Know the Score
September 27, 2007
Michael Tilson Thomas is the music director of the San Francisco Symphony.
A conductor’s authority rests on two things: the orchestra’s confidence in the conductor’s insightful knowledge of the whole score; and the orchestra’s faith in the conductor’s good heart, which seeks to inspire everyone to make music that is excellent, generous, and sincere.
Old-school conductors liked to hold the lead in their hands at all times. I do not. Sometimes I lead. Other times I’ll say, “Violas, I’m giving you the lead. Listen to one another, and find your way with this phrase.” I’m not trying to drill people,military style, to play music exactly together. I’m trying to encourage them to play as one, which is a different thing. I’m guiding the performance, but I’m aware that they’re executing it. It’s their sinews, their heartstrings. I’m there to help them do it in a way that is convincing and natural for them but also a part of the larger design.
My approach is to be in tune with the people with whom I’m working. If I’m conducting an ensemble for the first time, I will relate what it is I want them to do to the great things they’ve already done. If I’m conducting my own orchestra, I can see in the musicians’ bodies and faces how they’re feeling that day, and it becomes very clear who may need encouragement and who may need cautioning.
The objectivity and perspective I have as the only person who is just listening is a powerful thing. I try to use this perspective to help the ensemble reach its goals.
Posted by Maximillian | Filed Under Insight
Find Your Voice
September 24, 2007
William George is the former chairman and CEO of Medtronic, a medical technology company in Minneapolis.
Authentic leadership begins with self-awareness, or knowing yourself deeply. Self-awareness is not a trait you are born with but a capacity you develop throughout your lifetime. It’s your understanding of your strengths and weaknesses, your purpose in life, your values and motivations, and how and why you respond to situations in a particular way. It requires a great deal of introspection and the ability to internalize feedback from others.
No one is born a leader; we have to consciously develop into the leader we want to become. It takes many years of hard work and the ability to learn from extreme difficulties and disappointments. But in their scramble to get ahead, many would-be leaders attempt to skip this crucial developmental stage. Some of these people do get to the top of companies through sheer determination and aggressiveness. However, when they finally reach the leader’s chair, they can be very destructive because they haven’t focused on the hard work of personal development.
To mask their inadequacies, these leaders tend to close themselves off, cultivating an image or persona rather than opening up to others. They often adopt the styles of other leaders they have observed.
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Posted by Maximillian | Filed Under Insight
Watch Your Culture
September 21, 2007
Janja Lalich (jlalich@csuchico.edu) is an assistant professor of sociology at California State University, Chico, and an expert on cults.
Cult leaders don’t do anything mysterious; they just know how to package themselves and their promises well and how to target responsive audiences. They’re very good at influencing, or, to be more precise, manipulating, followers. To do this, they rely on a keen ability to perceive others’ vulnerabilities and longings – to know what people want.
One way a cult leader manipulates is by exploiting followers’ eagerness to be part of something bigger than themselves. That desire often prompts followers to assign to a leader attributes that he doesn’t actually possess. A type of group contagion can take hold–a “truebelieverism” mentality. Then followers can fall into what I call uncritical obedience, never questioning the leader’s claims. When followers give a leader this power, there are obvious dangers.
Cult leaders are also skillful at convincing followers that the leader’s ideas are their own. Once followers own the ideas, it’s difficult for them to extricate themselves from the leader’s message. For example, a leader may exaggerate his own importance. In the 1980s, Bhagwan Shree Rajneesh, a wildly popular Oregon-based Eastern guru, always surrounded himself with armed guards. That heightened sense of need for security led some of his followers to perform dangerous, antisocial activities in their desire to protect and defend their ashram and Rajneesh himself.
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Posted by Maximillian | Filed Under Insight
Let Your Guard Down
September 18, 2007
Sidney Harman (sharman@harman.com) is the executive chairman and founder of Harman International Industries in Washington,DC.
