding the accusation against Sandusky, he concluded his remarks by stating that “in hindsight, I wish I had done more”. Those who do not understand accountability may look at those remarks as some sort of admission of guilt. Rather, it was a reflection by a person of integrity who was deeply hurt by knowing that any child was assaulted, regardless of whether the person who committed the crimes was a former university employee or not. Paterno made those same remarks a second time in a brief speech after being fired by the University. Again, his response was misunderstood as the media tried to interpret that statement as an indication that Paterno should take responsibility for Sandusky’s alleged crimes.

Although he was a longtime employee of the University, the winningest college football coach of all time, and the coach of national championship teams, Paterno was also the lowest paid major university coach of any national championship team. Paterno’s replacement has never been a head coach and the new coach’s pay is more than 250% of Paterno’s salary. Paterno told the University that he didn’t need a lot of money and they should give the additional money to students for scholarships. In fact, Paterno and his wife contributed more than $4 million to the University and their libraries and even in the months after being fired as a university employee, Paterno donated more than $200,000 to the University. Paterno was not part of the University management team, he was only an employee. He did what was required of him by advising his superior, the athletic director. In addition he notified the vice president in charge of the police department and the president of the University. During the Tylenol crisis, the middle manager who first became aware of the death of someone after they took Tylenol notified their manager who then notified the Tylenol executives. The executive team made the correct response by contacting the police who were already aware of the deaths. Perhaps Paterno should have checked back with senior management at the University to see what actions were being taken. Perhaps he should have notified the police of the accusation instead of notifying his superiors and their superiors. The three things that Paterno did correctly in response to the crisis were to first, state that in hindsight he wished that he would’ve done more; second, he asked the students to stop rioting, which some did in response to his firing; and third, Paterno asked the students, the administration and all of the Penn State alumni to pray for and support the victims.

Update: The chair and vice-chair of the Penn State Board of Trustees stepped down in January, 2012. The new chair stated that the matter involving the University reaction to the charges against Sandusky was mishandled and she pledged that the University will correct the matter with Joe Paterno. Paterno died from complications due to lung cancer, less than one week later. As a result of alumni pressure, item “H” was added to the agenda for the annual meeting of the Board of Trustees in January, 2012. A vote for item “H” would have been a vote of no confidence for the Board of Trustees. The vote failed; however, the Board promised to meet with administration and alumni to review the matter. Penn State University has the largest alumni association of any college or university in the United States.

Note: Kevin Miles met with Joe Paterno on several occasions. He is not an alumni or an employee of Penn State University. While this is my opinion, I acknowledge and respect that there are other opinions. It would be good for those with an opinion to withhold judgment until they read the full reports and the Grand Judy transcripts. While the media can sometimes blur the focus and alter public opinion, let’s not loose sight that retired assistant coach Sandusky is accused of having committed those crimes alone and without the knowledge of others. Please keep the victims in your thoughts and prayers.

Although law makers and some jurists would have you believe otherwise, judgment and accountability cannot be replaced by laws and “zero tolerance” policies. It’s silly to suspend a 7-year-old from school for taking a nail clipper (with a nail file) to school, and it’s silly for us to run our businesses as if the world is black and white and subject to clear lines of demarcation.

A business, for which I provide training programs, recently developed a new employee manual. Their attorney reviewed the manual for conformance with applicable employment laws but recommended against an employee manual for two reasons. From a legal perspective, the attorney stated that an employer can inadvertently give up certain rights that may not be considered when the manual is being developed. From a practical perspective, the attorney advised that a manual can force a manager to classify an employee mistake or discretion as black or white, and may force the employer to make a decision that is not in the best interest of the businesses or the employee. Although I am not against employee manuals, businesses must be clear on the information that they are trying to present in the manual. All too often, employee manuals are used as a tool to enforce policies and to punish or terminate employees. The world is full of shades of grey, requiring judgment and, very often, toleration and forgiveness. Employee manuals, rules, regulations and reactive laws can prevent that from happening.

The most successful and profitable business with which I worked over the past 25+ years thrives in shades of gray. Their employee manual was developed to provide clarity and so all employees can provide consistent and superb service to all customers. The manual does not list rules, regulations or employee punishment guidelines. The CEO communicates a vision to work toward and parameters to work within. There are few rules. The business has grown from 20 to more than 1,000 employees, has enjoyed double digit revenue and net income growth for more than 20 consecutive years and has been named one of the best places to work – all because they like shades of grey.

Kevin

Yesterday, I passed a park in South Carolina in which families were picnicking and barbecuing. The scene is probably the same on most summer weekends but this felt a little different as many had flags as well as red, white and blue tablecloths and plates. When we think of the Fourth of July, most think of the picnics, vacations and fireworks. My wife began looking at the fireworks schedule three weeks ago in an effort to find the best fireworks to watch. This year, we are going to a peach festival that will be followed by a fireworks display.

