Prairie Trail Logo

Views from the Prairie

January 10

Freedoms and Fears

After the "Underwear Bomber" tried to blow up a plane, the Transportation Security Administration instituted a number of new regulations on airline passengers. There are many security experts who believe that these new regulations will do nothing other than cause friction for innocent passengers.

This action and the reactions show some important things about human beings that are important for managers. One is the wide range of reactions to fears.

Human beings have vastly differing responses to fearful situations. A small number of people dive into them. For example, a number of years ago when a couple of bank robbers got into a running gun battle with the LA police, one policeman hopped on a plane to get back to LA so that he could get in on the action. Others cower and hope that it blows over. Still others demand that rules and regulations be put into place "so that this will never happen again".

These differing responses come from deep within our human nature. Different people react differently to fears.

Specifically, some people want structure such as rules and regulations while others want the freedom to act. Thus, some people rejoiced to have these new regulations on airline passengers while others react quite strongly against them.

Part of the American culture celebrates those who want freedom. From the earliest days, we have celebrated entrepreneurs, smugglers, capitalists, gamblers, and bootleggers. All of these are rule breakers and risk takers. Yet, more people would rather have the security of a more structured society. During the American Revolution, this difference can be seen in how New York City was comfortable staying under the Crown while Boston (the smugglers' port) was the leader in the rebellion. Since the rebels and smugglers won, the US Constitution has that amazing phrase in it stating that what ever powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people. This is very different from how other countries operate and helps to show the nature of the American people. We can and do take action before the government can or even knows of the problem. With the "Underwear Bomber", ordinary citizens took action instead of waiting for authorities to act.

The challenge to any management is that people do not always react as we would. I believe that the people in the TSA who proposed the new regulations did so because they themselves like to have regulation in their lives. The public reaction encompasses people who would live on the edge of life and would cheerfully walk the wing of an airplane if they could. Of course, these would have strong reactions against more regulation.

Likewise, we have managers who can handle people not rejoicing at the corporate rules and those who can't handle much dissent to their governance. The challenge to the corporation is to recognize when nonconformity to such corporate rules is out of creativity or rebellion (or in the few cases when a manager is abusing his/her authority). Most corporations do well to keep the creative person (in an area where the nonconformity will not harm the rest of the corporation) while easing the rebel out.

Structure and freedom have been in tension in the human soul from the earliest days. This tension is the greatest when there is a strong mismatch between how a corporation operates and the freedom and security needs of the people in it. Balancing these for the people we manage is a delicate act, yet one that gives strong results in how people stay with the corporation.

How to kill a Great Company - Part II

The fall of Richard Nixon, the almost bankruptcy of Salomon Brothers, and the demise of the law firm of Jenkins and Gilchrist all show one of the fastest ways to destroy something good. In these cases, top management knew about a problem and chose to hide and defend it rather than cut their losses early on.

When Warren Buffett took over at Salomon Brothers, one of the first actions was to institute a policy of reporting all legal violations or moral failures. The only things that employees were not to report to the chairman were parking tickets. Everything else was to be reported. At the same time, he waived attorney client privilege with the local DA. This policy saved the company as the previous management's cover up brought the company to within hours of bankruptcy.

The previous management had reacted to any problems with trying to cover up the situation. The same thing happened with Richard Nixon who went through layers of cover up before he was brought down. Likewise, the top management of Jenkins and Gilchrist fought the IRS and the courts for four years before they went down. In June of 2009, several of their lawyers along with the bankers were indicted for tax fraud conspiracy.

One pattern for killing a great company is upper management covering up the ethical violations of a subordinate.

Why does upper management do that? In many cases, the reason is that the subordinate is generating significant profits. It is that mixture of seeking profits above ethics that leads company after company to take risks, shade the truth, and hide those who do wrong. Rarely does the top management actually engage in the unethical behavior directly. Instead, they hire, promote, and reward people who are unethical because those people make a lot of money.

Firing a highly profitable employee is one of the hardest challenges for corporate leadership. Yet, when the employee gives cause and they fail to do that, it can destroy the corporation. For many corporations, their reputation is the bedrock on which they make money. This is true for banks, insurance companies, accountants, and many others. As the demise of Arthur Anderson shows, protecting that reputation is vital to the future of the company.

Risks from Caring?

The German woman dubbed the Robin Hood Banker was given a suspended sentence in November. She had transferred money from her rich clients to authorize overdrafts by her poor clients. She did not take a pfennig for herself.


This newsletter is posted here as well as sent via mail and email. If you wish to receive updates, please sign up above.

Recent Issues

Prior Years

  1. 2008
  2. 2009