Eight years ago,we acquired Becker Radio (now Harman/Becker) to help us develop the dashboard navigation and media systems that are now the major part of our business. In a meeting at Becker, several of the engineers there argued that the only way for us to take the lead in the emerging field of “infotainment” was to abandon tried-and- true analog systems and design and build totally new digital systems – a very risky proposition for our company.
Back home, I sat down with our key executives to talk about this disruptive idea. I went into the meeting with only a rough notion of how we should proceed. There was clearly anxiety and skepticism in the group, concern that we would be betting the company if we went digital.
I realized that to provoke the creative thinking we needed, I would have to let my guard down and be willing to embarrass myself by floating unformed – and even uninformed – ideas. I assured the group that anything we said in the meeting stayed with us. Our discussion went on for six or seven hours. By opening up to my colleagues, and by encouraging them to think freely and improvise, I helped generate a novel perspective that no one of us had brought to the meeting: Commit all the company’s resources to this digital direction, facilitate the transformation by eliminating hierarchies and silos, and remove barriers between functions.
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Posted by Maximillian | Filed Under Insight
The Income Statement
September 17, 2007
The balance sheet is a snapshot of a business as of a given moment in time. The income statement isn’t. Rather, it’s a summary of everything that happened during a given period of time. The combined income statement in Table 4.2 shows what happened for two periods, the period from January 1, 2002, through December 31, 2002, and the period from January 1, 2003, through December 31, 2003. The moment in time of the balance sheet will always correspond to the last day of the period covered by the income statement.
We won’t need to go into every item on the income statement; most are self-explanatory. Let’s highlight some items that should raise red flags.
Sales Revenue
According to the income statement, Houston Sash & Door sold windows and doors totaling $1,881,117 during the period that began on January 1, 2003, and ended on December 31, 2003. Right? Not exactly.
The accountant who prepared the income statement wasn’t kind enough to break out for us the gross amount of sales and deduct from that number the sales returns the business experienced. Houston Sash & Door might actually have sold $2,381,177 worth of windows and doors, of which $500,000 worth was returned and not paid for. If a business has a high level of returns, it may mean that a high level of inferior goods has been shipped. If this is true, it may mean that lawsuits can be expected from customers who bought and paid for goods and now aren’t satisfied or, worse, have been injured by the goods or have had their businesses harmed by them. If you find an unusually high level of returns (which you can’t find from this income statement), keep digging.
Don’t forget what we learned about accounts receivable. In order to prettify the financial statements, the seller may have artificially increased sales by granting easy credit to unqualified customers. These sales show up as sales revenues on the income statement, as well as accounts receivable on the balance sheet, whether or not any of these sales ultimately bring in any cash.
Professional Services
This refers to legal and accounting fees the business incurred during the period. Compare 2002 with 2003. They were minuscule in 2002 and in excess of $58,000 in 2003. If the large increase represented accounting fees, it probably means that the business experienced an IRS audit. At the present time it may be impossible to determine whether the audit resulted favorably or whether a big tax bill is coming. Not only that, the IRS may have audited only one prior year. If the accountant took the same aggressive position with respect to a certain item(s) on the tax returns for other years, you may be faced with an audit for those years as well. If the large increase in professional services was due to legal fees, it probably means the business was involved in a lawsuit. Keep digging.
Net Income
We’ll see that the real income a business earns for its owners is different from the bottom-line figure that appears on the income statement. The net income Houston Sash & Door shows for the year ending December 31, 2003, is $280,397. But this doesn’t mean there’s $280,397 in cash available for the owner. There may be more! After all, we arrived at net income by deducting an amount for depreciation. But you don’t have to spend any money to get the depreciation deduction the way you do to get a deduction for office supplies, utilities, and the like. The point here is that there is a critical difference between a business’s net income and its cash flow. More on that later.
Accounts Payable, Notes Payable, Long-Term Debt, And Paid-in Capital
September 15, 2007
Accounts Payable
Just as Houston Sash & Door grants its customers credit, the people who supply Houston Sash & Door with lumber and other materials sell these items on credit. When such a credit transaction occurs, it generates an account payable.