The commercialism of holidays is OK, as long as we remember the reason for the holiday. The Fourth of July is Independence Day. Independence is the reason that my mother’s ancestors came to this country in the 1600’s and the reason that my father’s family came to America in the 1800’s. It is the reason that so many people continue to immigrate to America today. Unfortunately, it is also a reason that terrorists and extremists hate our country but we’ll save that topic for another day.

As a young student I enjoyed learning about history but I was not a history buff. My passion was math and science. As I finished school, met people from around the world, and traveled, my interest in history increased. I wish that I studied history a bit more and I wish my parents took us to even more historic places. I hear this common.

And so, on this Independence Day weekend, I think about the history of our great nation. Growing up relatively close to Gettysburg, PA, I took the historic relevance of Gettysburg for granted. It was said that “the hallowed grounds of Gettysburg reveal the soul of this nation”.

Most people know of Abraham Lincoln’s Gettysburg address but just in case you do not know the background, I offer the following. It was July 1, 1863 when the Confederate forces approached Gettysburg with the intention of winning the war. In that small Pennsylvania town, the most important battle of the Civil War took place when more than 170,000 soldiers, 70,000 horses and 550 canons converged. The battle ended on July 3, with the Union Army stopping the Confederate Army, on Cemetery Ridge.

About four months later, President Lincoln visited Gettysburg to dedicate the Soldier’s National Cemetery. Lincoln was not the keynote speaker. Edward Everett, a politician, was the main speaker. Most American’s don’t know much about Everett and don’t know a word of his two hour speech. Lincoln spoke after Everett and with a two minute speech, containing 272 words that began “Four Score and seven years ago…”. President Lincoln set out to clam a nation and declare that those who had died had not died in vain, as he declared the notion of equality.

On this Fourth of July weekend, I wish all a happy Independence Day and recommend that you take a few minutes on this holiday, and all holidays, to consider the history and the reason behind the holiday. Also, if you have not had the opportunity, I recommend a visit to the Gettysburg National Military Park and the Gettysburg Battlegrounds as a place that everyone should visit. This is the 150th Anniversary of the Battle of Gettysburg. As you visit the battlegrounds and the original civil war homes and buildings, you will be awe inspired.

Happy Holiday!

kevin

I’m sitting in the front of an Airbus A340, and I’m wondering why what I’ve been through is so strange. The plane carries 240 people, but we all go through the same bottleneck, one by one (blaah, blaah, blaah) to get on board.

Planes should really allow people to board through the entire side, so that everyone can get on in three minutes. But the new A380s, which can carry 800 people when configured completely for steerage, will have the same bovine boarding. Who thought this was the way to do it?

When we land, we walk a good half-mile or more, through winding corridors, to reach immigration. Here, at least, they have a multitude of stations, but still huge backups for those without special lines. Then we have to walk another hundred yards and take two elevators to reach the lot where the limo is parked.

The trouble is that airplanes were not built for passengers and neither were airports. Airframe designers, municipal engineers, and immigration officials don’t care about passenger comfort, they care about their own needs and avoiding litigation. How is “Let them walk a mile so that we save building costs” different from “Let them eat cake so we can save the best for ourselves”? (The “cake” to which the lady referred, was actually bread.)

Some years ago, an executive at Ford, appalled when she found she couldn’t gracefully get into one of her own new car designs, ordered her male design team to wear skits during business hours. She told them if they didn’t improve access for women, she’d also put them in heels. The design improved quite rapidly.

What if consumers, clients, customers and all other relevant alliterative categories were involved in the design of the structures, procedures, and processes they’d be using most often? Would the doctor still press a cold stethoscope to your chest? Would you wear those humiliating hospital gowns? Would the division of motor vehicles make you take a ticket and wait around for three hours? Would subway cars have the same kind of seating?

I doubt it.

I try to design experiences that my clients find attractive and compelling, which is not hard when you ask them. Why isn’t that a universal endeavor for all businesses?

Although most of the discussion revolved around the workshop, one person asked the other business owners about their top business concern. I was surprised when the first response was “cutting expenses”. Two other business owners agreed while the others stood quietly, listening. As the three business owners discussed various methods of reducing costs, including employee benefits, employee incentives, and customer benefits, I was biting my lip. After listening to their laundry lists of standard services and employee benefits that were being eliminated, I could not keep quiet and longer.

A significant reason for my success has been the ability to build efficient and lean businesses. Lean does not mean reducing services or cutting employee benefits. Lean means tracking the operational efficiency of everything from operational processes to the technology, tools, equipment, computers and vehicles. That does not mean having old equipment, computers or vehicles. It does mean determining the point at which it is best to invest in new and more efficient equipment.