When we examine Houston Sash & Door’s accounts payable account on December 31, 2003, we note that the $65,703 it owed is rather insignificant compared to its almost $2 million in sales and is less than half of its payables as of December 31, 2002. How do we explain this? It may be that Houston, fortified with lots of cash, took advantage of cash payment discounts offered by suppliers. It also may be that business was slow toward year-end (the business may be seasonal in nature) and fewer items were purchased. There’s one circumstance, however, where low (or no) accounts payable are a problem: When the business’s credit is so bad that no one will sell to it on credit and all purchases must be made COD!
September 15, 2007
David Gergen directs the Center for Public Leadership at Harvard University’s John F. Kennedy School of Government in Cambridge, Massachusetts. He served as an adviser to presidents Nixon, Ford,Reagan, and Clinton.
American history suggests not only that emotional intelligence is an indispensable ingredient of political leadership but also that it can be enhanced through sustained effort. George Washington had to work hard to control his fiery temper before he became a role model for the republic, and Abraham Lincoln had to overcome deep melancholia to display the brave and warm countenance that made him a magnet for others. Franklin Delano Roosevelt provides an even more graphic example: In his early adult years, FDR seemed carefree and condescending. Then, at 39, he was stricken with polio. By most accounts, he transformed himself over the next seven years of struggle into a leader of empathy, patience, and keen self-awareness.
Richard Nixon thought he might transform himself through his own years in the wilderness, and he did make progress. But he could never fully control his demons, and they eventually brought him down. Bill Clinton, too, has struggled for self-mastery and has made progress, but he could not fully close the cracks in his character, and he paid a stiff price. Not all people succeed, then, in achieving self-awareness and self-control. What we have been told since the time of the Greeks is that every leader must try to control his own passions before he can hope to command the passions of others.
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Posted by Maximillian | Filed Under Insight
The Balance Sheet : Plant and Equipment
September 14, 2007
The big-ticket items appear here. These are the fixed assets, which are not likely to be converted into cash during the business’s operating cycle. The plant and equipment account includes all the hard assets not sold to customers, such as office furniture, machinery, cars and trucks, and equipment. It includes those items that are expected to be around for more than a year and are depreciated, rather than expensed, items. Had Houston Sash & Door owned any real estate, there would also be a real estate account.
We’ve stated that the balance sheet tells us what the business paid for the assets, not what they’re worth now or what it would cost to replace them. Not only that, the total plant and equipment entry is net of accumulated depreciation. On December 31, 2003, the total cost of all the items that appear in the equipment, furniture, and fixtures ledgers was $60,868. Since then the owners of the business have taken $31,592 in depreciation deductions, so that the adjusted book value of this account is $29,276.
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The Balance Sheet : LIFO and FIFO
September 14, 2007
We said that the balance sheet records only what was paid for assets, not what they’re worth. One of the trickiest aspects of the balance sheet for a nonaccountant is the problem of what actually was paid for the inventory. Here’s the problem: Houston Sash & Door buys inventory (raw lumber) throughout the year. Also throughout the year Houston Sash & Door converts the lumber to finished products and sells them. Let’s assume that the cost of the lumber keeps rising during the year (a pretty good assumption in inflationary times).
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Sniff Out Signals
September 12, 2007
Robert Goffee (rgoffee@london.edu) is a professor of organizational behavior at London Business School and a cofounder of Creative Management Associates, an organizational consulting firm in London.
You need some degree of emotional intelligence to be an effective leader, but you do see some one-hit wonders out there – people who have limited emotional intelligence but can still excite a particular group. The problem is, they can’t transfer their success to another organization.
They got lucky and landed in a situation in which their passions happened to connect with the organization’s passions, but they probably wouldn’t be able to replicate that at another company. By contrast, true leaders can connect with different groups of people in a variety of contexts.
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Posted by Maximillian | Filed Under Insight
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