As far as employees are concerned, highly successful businesses hire the best, most highly skilled, and most competent employees and pay them better than any of their competitors. It is incomprehensible to expect a low-paid, reduced benefits employee to stay around or not to look for a job at a competitor. One business owner responded that is why he uses non-compete agreements. I sincerely hope that that owner does not believe his own words — if an employee is terminated or has a justifiable reason for leaving, such as reduced benefits or pay, non-compete agreements are virtually impossible to enforce in most states. Besides, who would want an employee who doesn’t want to work at their company and why would a business owner want to invest their energy in suing an employee, rather than satisfying customers and generating new revenue? Keep in mind that most employees consider their compensation and benefits to be a reward for their performance and an indication of the appreciation that their employer has for them.

Cutting costs is a temporary and short term solution.

After leading dozens of successful business reorganization and turnaround initiatives, I learned that cost-cutting is often necessary but it is never the ultimate solution. In almost all cases, a maximum of 20% of costs can be cut from a business without having a significant effect on performance and on the quality of the product or service. In a business that is already somewhat lean, cost reductions of 10%, or less, are typical before the quality of their product or service will be noticeably impacted. Most companies went into cost reduction mode early in the recession and there should be no place for further cost cuts at this time, without reducing the quality of products or services that you deliver.

It is 2011, four years since the recession began, and the economy is gradually but steadily improving. It is incomprehensible that any business is operating with a primary focus on cutting costs. It is time to bear the fruits of the cost cutting and efficiency improvement measures that should have been implemented years ago and maintained.

During the past two years, a select group of businesses have doubled revenue, doubled and even tripled profit margin, expanded their marketing area and expanded into new industries. Each company is unique but each of those business owner approached me with the desire to maximize opportunities. The “cost cutters” are often the business owners who decided to “hunker down” until the economy fully improves and until things “get back to normal”. Either strategy is okay. The problem is the economy is not going to return to the previous “normal” and “hunkering down” is only going to help a business to lose market share and the profit that they could be earning.

When I travel on business, I often stay at business class hotels such as Holiday Inn Express or Homewood Suites. Last week, I stayed at a Holiday Inn Express in Philadelphia. In my room, I noticed that several of the complementary items that had been standard were gone. There was no complementary coffee. The mouthwash, shampoo and conditioner were gone from the bathroom. When I went to iron my clothes, there was no ironing board. I called the front desk and was informed that ironing board are now available on request and one was delivered to my room about 30 minutes later. I thought it was a joke. The ironing board was only about 24 inches high, which is significantly lower than the bathroom countertop. When checking out, in response to my question about the noticeable elimination of basic amenities, the front desk manager rolled her eyes and stated that the reductions were cost savings efforts. Meanwhile, the price of the room increased by $20 per night since my last stay. The front desk manager added that they have not been quite as full as in the past, ever since cutting the services.

When I went to the business center to print my boarding pass, the printer and copy machine were gone. I had to wait in line at the front desk to get my boarding pass because some bean counter decided to eliminate the $200 printer from the business center.

When traveling on business, I always stay at a business class hotel, rather than a 4-star hotel. The weekday business traveler is the lifeblood of these hotels. The front desk manager stated that there has been a noticeable reduction in business guests. I will add to that reduction as this hotel chain has been demoted to my “last resort” list vs. my “preferred hotel choices” list. All this so they could save $3 on an ironing board, $.05 on a printer page (boarding pass) and $.10 on a bottle of shampoo?

In tough economic times, the single most important activity is retaining customers. It is five times as expensive to gain new customers as it is to keep existing customers. As the economy improves, customers and employees will remember, perhaps more than ever, how they were treated by businesses during the recession. There is a reason why some companies have weathered the recession well and others have suffered tremendously. For some it is due to industry trends or market conditions that were out of their control, but there are many times when the business owner could have been more successful by being proactive rather than reactive. Cost-cutting is a purely reactive and short term, tactical move. It is not a strategic move and will not provide long-term benefits.

It is often the bean counters who recommend the cost cutting. Business owners must realize that the financial/accounting function is only one skill set of the many that are required by a successful business. Success requires integration of technical, operational, process, marketing and financial skills. As someone with a strong financial background, I cringe when a business owner states that they are relying primarily on the advice of a CFO, controller or financial advisor to determine what actions they should take, without integrating the advice of people with experience in each of those other key skill sets.

When you make the mistake of Holiday Inn, you fall short of the customer’s expectation in the name of lowered cost. Don’t take the cheap route, like Holiday Inn or the three business owners that I met at the workshop. You will lose a customer over a few bucks. It’s always better to over-spend on customer retention than under-spend. If you lose the customer, you can’t “un-ring” that bell. The same goes for employees.

Venting aside, low-cost business models can be a powerful ally. And they were helpful for many businesses early in the recession. However, now is not the time for most businesses to be focused on cost cutting. Make sure that the level of customer service and satisfaction is acceptable as well.